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Weekend reading: We’ve been waiting for you Mr. Anderson

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What caught my eye this week.

Over in the world of active investing, there’s a changing of the guard taking place. Or at least there is if you believe one of the leading guardsman.

More on him in a moment. Let’s focus first on the man in the red corner, cruising for a bruising – yesterday’s hero Neil Woodford.

Woodford made his punters richer for decades. But after a rotten run he’s now less popular than a Tory in a European Election.

According to ThisIsMoney:

Nervous savers pulled cash out of Neil Woodford’s flagship fund as it lost £560 million of its value in just four weeks.

Money in the once-feted Equity Income Fund dropped from £4.33 billion in April to £3.77 billion this week, research firm Morningstar said.

The fund looked after £10.2 billion of investors’ cash at its peak in 2017, nearly three times the current amount.

Woodford is a value investor, and those sort of stocks have been on the ropes for a decade.

A decade!

Is value dead? Even the passive factor-based investors have fretting, although some leading lights have suggested value’s long hibernation is all the more reason to own it.

As one, Wes Gray of Alpha Architect, put it earlier this month:

Don’t get rid of your value because it hasn’t been working, but arguably get more of it – if your goal is to try and beat the S&P 500 over the next 20 years.

Which brings us to the blue corner – where man of the moment James Anderson of the Scottish Mortgage Trust is having none of it.

Heavyweight champion of the world

Anderson is the Woodford of right now. Not in the way he invests, but rather in the way private investors name check him and his fund when you say passive investing is the best way to go for most.

In other words his fund has been winning for many years.

Scottish Mortgage’s Trust’s underlying investments are up about 500% over the past decade. The shares have done even better, registering a 600% gain as a discount has turned to a premium. That’s a staggeringly good run, even after remembering the US tech-heavy Nasdaq index has itself soared more than 300% over the same 10 years.

Now, I could take this quick post in various different directions here. For instance, I could do a bit of a beneath-us sniggering at individuals who don’t understand the hard part in active fund investing is to find the funds that will do well in the next 10 years – as opposed to shining a light on one of the best and best-known performers of the past.

Or maybe to offer a gentle reminder that zero sum games such as active investing can and often do have huge winners – and equally losers – and hence Scottish Mortgage hasn’t somehow broken the case for going passive.

But the trouble is I can’t snicker too loudly… because I’m also a bit of an Anderson fanboy.

No, I don’t currently own shares in his trust. But I do like to read his reports. Say what you like about active investors, they write far more interesting guff than passive funds can muster. (Of course they do, it’s part of the marketing!)

Anderson is particularly readable. He’s got a whole theory about how most listed companies are set to be disrupted into irrelevance by the technological revolution that’s barely gotten started. It’s thought-provoking, and I recommend an occasional peruse however you invest if you’re at all interested in technology and change.

The question though is whether Anderson has really identified a breach in the value-growth continuum – whether it “is different this time” – or if instead he’s just the latest incarnation of a growth investor grown fat and full of hubris before a bust.

Boxing clever

The latest Scottish Mortgage annual report [PDF] tackles the question head on:

It has been an investment commonplace for long decades that growth investing is a chimera. Value investing, especially as articulated by Warren Buffett, has risen to the status of the one true faith. Yet over the last decade growth indices have substantially outperformed their value counterparts.

Moreover this trend has principally been driven by the shares of a cohort of major internet platforms that have defied all predictions of doom based on the strains of growth from an already large base or assumptions of a short competitive advantage period.

What’s going on? According to Anderson, modern technology platforms – from Google to Uber to Microsoft – can now scale efficiently to an almost indestructible size, while venerable companies are being outmoded out of existence.

Value will therefore not come back from the dead because this time many value-style companies are going to be finished off once and for all.

And if that’s true, then Neil Woodford won’t be coming back either.

But if it’s not – if things aren’t really different this time any more than all the last times – then Anderson and Scottish Mortgage Trust may well be terrible places to put capital for the next decade, as finally we see a reversion to the mean, a swan dive for growth, and a value resurgence. (This could happen due to high share price valuations coming down, incidentally, even as the growth companies themselves prosper.)

Of course with a global tracker fund, you own both the growth Goliaths of today and the potential down-and-out value Davids of tomorrow.

Chalk another win for passive investing, and then settle down to watch the fight.

From Monevator

Life expectancy for couples: why it’s surprisingly long and what you should do about it – Monevator

From the archive-ator: Should I put all my money into this ‘can’t lose’ cryptocurrency venture? – Monevator

News

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!1

UK house prices slip in May in a subdued market – BBC

Rents could rise due as government ban on letting fees come into force – ThisIsMoney

Co-op raises £300m for first of its kind Fairtrade-focused ‘sustainability bond’ – ThisIsMoney

Confidence in London’s preeminence in finance is waning – Duff & Phelps [via Abnormal Returns]

Products and services

New house price statistics visualizer from the Land Registry [Tool]Land Registry

“I replied to a genuine bank tweet and lost £9,200 to a fraudster”Guardian

Is it worth signing your child up to a digital piggy bank? – ThisIsMoney

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

Door will shut on Help to Buy ISA in six months [Search result]FT

Riverside homes for sale [Gallery]Guardian

Comment and opinion

Early retirement is a risk. So is working in an office your whole life – MarketWatch

Big pleasure from small things – Get Rich Slowly

Déjà vu – Indeedably

[On diversification by pensions] maybe the Sage should have held his tongue [Search result]FT

How to become a YouTube millionaire [Search result]FT

The three phases of an investor’s life – The Reformed Broker

How the FIRE movement will narrow the gender pay gap – Financial Samurai

Retirement doesn’t always make you happy [Search result]FT

What if you put as much effort into your own finances as you do your job? – The Escape Artist

Fintech through the [ancient] ages – Jamie Catherwood

Making the case for a ‘victory lap retirement’ – Bps and pieces

Checking your portfolio’s performance might hurt that performance – Betterment

Valuations aren’t great for timing investments – Morningstar

Holding up a mirror to personal trading behaviour – FireVLondon

Using the Kelly Criterion in assembling a stockpicker’s portfolio – Albert Bridge Capital

Brexit

Opium-pipers, bluffers and no-dealers impress in this Tory battle of nonentities – Guardian

Jonathan Pie: Polarised politics [Video]YouTube

Brexit revisited – DIY Investor (UK)

Kindle book bargains

My Morning Routine: How Successful People Start Every Day Inspired by Benjamin Spall – £1.99 on Kindle

So Good They Can’t Ignore You by Cal Newport – £0.99 on Kindle

The Personal MBA: A World Class Business Education in a Single Volume by Josh Kaufman – £1.99 on Kindle

Off our beat

Tim Hartford: Compromise dies in the age of outrage [Search result]FT

US energy department brands gas exports ‘molecules of freedom’ – BBC

Unmarried women without children are the happiest humans – Guardian

The ‘incels’ getting extreme plastic surgery to become ‘chads’ – The Cut

Large expansion to ‘blue belt’ of UK’s protected marine areas announced – Guardian

25 ways to live well into old age – Guardian

And finally…

“I like to say, ‘Experience is what you got when you didn’t get what you wanted.'”
– Howard Marks, The Most Important Thing

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{ 42 comments… add one }
  • 1 Hari June 1, 2019, 12:06 am

    Interesting article, the big tech companies are winning and will devour all…
    You could go back 100+ years for something similar, with Standard Oil and that didn’t end well !

    No one knows, but I would not be surprised for Value to be resurgent at some point and many outstanding active investors find their run comes to an abrupt end…

  • 2 Lord June 1, 2019, 4:05 am

    That Diyinvestor blogpost needs a warning attached to it. The author is a leaver.

  • 3 Brodes June 1, 2019, 7:57 am

    The underperformance of high yield has been on my mind for a while now. I dabbled in various strategies from 2000 to 2011, then settled on a significant HYP investment. FI being my goal. Usually with mortgage leverage. I’ve done better than cash, slightly underperformed the FTSE, and learnt a great deal about investment and myself. However I would have been better off switching to a global tracker when they became commonplace. Or invested in well known global investment trusts. Hindsight wisdom? Or perhaps a logical consequence of adopting a low growth strategy.

    For a couple of years I have been reinvesting the dividends and any new money in more globally diversified investment trusts. And pension contributions have ended up in VUSA and VWRL. So I feel like I’m heading in the right direction. Now I’m around 45% individual HYP shares, 55% passive global ETFs and investment trusts. Or maybe I’m chasing the latest thing… change is hard!

    Now I have the dilemma of whether to actively sell my HYP shares and switch to global passive. Not a contrarian move, for sure. So far I sold William Hill, trimmed Sainsbury’s, and Tesco is on the block. I see these as perennial under performers. A trim in AstraZeneca is on the horizon too.

    Has anyone else made a wholesale move from individual shares to more passive investments. Did you sell the lot, or keep back the ones that you felt would continue to do well?
    Brodes

  • 4 Ben June 1, 2019, 8:41 am

    This for me highlights another shortcoming of active investing, the performance of the shares you didn’t pick.
    I remember seriously evaluating SMT 10 ish years ago, I didn’t, so now I have to live with the regret of not picking it.

  • 5 Ben June 1, 2019, 9:01 am

    @Lord

    So? It was a well reasoned piece, I disagree with a few bits, but it wasn’t a frothy mouthed rant.

    Apologies if you’re joking, I’m not sure the prevailing view is that you can have a sensible debate with the other side though.

  • 6 GK June 1, 2019, 9:10 am

    Your “search results” trick for FT seems to have stopped working, I still got a paywall page coming straight from the search page.

  • 7 The Investor June 1, 2019, 9:14 am

    @GK — Try deleting all cookies in your browser.

  • 8 A beta investor June 1, 2019, 10:04 am

    Is it just a coincidence then the 10 years of outperformance dates back to the start of QE?

    Since then stocks like Tesla et all have been assigned high valuations despite consuming cash rather than generating it.

    In a land of zero interest rates all sorts of odd things happen as politicians and central bankers try and pretend, through printing funny money, that we could have everything we wanted before 2008 and someone else would pay for it.

  • 9 Britinkiwi June 1, 2019, 10:24 am

    @Ben – never mind never owning, I sold my SMT about 5 years ago! Along with other ITs and ETF I hasten to add, to build a home…….

  • 10 { in·deed·a·bly } June 1, 2019, 10:36 am

    @Brodes – “Has anyone else made a wholesale move from individual shares to more passive investments. Did you sell the lot, or keep back the ones that you felt would continue to do well?”

    I re-evaluated the future prospects for each individual holding, applying the test: would I
    would invest in the company today, based solely on the future anticipated total return over my investment timescales?

    This helped identify investments I held out of attachment to past glories, or those that I kept out of the hope they would “come good” and spare my ego the hit of realising a loss.

    Capital gains implications were managed via a controlled exit of the positions that no longer made sense. This process included being mindful of timing, utilising allowances, and offsetting wins with losses where practicable.

    Those that passed the test I retained, periodically re-applying it and exiting where appropriate. Several years on, I am down to a handful of individual holdings. I very rarely still make direct investments where the opportunity is sufficiently compelling, but my default approach is now low cost trackers.

  • 11 Adrian June 1, 2019, 10:47 am

    Anderson’s short-term problem is Trump – if he continues the trade war with China then Tencent, Alibaba and Baidu are going to continue to suffer. Trump also hates Amazon.

    Long term there is the issue of SMT’s big stake in “data harvesters” – namely Google and Facebook – and to a lesser extent Amazon. Then there’s Tesla which looks like it’s spiralling down to zero.

    It’s not a good time for Anderson’s approach. I’ve moved my SMT into long duration gilts for the moment – I’ll switch back if and when the momentum changes.

  • 12 Matthew June 1, 2019, 10:54 am

    Does Anderson have a clear edge that we can discern? If he does perhaps he is keeping it quiet to keep it.
    We need to know it’s more than simply him being at the top end of a statistical distribution by fluke

  • 13 dearieme June 1, 2019, 11:27 am

    @Adrian,
    “I’ve moved my SMT …”: very reasonable
    “into long duration gilts …”: very courageous, Minister.

    It recently occurred to me that there is a case for us buying long dated Index-Linked gilts. OK, the real yield versus RPI is sufficiently negative that it will probably prove negative even compared to CPI. Although I’d hate to make (say) negative 1% vs CPI if CPI were 2%, I’d be pretty relaxed making negative 1% vs CPI if CPI were 20%. In other words ILGs might not be a lousy investment if what you want is protection vs 1970s levels of inflation. Just look at how badly equities and fixed interest gilts did in the 70s.

    This argument might appeal more to retired people than people saving for retirement.

  • 14 dearieme June 1, 2019, 11:33 am

    Another bit of weekend reading – for people interested in Defined Benefit pensions. The biggest private DB scheme (unless perhaps you count the government-guaranteed BT) is USS, the university scheme. Its wealthiest member, Trinity College Cambridge, plans to buy itself out of the scheme. What might that portend?

    https://www.trin.cam.ac.uk/about/college-notices/trinity-college-and-uss/

  • 15 Faustus June 1, 2019, 12:53 pm

    @dearieme

    I wouldn’t read too much into the Trinity College decision – it is a tiny employer of academics and Oxbridge Colleges (not to be confused with the central Universities) are strange beasts anyway in that they rely very heavily on their endowment income. One can see why they might feel that the capital risks involved with a last employer standing scheme fall unduly on themselves, and why they believe that they might be able to run a cheaper scheme independently.

    Even if all the Oxbridge colleges withdrew their contributions they are a very small % of the overall scheme, and they would also be removing liabilities for some of the best paid academics in HE . Fears of the USS’s demise have been overblown by super-low interest rates which have artificially inflated some measurements of the scheme’s deficit. Indeed, a number of economists have made a plausible case that current contribution rates (very much higher today than they used to be) are much larger than necessary.

  • 16 Anonymous lurker June 1, 2019, 1:07 pm

    I completely agree with A Beta Investor. QE is the reason for all these sky high valuations as banks lent more money into the property market and to companies which used the money to buy back shares in order to raise their market capital value higher; instead of lending money into the productive economy. It is more convenient for the banks to have collateral, than to take the loses on new businesses trying to break in and actually create jobs instead of these behemoth multinational companies increasing their market share even further and killing the little businesses whilst hammering the final nail into their coffins.

    How Uber can be placed in the same sentence with Google and Microsoft is beyond me as Uber still has not made a profit and neither has Tesla, and these two companies are “Unicorns”.

    Great article also by the way.

  • 17 Ben June 1, 2019, 1:11 pm

    @britinkiwi

    Well I’d have sold mine 5 ish years ago anyway, to also buy a house. Still doesn’t help, there’s always the what if.

    You raise a good point though, the principle applies to any holdings you used to hold too.

  • 18 The Investor June 1, 2019, 1:59 pm

    @Anonymous lurker — Thanks for your comment. I think though that you conflate two issues that reveals a potential contradiction in thinking that has uprooted a lot of investors over the years. 🙂

    On the one hand, you bemoan banks not lending money to new companies, saying they should risk losses to support new companies trying to break in and actually create jobs.

    On the other hand, you bemoan the valuations of Tesla and Uber, on the grounds that they don’t make a profit.

    But it can be argued that these are two sides of the same coin!

    Unlike your banks, the market, in its wisdom*, has decided to provide capital to the likes of Uber and Tesla, and those companies are massively spending in order to scale and grow as quickly as possible to capture *future* profits.

    i.e. The market is doing what you suggest banks should be doing, in providing capital, and these companies are behaving the way you’d like to see companies behave.

    Tesla in particular is a massive capital investor and a pretty big employer. One reason why I’ve held the shares a long time (great results in early years, very mediocre middle, poor recently though happily I had reduced to a 1% position partly through luck with my CGT defusing in April) is exactly because it’s one of the few disruptive companies that has a clear demand for capital to grow, and I suspected this might lock in some advantages / diversify my stock-picked portfolio.

    In contrast, as you’re probably aware, the likes of Facebook and Google have required very little capital to reach their enormous sizes. It’s not clear in retrospect why they needed to list at all, except to enable employees to cash out.

    Where I do think the finger of blame can be pointed at QE is in the fact that it makes money very cheap, and reduces the discount rate investors need to apply in models where there’s a far off date for stronger cashflows.

    I know this will sound a bit wonky for some, so in simplified terms, if interest rates are say 6% and you don’t expect your start-up unicorn to make profits for 10 years, you have to consider that instead of buying shares in it you could double your money in cash over the same time, risk-free. (Again, simplifying). However if rates are say 1% then it’ll take decades. Hence the opportunity cost of investing in growth / future profits is lower, and hence the multiple (valuations) that can be justified are much higher.

    I covered some of this in point #10 here:

    https://monevator.com/the-problem-with-low-interest-rates/

    If the end of the QE era was truly upon us, this would be a very live question. However with the US 10-year yield now creeping back down towards 2% and talk of rate cuts next year, it looks like growth could continue to be underpinned, sky-high valuations and overdue bear market notwithstanding.

    *Wisdom or folly. That’s the nature of growth investing! 🙂 Some companies are Amazons or Netflix-es, which grow for years without reporting profits and then eventually show at least the potential to ‘flip the switch’. Others (most) eat capital and leave investors with little to show for it.

  • 19 Jonathan June 1, 2019, 2:05 pm

    As a USS member, it was interesting to hear that Trinity College is withdrawing from the scheme.

    It doesn’t take a lot of financial literacy to work out that claims of a “shortfall” in USS are exaggerated. Last time I looked they had reserves of £60bn with annual expenditure of £2bn. Against an unrealistically harsh stress test of all contributions stopping tomorrow, they could still meet obligations for 30 years if the investments simply kept pace with inflation. Actually longer, since expenditure would taper downwards as current pensioners died and were replaced by those with fewer years’ contributions. Or put it another way, if the reserves earned 3.3% more than inflation they would last for ever. The shortfall one comes up with depends on the growth rate fed into the model, and they must have chosen one that hardly exceeded inflation. Apparently the investments approximate a 60:40 portfolio and 3% over inflation doesn’t look unrealistic from historical data (the required number is less than 3.3, the fund could be run down as pensioner numbers fall), and presumably they wouldn’t pay their fund managers 7 figure salaries if they didn’t think they could significantly beat the passive investment expectations of a Monevator reader.

    However Trinity’s decision is all about risk and they are in a very different situation from most other institutional members of USS. They are subject to the same “last man standing” risk as much larger places while gaining a fraction of the benefit; at the same time they have massive endowment reserves of their own they can use to underwrite the calculable finite risks of a stand-alone fund supporting only 20 members.

  • 20 ZXSpectrum48k June 1, 2019, 3:14 pm

    @TI “… However with the US 10-year yield now creeping back down towards 2% and talk of rate cuts next year …”.

    Next year? Keep up! After the Mr Trump decided to stick tariffs on Mexican imports on Thursday night, the market has moved those rate cuts very firmly into this year. Two more banks moved their forecasts to call for 2x25bp cuts this year (Sep and Dec). The question is whether these cuts are the fabled “insurance cuts” just to stave of ever lower inflation expectations. Or whether the Fed are really worried they are going to need to cut to stave off the first ever recession made by just one man: the Trumpster.

  • 21 The Borderer June 1, 2019, 11:51 pm

    ‘Experience is what you got when you didn’t get what you wanted.’

    I would also say it’s what you get when you didn’t get what you expected.

    I don’t know whether I’m pleased or disappointed that I’m so very experienced!

  • 22 Simon T June 2, 2019, 7:04 am

    Did anybody else see the comment by Colm Fagan on that retirement FT article
    A retired actuary who invests everything in equities and has an article published

  • 23 hosimpson June 2, 2019, 9:50 am

    That article about incels… Jesus. At first I tried to empathise, but failed miserably and gave up trying somewhere halfway through. Gods help us, what an abnormal group of fuckwit assholes. Btw, wasn’t that Christchurch shooter one of them? So I’ll just go out and say it – I trust most women will agree – it is for the best that they don’t procreate, and long may they continue to be celibate.

  • 24 Anonymous lurker June 2, 2019, 9:58 am

    @ The Investor, thank you for your response. Yes, you do raise good points and I do agree with them. I do think that in a perfect world where model predictions are correct and reign supreme, your points are correct and I cannot disagree with what you stated.

    However, if I could direct you to read a book by the economist Micheal Hudson (The Bubble and Beyond), who articulates the main problem with QE far better than I can, I believe what I was trying to get across would be more easily understood. (I need to improve how I articulate my points). Have a good weekend.

  • 25 Matthew June 2, 2019, 1:04 pm

    Reading the morningstar article it occurred to me that value investing is essentially a form of market timing, like rebalancing also is

  • 26 Ben June 2, 2019, 1:22 pm

    @Matthew

    Not market timing isn’t some kind of religious edict, the problem is it doesn’t work out so well.

    Rebalancing has been shown to work (for some value of ‘work’) so there’s no particular problem is using it.

    If market timing can be shown to reliably meet your aims, then go for it?

    Apologies if I’m reading something in your comment that isn’t there, I assume you’re implying marks timing == bad.

  • 27 Matthew June 2, 2019, 5:41 pm

    @Hosimpson – I think part of the problem with incels is how disconnected from normal thinking they get, which is why some (not all!) go on to do bad things that makes them all look bad, as you see, which doesn’t help them integrate and normalise. It is a mental health problem at root, which is more shunned and more suspicious because its male

    @ben – I think value, as a timing method can’t be expected to beat an index on a risk adjusted basis, but as established before, divergence from passive orthodoxy can control risk, like rebalancing or tilting to one segment of an index, so it depends on the aim

  • 28 hosimpson June 2, 2019, 9:11 pm

    @Matthew – before reading this article, my notion of someone who was involuntarily celibate was Howard Wolowitz from the Big Bang Theory – desperate, lives with parents, has memorised chapters from that ridiculous pick-up book….
    The people from that article indeed appear to be desperate enough to have at least tried following suggestions from that stupid virgin-wannabe-playboy bible, and the main character does live with his parents. But the misogyny, the entitlement, the conceited disregard for others make these people deplorable and undeserving of pity. A mental health problem? Yes. But I disagree that it’s shunned because it’s male. It’s shunned because it is – at its core – predatory.

  • 29 Matthew June 2, 2019, 10:11 pm

    @hosimpson – both versions are true, different extremes of a spectrum, but it can turn particularly toxic like you say if someone has the wrong attitudes, quite often they will put their heart on the line way too early and blame the other person for heartbreak – they have no idea how you are supposed to gradually develop a bond, and they think that it’s now or never hence why they try to get sex in early before the get rejected – they dont realise that sex isnt that important and that being a genuine partner would lead to that anyway – bear in mind guys generally dont grow up watching soaps like women, so have far less instinctive understanding of how relationships work. They may go through puberty unprepared – note the higher depression rates if the young generally. There can be a misinterpretation of what being masculine is supposed to be, they have wrong stereotypes of what “Chad” is like, hence why they hate him

    I would say that with various other mental health problems too its difficult to be considerate or aware of others, anybody with such problems cant be a good partner until they open their eyes.
    Society expects boys to instinctively know how to be men, its a learning curve, it’s probably more common in mens past when they were coming of age than they would like to admit.
    This is what talking about male mental health, tackling the bad that men do and male suicide is – we’re not justifying anything, just dealing with what is actually going through their heads, and its hard to talk about unacceptable feelings like this – the acceptable face of support, the structure out there of talking through feelings isnt really geared to how men work

  • 30 MrOptimistic June 3, 2019, 8:55 am

    @SimonT. Could only find an old Sunday Times article but that indeed eschewed bonds. Do you have a link?

  • 31 Simon T June 3, 2019, 10:46 am

    @MrOptimistic
    It’s in the comments section here
    site:ft.com+Old+Money:+Retirement+doesn%E2%80%99t+always+make+you+happy

    However he links to page 34 of his article here
    http://www.theeuropeanactuary.org/downloads/TEA%2018-OCT2018.pdf

  • 32 AAJ June 3, 2019, 12:03 pm

    Anderson backs Tesla as a technology driven disruptive company. But Tesla is always on the verge of bankruptcy and could easily go pop and be bought for a fraction of it’s currant value but a tradition car manufacturer. Pioneers often die – after all who is reading this via an IBM pc?

    What I like about people like Anderson is that they are always very positive about the future and the use of technology in the future. This is a good thing as being negative usually holds investors back. The world moves forward, people want more stuff and people want cool stuff, that’s just want our little monkey brains crave for.

  • 33 Ben June 3, 2019, 1:15 pm

    @AAJ

    IBM wasn’t a PC pioneer. Apple was though, and they seemed to have turned into one of the best bets in that space.

    99% of the pioneers are gone though, and I’m not sure whether Apple shareholders were wiped out in the 90s, so your point still stands.

  • 34 jim June 3, 2019, 8:32 pm

    Woodford suspends fund withdrawals?

  • 35 The Investor June 3, 2019, 9:13 pm
  • 36 Flingy June 4, 2019, 12:54 pm

    Unfortunately, somebody I have preached to about passive index investing is heavily invested in this fund with ~70% of their portfolio, we’re talking upwards of £100,000.

    What position does this put them in? They’ve brought it up and unfortunately I have no understanding of what their next steps should be.

  • 37 Sean June 4, 2019, 2:07 pm

    Next steps?

    Hmm, dunno. Fortunately my £10k (£10k put in at the start, rose to over £13k in about 2 years and then all the way back down to £10k over the next 3) is only about 2.5% of my stock market total, most of which is in index trackers. I have thought several times in the last year or so about pulling out, last time being only about a month ago, so I’m kicking myself now!

    For the time being there’s nothing any of us can do other than decide on a course of action to take when it is eventually re-opened. I’m still not sure but probably leaning towards pulling out asap although I don’t expect my chunk to still be worth £10k when the fund re-opens.

    I would not be surprised if the fund is liquidated and the proceeds returned to investors. I can’t imagine anyone except the most optimistic of Woodford’s fans to want to invest in this fund, or with him, ever again.

  • 38 Ben June 4, 2019, 2:43 pm

    @sean
    “I can’t imagine anyone except the most optimistic of Woodford’s fans to want to invest in this fund”

    Id be interested, blood on the streets and all that.

    I was half thinking about looking at his investment trust, I assume that’s suffering also.

  • 39 Sean June 4, 2019, 3:30 pm

    “I was half thinking about looking at his investment trust, I assume that’s suffering also.”

    From what I’ve read (I haven’t checked for myself) everything associated with Woodford is suffering including his biggest fans (Hargreaves Lansdown).

    Perhaps there will be bargains to be had but as I’ve been switching away from active to passive in recent years I won’t be bothering to chase them.

  • 40 Brodes June 4, 2019, 4:01 pm

    Perhaps this is a contrarian signal, calling the bottom for the value/high income approach. HYP up, growth down.

  • 41 jim June 4, 2019, 4:33 pm

    Forgive my very basic understanding but aren’t these funds woodford managed comprised of equities and other assets? Is the listing price a premium on top of these equity valuations or just valued every so often based on total worth?

    I’d be interested in a punt if the price is significantly below the value of the equities it holds

  • 42 The Investor June 4, 2019, 5:39 pm

    @jim — The funds contain unlisted equities as well as listed equities. Indeed it is these unlisted holdings that has caused the problems for the suspended fund (well, together with the poor performance!) as they cannot easily be sold to meet redemptions. Instead Woodford has had to sell liquid listed holdings, driving up the percentage of the fund in unlisted holdings. There are several sideshoots to the story as well, including asset swaps between funds, rather surprising listings outside of the London market, and more.

    The valuation of unlisted assets is not a precise science. It’s based on everything from last fund raise to an estimate by a third-party. At the least it is not marked-to-market daily. Investors sometimes apply a discount to the NAV of a fund holding unlisted assets for this reason.

    In addition while the Woodford fund has been suspended to try to ensure an orderly process, there will be fears of forced selling at prices below their last valuation. And at the very least there’s a potentially big seller (Woodford) suddenly in the market, which could further depress prices. (Many listed holdings of Woodford were down strongly this morning.)

    Also, it’s not unusual for investment trusts (which is what WPCT is, but not the suspended fund) to trade at a discount. See: https://monevator.com/why-do-investment-trusts-trade-at-a-discount-or-a-premium/

    Without wishing to appear rude or arrogant, there is a LOT going on here. As ever, active investing is *hard*. 🙂 If anyone wants to try their hand at it that’s their business (I do! 🙂 ) but there’s not straightforward free money or an easy ‘punt’ or whatnot on offer. 🙂

    Not personal advice, which I can’t give, just general things to think about.

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