Private Accounts | Alsin Capital Management, Inc.

Are you looking for a money manager?

Since the selection of a money manager will have a significant impact on your wealth-building efforts, the decision is important. Here is a checklist to help you with the selection process. The purpose of this checklist is to help you get comfortable with the manager that you select.

Review written record
A money manager should be able to articulate his thought process and strategy in writing. The writing might be in the form of columns, quarterly reports, or marketing materials. The form is not important. What is important is that you can comfortably understand how the manager will allocate your capital.
Look at portfolio holdings
Take a look at a recent portfolio that the money manager provides. It may seem counterintuitive, but if it is full of popular or well-known stocks, or stocks selling at their 52-week highs, you should be wary. Look for a manager that is not afraid of buying into negativity. Also, look for a manager that concentrates capital. Generally, you’re better off buying an index fund if a manager has 100 or more stocks in a given portfolio.
Check historical performance
Long-term performance records are meaningful. Short-term performance is not only meaningless, it can be misleading. To better understand performance data, click on this link to print out and read Short-term Performance is a Meaningless Metric.
Consider custody arrangement
Just because you’re hiring a money manager doesn’t mean you have to give him custody of your capital. Most “blow ups” occur when an investor cedes custody to a manager who takes on risk or leverage without investor knowledge. You should not only maintain custody of your capital, registered in your name only, but you should be able to view your portfolio online at anytime, 24 hours a day, 7 days a week.
Understand the fee structure and other factors
A flat fee percentage structure is the optimal way to compensate a money manager. It best aligns the interest of the manager with the interest of the investor. The 20% of profits fee charged by most hedge funds provides an unhealthy incentive to chase short-term profits, ignore tax efficiency, and take unnecessary risk.

Arne Alsin, Portfolio Manager

Ignoring the fundamental fact that stocks are assets is the main reason investors are notorious for selling low and buying high. Investors do not treat their stock holdings in the same way they treat other valuable property. Instead, many view stocks as speculative pieces of paper, meant to be traded in the casino known as the stock market.

Investors turn to nonsensical portfolio strategies that result in irrational behavior, such as buying stock after and because the price has increased, or selling stock after and because the price has declined. Owners of other types of assets don't engage in this irrationality. An owner of a $100,000 home, for example, isn't going to sell his or her asset because offers decline from $95,000 to $85,000 from one week to the next. But selling because of a declining bid is endemic to the stock market.

You can't get any more basic than this: A stock represents an ownership interest in a business entity, a legally enforceable claim on the net assets of that corporation. It follows, then, that the central preoccupation of an investor should be putting a value on this asset known as stock.

From Simple Truths of Portfolio Strategy, by Arne Alsin

© 2008 Alsin Capital Management, Inc.

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