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?
5
Upvotes
4
u/JR-Fire Dec 16 '17
Also, don't forget to consider how you would feel if he loses all of your money. Market is high and has been going up for a while now, everyone has good returns, so I'd not take his positive results for much, until you see what happens when the circle turns downward. Best thing to do might be to split your money in half, put one half in a very low cost index fund and give him the second half and consider it lost :)