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Weekend reading: The biggest lesson from the demise of Woodford’s empire

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What caught my eye this week.

I think my favourite Shakespeare play is Coriolanus. It’s certainly not the best Shakespeare play, but it’s shot through with a bitter edge that appeals to my inner cynic.

You can keep your Danish snowflakes, your passive-aggressive wizards, and your talking walls – it’s this Roman riches-to-rags-to-dead-in-a-ditch story of what happens when you court the mob that ticks my boxes.

No, I’m not (yet/only) referring to Brexit.

I’m not even thinking about the Extinction Rebellion protestor who was mildly lynched this week for interrupting a horde of London commuters.

I’m talking about the spectacular fall from grace of formerly famed fund manager Neil Woodford.

Told you so

Now, you might think this would be the perfect opportunity for a passive-championing blog like Monevator to cough politely and say: “Ahem, we told you so.”

And obviously we did.

Not that Woodford would fail, particularly, nobody could know that for sure. But we’ve written many times that you can achieve everything you need to by investing in index funds and getting on with the rest of your life.

Recap: There’s always a few winning fund managers at any one time. Mostly they don’t win forever, and even if they do you’re very unlikely to invest all your money with them throughout. Mathematically you’re better off in index funds.

Or, as The Evidence-based Investor writes:

I don’t mean to sound smug or clever. I had no reason to believe that Woodford would perform quite as badly as he did.

I was just pointing out that the odds were heavily stacked against him beating the market on a cost- and risk-adjusted basis over any meaningful period of time.

And that is all very well.

But ploughing through outraged article after outraged article this week, I started to feel almost sorry for the bloke.

Why oh why did he have to do different?

Woodford’s flagship fund is to be wound down, his second fund frozen, and his company is to be shut down.

Winding up the big Woodford fund wasn’t his choice, but to be honest it’s a bit late for that. His investment trust is trading at a ginormous discount because his reputation is trashed. The man who was lauded by the masses is now feeling their wrath.

They feel like they were scammed, they say. How does Woodford sleep at night? He has his millions, they’ve lost thousands. It’s not fair. They blame the platforms, too. And the media! The same media that now reports on him like he’s been discovered with 40 barrels of nuclear waste in his wine cellar that was only to happy to gush about his new company five years ago.

It might sound like sour grapes, but of course that’s not it. Because we can be sure (can’t we?) that had Woodford lived up to the hype and outperformed the markets by as much as he actually lagged them, then there would have been equal outrage from the same people.

Wouldn’t there?

It’s not right, they’d shout! Woodford’s winning gains came at someone else’s expense! Also he cheated by including all that illiquid and unlisted stuff in his funds – so it wasn’t a fair fight. In fact, they’d like to give their winnings back!

What’s that? You think people wouldn’t have said such things if he’d actually outperformed? You believe the way Scottish Mortgage – the UK’s largest investment trust – is praised for its private equity holdings shows nobody cares as long as you’re winning?1 You think the fact that the masses still invest in open-ended property funds shows they only care about inappropriate investment vehicles if they get bitten on the ass?

Well well, I guess you might be right.

Own it

Look, I agree with UK Value Investor that there are lessons to be learned from the fall of Neil Woodford. When things go this badly wrong, Questions Must Be Asked.

And I don’t enjoy seeing ordinary people lose money. Quite the opposite – I write this blog to try to help ordinary people end up wealthier.

But at the end of the day, the story is pretty simple. People let him do what he wanted – and applauded it – when they believed he could beat the market. As he faltered they began to withdraw their money, and this induced a doom loop that ultimately trashed the wealth of everyone involved.

Woodford certainly cannot escape the lion’s share of the blame – in retrospect at least he created a doomsday device. Full transparency, hot retail money, massive funds under management, Brexit, a contrarian position, and a series of off-piste investments all exploded when they met the catalyst of poor returns.

But people didn’t need to buy into his fund. This shouldn’t come as a newsflash. We’ve been writing about passive investing since 2007.

If you want to fly closer to the sun – if you must try to do better than the market – then sometimes you’re going to get burned. End of.

P.S. So Boris Johnson has negotiated a slightly new withdrawal agreement, giving us a second chance at an orderly escape from the best deal we’ll ever have – the one we’ve already got. Hands up, I didn’t think he’d bother, so some credit is due. But I doubt he’ll get it through Parliament (the FT’s maths suggests he’ll miss by three votes) and I don’t think he’ll mind. A wet sock would jump at the chance of taking on Jeremy Corbyn in a General Election, with or without a dangerously populist rallying cry of Parliament versus the People at its back. Ultra Brexiteers will see another chance for a no-deal Brexit, everyone else will weep into the ballot box. As things stand I believe a super-soft Brexit best reflects the very close 2016 advisory vote, but on balance I also think we’ve all learned enough since then to justify a second chance. Hence I’ll be marching in London on Saturday for a new, informed Referendum. See some of you there!

From Monevator

10-year retrospective: Commodities – the lost asset class – Monevator

From the archive-ator: Day three in the Big Brexit house [From June 2016]Monevator


Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!2

IMF warns world growth is at its slowest since the financial crisis – BBC

State pension to rise by up to £343 a year in 2020 – Which?

Interesting infographic showing what a £1m pension pot will buy you annually – ThisIsMoney

For what it’s worth, respected fund house GMO mostly sees low returns ahead – Irrelevant Investor

Products and services

HSBC and First Direct slash interest on regular savings accounts from 5% to 2.75% – ThisIsMoney

How good are smart tech products, and will they save you money? – ThisIsMoney

Ratesetter will pay you £100 [and me a cash bonus] if you invest £1,000 for a year – Ratesetter

Beware scam Amazon Prime calls asking you to renew – Guardian

Has your local credit union launched a savings account with a monthly £5,000 prize? – ThisIsMoney

Homes with political [/Conservative] connections [Gallery]Guardian

Comment and opinion

Could the “6 to 2 times 200” encourage young people to think before spending? – Humble Dollar

You’re wealthy. Should you marry in secret? [Search result]FT

Bank of America says bond rally cements ‘the end of the 60/40 portfolio’… – MarketWatch

…LOL, really? says Ben Carlson – A Wealth of Common Sense

Some data purporting to justify staying with active managers does the opposite – Yahoo Finance

When frugality bottoms out – The Simple Dollar

Investors need to ask what, not why – A Teachable Moment

A simple plan for financial independence – Morningstar

The riddle of the well-paying, pointless job – More To That

Disinheriting your children might be for their own good [Search result]FT

Stamina, stubbornness, and the infinite mindset – Abnormal Returns

Naughty corner: Active antics

The best predictor of equity fund performance – Morningstar

Machine learning in UK financial services [PDF]Bank of England

2019 is shaping up to be a record year for UK start-up fundraising – Beauhurst & Crowdcube

Oryx International Growth: Small cap, big discount – IT Investor

IPO lessons for public market investors – Musings on Markets

There’s some evidence that a divided focus holds up better in a drawdown – Wisdom Tree


This is the moment Remainer dreams may die – Guardian

Tony Blair: Like him or loathe him, he is right about this [Video] – Via Twitter

UK wins agreement to give up the best deal any EU member state ever had – New Statesman

David Cameron’s ‘greased piglet’: the perfect image for the Brexit moment – Marina Hyde

Tories ‘Spartans’ to back Johnson to pave way for no-deal exit next year, one reveals – Independent

An on-point acerbic reader comment on UK citizenship post-Brexit [Wait for the comment to load]Guardian

Top City figures cautiously back Government’s new Brexit deal – ThisIsMoney

Kindle book bargains

Fooled by Randomness by Nassim Nicholas Taleb – £1.99 on Kindle

Who Moved My Cheese? by Dr Spencer Johnson – £0.99 on Kindle

Grit: The Power of Passion and Perseverance by Angela Duckworth – £0.99 on Kindle

Little Black Book: A Toolkit for Working Women by Otegha Uwagba – £0.99 on Kindle

Off our beat

Why new technology is a hard sell – Morgan Housel

From the Silent Generation to ‘snowflakes’: Why you need friends of all ages – Guardian

Battling time [On age and assisted living]Humble Dollar

Have we got any happier over the past 200 years? An AI tries to find out – Vox [via A/R]

Some of the UK’s phone number infrastructure relies on Yahoo Groups, which is shutting down – The Verge

Team older feminist: am I allowed nuanced feelings about #MeToo? – Guardian

And finally…

“In the past, the thorny issue of how long you might live, and how much it would cost to provide income for that indefinite period, was your employer’s problem. They paid your pension, so they had to find the money, somehow.”
– Richard Dyson & Richard Evans, Your Retirement Salary

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  1. I own a few shares in Scottish Mortgage. And before you say anything, I fully agree it’s a more appropriate way to invest in unlisted holdings. But it’s not hard to imagine that if these had failed then people would ask why a mainstream investment trust had put money into such ‘exotic’ fare. []
  2. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. []

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{ 61 comments… add one }
  • 51 The Investor October 20, 2019, 10:27 am

    Obviously I have no time for this idea that ‘the establishment’ is doing all it can to stop Brexit.

    The government of the day – the Tory government no less – has tried and tried again to implement it.

    It has partly failed by trying too Hard (labour would have supported a soft Brexit) and by its own Brexiteer MPs not voting for Brexit.

    Seriously I’ll never stop bringing that up because Leave supporters keep ignoring it. You could have had Brexit by now were it not for the ideologues who wanted *their* vision of hard Brexit.

    But with that said I also don’t think there’s much truck in this “think of the grandchildren” argument.

    I’m sure most Leave voters ARE thinking of future generations and what they believe is best for them. Indeed as all but the most deluded would concede the pain of Brexit will be front loaded and any benefits only manifested years later, one could even argue they are putting the short term aside for the long term.

    I don’t agree with their reasoning but I don’t doubt they’re thinking of future generations, personally.

  • 52 Gooey Blob October 20, 2019, 12:58 pm

    I voted remain and couldn’t understand the pig-headedness of the leavers. However, I accepted the result. You simply cannot ignore the result of a democratic vote. No ifs, no buts, no complaints about campaigns. You may disagree with the outcome as I still do, but you must honour it.

    For me the only worse outcome than a no-deal Brexit would be revocation or a second referendum as I think they would be likely to lead to troubles. History has taught us that democracy is a fragile thing and when you start messing with it you are on a very slippery slope indeed. If there were to be an ill-considered second referendum I’d probably vote to leave. I’ve just come to see both sides as equally pig-headed now.

    I can’t invest in the UK with any certainty while this circus continues and have been putting my naughty UK start ups, small caps and AIM 100 money into a global tech tracker. It’s only a bit of money as a side hobby, but Brexit is ruining my fun! It also strikes me that the longer this abject mess continues the more investments the UK will lose.

  • 53 Grislybear October 20, 2019, 3:13 pm

    Another referendum is ok with me and one every 10 or 20 years is ok too. We already have had a few for EC/EU. A trade deal with the EU will come with a lot of conditions and rules attached, might even look very like being in the EU without a say in the rules. The EU attitude is that you cant sell your stuff in our backyard if you undercut us. As regards Mr Woodford I think it all went to his head a bit and he just lost the plot. The FT article is really good and worth a read, especially the part where woodford bought a large farm and just rode around on horses gicing instruction on what to buy and sell while on horseback.

  • 54 FlyByNight October 20, 2019, 3:20 pm

    @Mark – I think we will have to agree to disagree…wherein lies the problem. There are so many differing versions of what leave actually means – from the hardest to softest of Brexit’s. Add into that – some people think we have a pretty good deal and would like it considered as an option. There is clearly no consensus.

    I guess the question is – how do we decide what the future relationship with the EU should be? And which of the options on the table will work out the best in the long run? The problem again is – there is a lack of consensus on how we should answer the question.

  • 55 Getting Minted October 20, 2019, 5:25 pm

    Woodford didn’t invest as he was expected to. This was no usual UK equity income fund. He invested in unquoted companies, which was not the area in which he had built his previous reputation. These were entirely unsuited to a unit trust, and especially one which had been heavily promoted, or hyped, to small investors. He would have done better to have had one genuine income fund and one separate unquoted fund rather than create a hybrid fund that has dragged all three of his funds down.

  • 56 Factor October 20, 2019, 8:25 pm

    @TI et al

    I opted for Remain in the original referendum because I was generally happy with the status quo, albeit not with the “overcrowding” of the UK through immigration (some of which being from the EU). I hope that there will now be a second “confirmatory” referendum and I shall again opt for Remain, assuming that this is one of the offered choices.

    There was no actual Leave “deal” at the time of the original referendum but there now is, and it may possibly be the case that the details of this Leave “deal” will cause a significant swing in the result if the second referendum does take place.

    Assuming that the second confirmatory referendum does happen, with “the cards now on the table”, I shall accept the result without demur.

  • 57 Richard October 20, 2019, 11:10 pm

    The thing is, our elected representatives have not yet agreed on how to leave. In fact every flavour that has been presented to them has been rejected (thinking of the votes on various options in the past) showing they are not there yet. I think it is a stretch to think that revoke article 50 would command a majority either. But the process of finding an acceptable way forward is underway (there are arguably a large number of possible deals, given enough time to negotiate). The only way I see a second referendum as acceptable is if parliament (who as many point out know a lot more on the specifics than we do) have approved a deal and then the only options are to take the deal or send the government back to negotiate further. Any other approach repeats the mistakes of the last referendum (presenting options that the general public have little real understanding of) and results in broken unity if remain win. Or hold a general election, let Parliament refill and see if no deal, remain or one of the existing deals have a majority. But if we don’t leave, my view is this question continues to bog us down for a generation, and it will continue to be nasty for the foreseeable future.

  • 58 marked October 21, 2019, 12:28 pm

    Interesting comments.

    As a remainer I can’t see a 2nd ref working. As TI said he’d hope for a 60% to remain, but we all know there hasn’t been a material change in opinion. At best the guess would be a 52% to 54% remain win. Where does that leave us (excuse the pun)? Nowhere. And that will only be due to the demographic changing over the past 3.5 years.

    That’s the problem with Brexit – it’s not solvable. You may think it’s political, but it’s more than that. It causes family arguments, divorces, and lack of solidity in the UK.

    This is very much Pandora being let out of her box.

    My personal opinion is it would be best to Brexit with this deal on the assurance the Spartans don’t demonstrably destroy it by putting multiple spanners in the FTA negotiations (for the record I believe they will try, but politically if there’s a deal Boris runs away with a GE and the Spartan’s power is less influential). Why do I want the deal to go through despite being a remainer? Mainly because this 3.5 years stagnation I believe is worse than making a decision. Sometimes any decision is better than no decision, and I believe this is one of those times. Yes we will be poorer, but we can get back to work on minimizing that opposed to nothing being dealt with domestically (schools/education are the big one for me – you can’t be a better nation without well educated people).

    I could go on endlessly on why Leavers are wrong, but at the end of the day we’ve got to move on however much I dislike it. I’d prefer to know how to plan for the future rather than be on the fence – my backside is getting pins and needles!

  • 59 The Borderer October 21, 2019, 6:42 pm

    @Mark (53)
    I’m afraid I think your reference to general elections is somewhat of a straw man argument. We get to review that decision once every 5 years in a GE, and often change our minds, particularly when the incumbent government doesn’t live up to it’s promises.

    Brexit, on the other hand, is a one off, lifetime changing event.

    Once we leave, I fear there will never be the opportunity to rejoin the club on the same terms and conditions we currently enjoy. Think Schengen, euro &etc.

    So it strikes me as just sensible to check if the people accept that the politicos have delivered what they wanted. If so, then full steam ahead, if not, then cancel the whole fiasco – the ‘people have (finaly) spoken’.

  • 60 Jack October 21, 2019, 8:07 pm

    Gooey Blob October 20, 2019, 12:58 pm
    “I voted remain and couldn’t understand the pig-headedness of the leavers. However, I accepted the result. You simply cannot ignore the result of a democratic vote.”

    But what about the 3m EU citizens, that live here assuming it is their home for life. Why didn’t they get a vote? Sounds fixed to me. Remain may have won if they voted. And as Brexit will/is having significant impact on our economy surely if your job isn’t going to be effected (because, say, you’re retired), why should you have a say. Maybe if we leave then the pensioners should accept a pay cut to help the rest of us.

  • 61 marked October 21, 2019, 8:21 pm

    The Borderer (63)

    I don’t know this for sure, but I’d presume if we ever want to rejoin in 5 , 10, 20 years time which I think would be a question asked then we’d probably be required to convert to the Euro. It would be interesting at that time to see if the younger generation(s) desire that or if nationalism comes out again. We’ve done, in retrospect, pretty well out of not being in the Euro after the financial crisis of 2008, but having an opt out of the Euro may not be possible on any future accession to the EU

    Of course anyone that talks about the billions rebate that Thatcher got is wasting their time since it will be chump change compared to the extra costs leaving the EU will create.

    Only ray of light is perhaps the other trade deals sealed by then may offset it (longer term gain for short term pain – we’ll see). I don’t see it myself as we do more trade with Ireland than all the BRICs put together purely down to being a close a neighbour (and of course commonality of language).

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