Before I would invest in any alternative strategy, I would ask the following questions:
1) Does the manager have a longer term track record. I prefer at least a five year history, if not longer. Ask for their monthly returns. 2) What are the assets under management tracking a strategy? I prefer to see at least a couple of hundred million before I would invest. 3) Has the strategy beaten simple benchmarks after all costs are accounted for? 4) What is the turnover of the strategy and does that generate taxable events? 5) What is the source of excess returns? I would ask for a total return attribution to understand the sources of Alpha. 6) What is the team running the strategy and has there been turnover within the team? 7) How does allocating 20% to this strategy improve the risk-adjusted returns of your overall portfolio? 8) How is your advisor getting compensated for recommending this allocation for your portfolio?
I am aware of the CanSLIM program run by IBD. I have heard anecdotally about their success but have never seen any long term historical data to do any analysis. Hope that asking the above questions will help you get more insight before you pull the trigger.
Steve- Prateek gave you some great questions. I would also ask 1) How does this investment style fit with other investments in your portfolio. I would look to make sure that there is a not a lot overlap between the CANSLIM approach and your existing funds. The CANSLIM approach can tend to be concentrated in the number of stocks they own. 2) Is the track record they are providing real money or just a hypothetical model? I would place less weight on a hypothetical track record. 3) Lastly, I would emphasize Prateek’s point that you should understand how your advisor is compensated for recommending this investment.
We cannot make a recommendation without knowing your whole situation.
Red flags about this program for me would be the following;
Number of Holdings 0-30 stocks
Fees Tiered, 1.65%-1% based on account size.
Hopefully your advisor has asked you the proper questions and knows your situation and risk tolerance levels to help you reach your financial goals.
Most of the performance figures seem to be from days gone by. See the stats from 2009. Tells a different story. In my humble opinion. Prateek and Andrew have very good points.
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I am not a fan of wrap fee programs, if that is how you would be doing this. Fees tend to be high, and for some reason, performance often seems to come in less than advertised. You get a ton of confirmations, and 1/5 of your money with one manager is not enough diversification. The idea of customized management is a near-myth unless you have millions to invest.
The CANSLIM program has a long history but it is pretty aggressive, focusing on the highest momentum stocks after they have had big moves already. If you go ahead, make sure this approach is something that you are comfortable with and fits your investment situation and personality.
I would rather you did no-load mutual funds with a fee-only adviser.