Three Things Investors Shouldn’t Be Fooled By This April Fools’ Day

Gerry Frigon, Chief Investment Officer at Taylor Frigon Capital Management, shares some thoughts on three things investors shouldn’t be fooled by:

Don't be fooled

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Don’t be fooled by the Fed – The economy is likely much stronger than they (and most pundits) think

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  • By trying to steer the economy and "promote recovery" the Fed creates boom and bust cycles of volatility that are far worse than would be the case if they simply focused on price stability and let businesses create the recovery.
  • The Fed has never invented any product, written a single line of software code, navigated a business through the volatility which it often fosters with its constant manipulation of currencies, and thus is a terrible determinant of a sound investment.
  • The Fed is better at getting in the way of innovation, which ultimately is what creates economic growth, than it is at fostering innovation.

Don't be fooled into US-only investments - Israel for instance is ripe for investment opportunities

  • Virtually every major US technology company, and increasingly US-based bio-pharma companies, have research and development centers in Israel.
  • There is one start-up for every 1,200 people in Israel and the country ranks number one in terms of VC investment per capita.
  • Intel’s flagship x86 microchip was designed in their Haifa design center in the 1970s and since then, myriad companies have opened operations in Israel to be close to the “action.”
  • Israelis have proven themselves to be amazingly adept at innovation. We would go so far as to suggest that it may have become even more important than Silicon Valley in that regard.
  • The Valley has become enamored with the “app economy” and “green technology” since the dot.com blow-up, which is not of interest to us. Israel is exploring the cutting edge in what we call “core technology” and is crucial in the proliferation of technological advancement.
  • Israeli companies almost ubiquitously trade on NASDAQ, it is no different to us than making an investment in a US company.

Don't be fooled by algorithms - They fail at the most crucial point they need to work.

  • Everyone's looking for an algorithm to beat the market, but the answer to the question of "who's going to innovate next?" is something no economist or algorithm can tell you.
  • This is why no one has ever successfully written an algorithm or computer model that will tell you just which stocks to buy in order to "get rich in the stock market" (although many have tried, and many advertisements continue to claim that their product has done it). No one can ever write such an algorithm successfully, because no algorithm can tell you where the next unexpected innovation is about to burst forth.
  • We believe that the single most important factor of successful investing involves having a consistent investment philosophy which informs your selection of companies whose stock you will own.
  • We have pointed out before that backwards-looking, mathematics-driven investment strategies, such as the "quant" or "black box" strategies of the computer age or the "various systems" of market prediction that T. Rowe Price wrote about all the way back in the 1930s, usually fail (in the words of Rowe Price) "at crucial turning points in the market."
  • It's great to have a sophisticated investment strategy that "beats the pros" if you can manage to only use it during "periods chosen for their lack of unusual stock market activity." This is exactly why so many quant strategies were wiped out by the "unusual activity" of 2008 - 2009.

Gerry Frigon: Venture Capital In SLO


About Gerry Frigon, President & Chief Investment Officer at Taylor Frigon Capital Management

GERARD J. FRIGON is the President, Chief Investment Officer & Chief Compliance Officer of Taylor Frigon Capital Management LLC and is the Managing Member of Taylor Frigon Capital Advisors LLC, General Partner to Taylor Frigon Capital Partners LP, a private investment fund which invests in private companies and small emerging public companies. He is the Senior Portfolio Manager for the Taylor Frigon Core Growth Fund, an open-end investment company (TFCGX). He serves on the Board of Directors for ASOCS, Ltd. (a pioneer in virtual Radio Access Networks (vRAN) and a provider of fully virtualized, NFV- compatible virtual Base Station (vBS) solutions, based in Rosh Hayan, Israel), and I-V Access Technology, Inc. (a private medical device company committed to bringing their breakthrough catheter, VENAGLIDE, to the market to transform the venous access experience for patients and clinicians, based in San Luis Obispo, CA.)

Mr. Frigon has over three decades of experience in investment strategy, planning and portfolio management for private investors and institutions including over 21 years at Merrill Lynch in the San Francisco Bay Area. During that time, he has managed portfolios with the same disciplined process directly descended from the classic growth philosophy developed by Richard C. Taylor and Thomas Rowe Price.

Mr. Frigon received his Bachelor of Arts in Business/Economics from the University of California, Santa Barbara in 1985. He founded Taylor Frigon Capital Management LLC in 2006.



About the Author

Gerry Frigon
GERARD J. FRIGON is the President, Chief Investment Officer & Chief Compliance Officer of Taylor Frigon Capital Management LLC and is the Managing Member of Taylor Frigon Capital Advisors LLC, General Partner to Taylor Frigon Capital Partners LP, a private investment fund which invests in private companies and small emerging public companies. He is the Senior Portfolio Manager for the Taylor Frigon Core Growth Fund, an open-end investment company (TFCGX). He serves on the Board of Directors for ASOCS, Ltd. (a pioneer in virtual Radio Access Networks (vRAN) and a provider of fully virtualized, NFV- compatible virtual Base Station (vBS) solutions, based in Rosh Hayan, Israel), and I-V Access Technology, Inc. (a private medical device company committed to bringing their breakthrough catheter, VENAGLIDE, to the market to transform the venous access experience for patients and clinicians, based in San Luis Obispo, CA.)