Saturday saw me sitting on my boat waiting for my guests to turn up. Clearly they thought it too wet and windy for them , so their Pimms was left un drunk and they missed a fine afternoon! I had the opportunity to catch up on a few things and have today to enjoy the river!
Yesterday also gave me the chance to think about hubris, one of the many failings ascribed to Neil Woodford. The Financial Times have started writing of Woodford retrospectively, as a tragic hero.
Mr Woodford’s credentials as a bold and successful stockpicker were established during a 26-year career at asset manager Invesco Perpetual. Five years ago that record emboldened him to go it alone — though from the start there were signs that Mr Woodford’s belief in himself could easily turn to hubris.
The article quotes former Standard Life chief Gerry Grimstone twisting the knife
“Never buy a fund named after someone, you get a total failure of risk control.”
I remembers my old boss Sean Breslin saying the same to Barry Olliff of Olliff and Partners, Sean said it to the man’s face. Olliff went on to form City of London investment trust which flourishes. Presumably hubris is reversible.
Right in hindsight
My twitter timeline is full of sagacious comments from those who never recommended Woodford and saw through him from the start.
What did they expect? That the same strategy would deliver indefinitely?
This is to misunderstand the source of his reputation: a single set of sector bets with an unusually long payoff. But it couldn’t last. He was when he left Invesco largely ‘untried’. Now we know.
— Stuart Fowler (@fowlerdrew) 8 June 2019
But cannot the same be said of all entrepreneurs?
I think a broader concern is that the lack of risk controls that Gerry Grimstone talks of, do not seem to have been picked up by the funds distributors of indeed the FCA.
If it was so blindingly obvious that Woodford was a one trick pony , then why was he being expected to win the Derby and the Grand National year after year? It is becoming clear that the funds he ran for SJP , his own open ended funds and his closed end fund were all based on the same idea and differed only in exposure to illiquid stocks.
The Guernsey stock market , something I did not know existed, appears to be Woodford’s major source of liquidity for otherwise unlisted holdings. I have had dealings with the Guernsey Financial Services Commission and look forward to their contribution to the FCA’s review of the role the Guernsey stock market has played.
Right going forward?
Blind faith in the capacity of fund managers to consistently beat markets is hubristic in itself. It assumes you can pick a manager like a horse and expect it to win you a race.
You are entitled to pick a manager (or a horse) as long as you know the value at risk and have the capacity to withstand the loss if the manager (or horse) goes wrong.
But you have only yourself to blame if you bet money on a horse and lose and then find you have no money to pay the bills.
Here we get to the gnarled question surrounding the phrase “self-investment” , something that many are prepared to do when the sun is out and the wind isn’t blowing.
But like some of the people who ask to come on my boat, when they’re asked to turn up on a wet and windy day, they are nowhere to be seen.
I am rather more interested in hearing from the people who were recommending we invest in Woodford , right up to last week, than those who knew all along.
I am , as this blog testifies, a great lover of conviction and have sat at the feet of Terry Smith in wonder. But my money, well the stuff I rely on , is invested in market beta by a major passive house.
Why we’re blaming everyone but ourselves.
It is in our nature to blame someone else for the tip that didn’t come in – again horse-racing analogies hold good. We employ active fund managers so we can praise ourselves when they deliver and blame them when they don’t.
No doubt this is what we will hear a great deal more of from the sages who distributed Woodford’s funds and the people who bought his fund management (in SJP’s and Openwork’s case – the same).
At the end of the day, Woodford was managing other people’s money and if the result of this is that he has to sell a few of his ponies, then worse things will have happened. We cannot get caught up in the language of Greek Tragedy, what is happening is not a tragedy.
What is happening is that quite a few affluent people who put money they could afford to lose on a star manager, have lost a fair bit of money. They have only themselves to blame.
A few vulnerable people, who couldn’t afford to lose money, may have been caught up in this. They may include some of the people who were inveigled of their DB benefits in favour of the prospect of wealth managed by the likes of Woodford, for them – the loss is more significant. There may emerge some genuinely mis-sold Woodford investments but I think they will be few and far between.
But have only ourselves to blame
The bottom line is that whether you invested in Woodford directly – or – like the schmuck who told Citywire he didn’t invest in Woodford because he gave his money to SJP- people knew they were self-investing.
And so long as you are self-investing, you have no-one but yourself to blame when an investment goes wrong.