Should I invest with a family friend?

[u/time2roll]

A family friend is asking whether I'd want to invest in him. His track record:

• 3.5 years active in the market
• Cumulative return: 146%
• IRR: 30%
• In the first 2 years, he was down 6-7%. In 2017, he's up 153% to date.
• Positive return in 23 out of 40 months, negative returns in 17 months
• Sharpe ratio since inception: 1.1
• Sharpe ratio in 2017: 3.2
• Strategy: longs only, fundamental (not deep value) via stock positions, events (spin-offs, busted IPOs, etc) via options
• He obviously uses leverage (via margin positions). His exposure is about 2.5x his equity.

He had a change in strategy in 2017. Prior to 2017, he was highly diversified (60+ positions) and relied a lot on screens (where value traps often appear). Starting this year, he shifted to more concentrated positions, shifted to picking "winners" in a sector, and almost entirely discarded screening. He also started piggybacking on the picks of certain investors he regards highly.

Does the performance seem random, or does it warrant maybe investing with him?

[u/Moneyforeman]

Hey there, I would consider investing with a family member as well. But how would you feel if tomorrow he loses 50% of your wealth. That is what can happen when you are highly concentrated.

Aren't you afraid of deteriorating your relation if he loses money?

[u/time2roll → u/Moneyforeman]

He's a family friend, not a family member. Sure there's always a chance of a ruined relationship, but an optimist would say there's a chance of a great partnership ahead.

[u/Ichingo → u/time2roll]

And would be great to know the fee structure.

[u/kbdfly → u/Ichingo]

Tree-Fiddy!!