Harlan J. Cadinha's children
have joined him at the investment
firm he's built over 25 years
Most kids expect to find a gift-wrapped toy lying under the Christmas tree.
But when Harlan B.K. Cadinha and sister Kalei Cadinha-Puaa were growing up, they were just as likely to find a toy company's stock instead.
As the children of a stockbroker, investing took on extra meaning at a young age. They had their own little portfolios with stocks that they were told to watch.
"We were more aware of the stock market and bonds than a typical 5-year-old," Kalei said. "We knew what it was and we knew a little bit about how it worked."
Today, they know a lot more about the world of investing as vice presidents of Cadinha & Co. LLC, the Honolulu investment advisory firm that bears their father's name. Harlan B.K., the firm's chief investment officer, and Kalei, a portfolio manager, help manage $700 million for approximately 800 clients.
Harlan J. Cadinha, the chairman, chief executive officer and general partner, started the firm 25 years ago as a two-man operation and now has about 22 employees at his 12th-floor office in Pioneer Plaza on Fort Street Mall. The company also has a one-person office in Nashville, Tenn., to service clients east of the Mississippi.
"Nothing's ever easy, but in retrospect it wasn't that tough," the elder Harlan said about starting the business. "But one has to run hard all the time. That's what it takes.
"Today it's much more mature. We just enjoy good referrals and the business is continuing to prosper very quietly."
Siblings Harlan B.K. Cadinha and Kalei Cadinha-Puaa work together in the investment firm their father built.
Kalei, who is two years younger than her brother, said it was baptism by fire at a young age when it came to stocks."I remember getting 10 shares of (drug company) Bristol-Myers and not knowing what Bristol-Myers was," she recalled. "At Christmas, we had a card and it said, 'You have bought 10 shares of Bristol-Myers.' That was our Christmas gift. What we had to do then is we were advised by our father to research it. I think I was 7."
The younger Harlan said they both had their little investment accounts.
"We had our companies that we watched," he said. "We used to run around his office when he was part of the E.F. Hutton office in Kona back in the '70s. The one ticker that comes to mind that I can remember that made the most sense to me at the time was McDonald's -- MCD. I knew I could go on his computer and enter MCD and it would give me the stock for McDonald's."
There's nothing little about the Cadinhas' investment accounts anymore -- at least the ones they manage. The firm caters to high-net-worth individuals or families of $1 million or more, as well as trusts and retirement accounts. Their fee is 1 percent a year of the total portfolio or $10,000 a year, whichever is higher.
The accounts are individually managed and customized to meet the clients' needs. They also have full discretion to handle their clients' portfolios and act on their behalf without having to call each client.
"We're in line with our clients' needs so as they grow, we grow," Kalei said.
Added Harlan B.K.: "When things are tenuous, we feel it, too."
Harlan J. Cadinha started teaching his children about investing early in their lives.
The elder Harlan said he felt it was important that his children learned at a young age about investing rather than consumption."If a share of XYZ was worth $35, I wanted them to appreciate what $35 could do as opposed to buying something at a local retail outlet," he said. "The aftereffects are well known. You can see it. They got to understand the game of investing. We have a choice to spend, or save and invest, and I just wanted them to get a taste of the latter."
The younger Harlan, who is in his ninth year at the firm, initially wanted to be a pilot. He has about 1,500 hours of flying time and about 1,000 hours of instruction given.
"With the travel environment the way it is, I probably missed my window," he said. "I was a little later than some of my other contemporaries who are actually flying for airlines, and a little earlier than some of the other ones I instructed that are actually flying. I couldn't see the justification of flying a commuter airplane in the middle of the Midwest for $13,000 a year and trying to settle myself down and maybe start a family. It wasn't for me."
What was for him, however, was economics, which he majored in at the University of Redlands. He also received a master's in business administration at Chaminade University and is now working toward certified financial planner status. Since his college days, he's also started a family with his wife Roma. They have an 18-month-old son, Aedan.
Kalei, who has a bachelor's degree in business administration and a multisubject teaching credential from the University of San Diego, has been a portfolio manager at the firm for three years after previous stints at the company.
"I love the market. I love investing," she said. "Part of the difficulty for me was working with family. It's not easy to work with family. So I would try to do other things, like teaching, only to know that this is what I really want to do.
"Now, as an adult, I've come back into the company and I'm just absolutely happy to be here. It takes a certain maturity level to work with family to make it work without affecting the nuclear family. When I was younger, fresh out of college, and opportunities were given to me, I wasn't ready ... . Living with your boss and working for your dad was not easy for me. Now that I'm on my own and have my own family, it's a lot easier. We all have set rules that we all abide by to make it work as a family business. It's important."
The elder Harlan said he never planned for his only two kids to get involved in the business and said they just gravitated to it. But he's glad they did.
"It does have its challenges in that there are others here," said the elder Harlan, whose wife, Kaleialoha, has no involvement in the firm at all. "This is bigger than a family business today, so one has to take extra care in treating offspring like everyone else.
"But I'm fortunate that (Harlan B.K. and Kalei) are great people. I trust them implicitly and they're very honorable. And they seem to be up to the task of managing money in a good quality way and it's working well. It's nice to have your own children to work with so I can spend time with them."
Kalei said one of the most important investment lessons she learned from her father is that if one preserves capital on the downside, there's a lot more to be invested on the upside.
"By dodging the bullet, we really benefit our clients much greater than by taking the risk," she said. "It's all a risk vs. reward analysis. It's very difficult (to manage other people's money). You feel it when you lose your own money. But we feel it even more if we lose our clients' money."
The younger Harlan said there's a lot of statistical data that point out how difficult it is to outperform the market. However, he said that active management is a tool that potentially could do it.
"If you're relegated to indexing or just seeking market returns, you never really have the opportunity to potentially beat it," he said. "That's what our clients pay us to do. But our clients are more conservative. I think if you had to ask the investment community in Hawaii or on the mainland -- where we have limited exposure -- what's the perception of Cadinha & Co., they'll say it's conservative -- if not too conservative. What that means is that in a roaring bull market we're going to underperform, but in down markets that's where it pays off to be here."
Kalei said it's hard not to bring work home with her because the market is impacted by news events and she's constantly monitoring what's happening around the world. But she said she doesn't necessarily share her investment thoughts with her immediate family, which consists of husband Ricky and their three daughters, Emilia, 6; Mahina, 5; and Keiki, 7 months.
Kalei said she's back at the firm to stay this time.
"I truly feel that investing is in my blood," she said. "I have tried, you name it, to go in as many different directions as possible away from the investment business only to come full cycle and come back."
And that suits her dad just fine, who likewise has been bitten by the investment bug.
"It's an avocation that has become a vocation for me," he said. "It just takes a lot to stay up with it, and I just find that fascinating."
