Hit For Average, Not Power

Leave the homerun hitting to Barry Bonds and ESPN, says Cadinha & Co. chief operating officer Brad Totherow. Singles build riches.

Brad Totherow must be the only sea-loving college student ever to visit the Great Barrier Reef and find a passion for finance.

Photo: Jimmy Forrest

Totherow, 41, was born and raised on Molokai, where his best hours were wiled away in the water. When he headed to Colorado State University after high school, he considered studying marine science. He says, "When I was a sophomore or junior in high school, my ideal job was probably captain of a charter fishing boat."

However, halfway through college, Totherow took a year off, traveled to Australia and worked with a family friend, Patrick Gay. Gay taught him about the construction and steel industries and put him in touch with an investment advisor. Totherow says he saw the world in a new light. One day, working for extra spending money as a deck hand on a charter fishing boat on the Great Barrier Reef, he realized that there was nothing standing in the way of him being the one chartering the boat to do his fishing.

"I went and got my degree in business with a focus in finance," Totherow says.

After college, he targeted Cadihna, because he believed in the firm's approach. "[Chairman and Chief Executive Officer] Harlan Cadinha's philosophy was 'Let's hit singles and not home runs.' It is a very disciplined approach to quality investment, which, through good and bad times, performs well."

This wasn't always Totherow's philosophy. When he was still in high school he and some friends tried to swing for the fences with a 4-H venture. "It was bad, but let's move on," says Totherow, now chief operating officer and president of Cadihna, with a laugh. "I learned an important lesson: Do your homework, look at the long run and don't try to hit a home run on the first pitch."

HB: Market ups and downs aside, what are the biggest changes in the investment world today?

A: The biggest changes in our industry is the amount and ease with which people can get information to invest. Most investors are overwhelmed. To have all this information at your fingertips and then try to make the appropriate investment for your own portfolio–watching the dollar values tick up and down each day–most people try at first, but eventually back away from that.

>> FAST FACT: In a nationwide survey, 46 percent of 1,000 investors polled by Merrill Lynch in 2004 cited waiting too long to start investing as their biggest mistake.

HB: What are the biggest reasons that people become disenchanted with investing?

A: When most people get into investment, it is kind of like the thing to do and a lot of people don't do enough planning. You need to set long-term goals. You say I will invest X amount every month or every year to reach these goals over the long run. The stock market and bond market have done so well over the long run.

HB: What are the biggest rookie mistakes?

A: There is no question people hold onto their losers too long and sell their winners too early. That is very common with the average investor. But the guys who do very well, they weed the garden to get rid of the weak stocks and fertilize the good ones by adding more money to them in a diversified way.

HB: How, then, does Cadinha approach investment?

A: Our focus is top down. We look at economic indicators and political developments and from there we devise a plan in terms of the best asset allocation. That is what we call forward-looking asset allocation. Most models are based on the retrospective. You look back and say, What did the market do the last 10 years?

HB: What exactly are you looking at?

A: The economy is doing very well right now, so we watch the factors that could cool the economy. Oil could become a major factor if it rises much more than it is today. But one of the driving forces of the firm is watching politically what is going on, how tax policy is changing, what the administration is doing from tort reform to social security reform. Then what Alan Greenspan and Co. is doing from a monetary standpoint.

HB: So how do things look?

A:: Right now, it is a very short horizon, because we don't know what the president will do concerning tax policy. In September, his commission is coming out and taxes could change, and hopefully they will make the tax cuts permanent or do something more with taxes, which could be very positive for the market. Also, Alan Greenspan is raising interest rates. Why is he raising interest? To slow the economy. So that is a worry sign for us.

HB: Do you have any advice for prospective investors?

A: From my experience, the earlier you can start the better. If you start investing early than you have the dollars working for you 24 hours a day. And do your homework. There are so many sources out there to help you with an investment plan. Shop around and get with an investment person who fits your needs and your personality. Then plan for the long term and hit some singles.

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