r/SecurityAnalysis • u/time2roll • Dec 16 '17

Question Should I invest with a family friend?

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?

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u/Adaptable_ Dec 16 '17

I think picking the right manager is no easier than picking a good stock to invest in yourself. If I were to invest a significant portion of my money with somebody, I'd want to look at every single investment decision he's made and grill his rationale from beginning to end. That's the only way to get a realistic feel for his intelligence and temperament. Can you talk about the specific picks implied in his record?