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

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 [1] 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 [2] 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 [3] you’re better off in index funds.

Or, as The Evidence-based Investor [4] 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 [5] after outraged article [6] 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 [7], his second fund frozen [8], and his company is to be shut down. [9]

Winding up the big Woodford fund wasn’t his choice, but to be honest it’s a bit late for that. His investment trust [10] 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 [11] 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 [12] 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 [13] 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 [14] 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 [15] 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 [16]

From the archive-ator: Day three in the Big Brexit house [From June 2016]Monevator [17]


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 [18]

IMF warns world growth is at its slowest since the financial crisis – BBC [19]

State pension to rise by up to £343 a year in 2020 – Which? [20]

Interesting infographic showing what a £1m pension pot will buy you annually – ThisIsMoney [21]


For what it’s worth, respected fund house GMO mostly sees low returns ahead – Irrelevant Investor [23]

Products and services

HSBC and First Direct slash interest on regular savings accounts from 5% to 2.75% – ThisIsMoney [24]

How good are smart tech products, and will they save you money? – ThisIsMoney [25]

Ratesetter will pay you £100 [and me a cash bonus] if you invest £1,000 for a year – Ratesetter [26]

Beware scam Amazon Prime calls asking you to renew – Guardian [27]

Has your local credit union launched a savings account with a monthly £5,000 prize? – ThisIsMoney [28]

Homes with political [/Conservative] connections [Gallery]Guardian [29]

Comment and opinion

Could the “6 to 2 times 200” encourage young people to think before spending? – Humble Dollar [30]

You’re wealthy. Should you marry in secret? [Search result]FT [31]

Bank of America says bond rally cements ‘the end of the 60/40 portfolio’… – MarketWatch [32]

…LOL, really? says Ben Carlson – A Wealth of Common Sense [33]

Some data purporting to justify staying with active managers does the opposite – Yahoo Finance [34]

When frugality bottoms out – The Simple Dollar [35]

Investors need to ask what, not why – A Teachable Moment [36]

A simple plan for financial independence – Morningstar [37]

The riddle of the well-paying, pointless job – More To That [38]

Disinheriting your children might be for their own good [Search result]FT [39]

Stamina, stubbornness, and the infinite mindset – Abnormal Returns [40]

Naughty corner: Active antics

The best predictor of equity fund performance – Morningstar [41]

Machine learning in UK financial services [PDF]Bank of England [42]

2019 is shaping up to be a record year for UK start-up fundraising – Beauhurst [43] & Crowdcube [44]

Oryx International Growth: Small cap, big discount – IT Investor [45]

IPO lessons for public market investors – Musings on Markets [46]

There’s some evidence that a divided focus holds up better in a drawdown – Wisdom Tree [47]


This is the moment Remainer dreams may die – Guardian [48]

Tony Blair: Like him or loathe him, he is right about this [Video] – Via Twitter [49]

UK wins agreement to give up the best deal any EU member state ever had – New Statesman [50]

David Cameron’s ‘greased piglet’: the perfect image for the Brexit moment – Marina Hyde [51]

Tories ‘Spartans’ to back Johnson to pave way for no-deal exit next year, one reveals – Independent [52]

An on-point acerbic reader comment on UK citizenship post-Brexit [Wait for the comment to load]Guardian [53]

Top City figures cautiously back Government’s new Brexit deal – ThisIsMoney [54]

Kindle book bargains

Fooled by Randomness by Nassim Nicholas Taleb – £1.99 on Kindle [55]

Who Moved My Cheese? by Dr Spencer Johnson – £0.99 on Kindle [56]

Grit: The Power of Passion and Perseverance by Angela Duckworth – £0.99 on Kindle [57]

Little Black Book: A Toolkit for Working Women by Otegha Uwagba – £0.99 on Kindle [58]

Off our beat

Why new technology is a hard sell – Morgan Housel [59]

From the Silent Generation to ‘snowflakes’: Why you need friends of all ages – Guardian [60]

Battling time [On age and assisted living]Humble Dollar [61]

Have we got any happier over the past 200 years? An AI tries to find out – Vox [62] [via A/R [63]]

Some of the UK’s phone number infrastructure relies on Yahoo Groups, which is shutting down – The Verge [64]

Team older feminist: am I allowed nuanced feelings about #MeToo? – Guardian [65]

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 [66]

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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. [ [72]]
  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”. [ [73]]