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Lessons from the Neil Woodford debacle

June 12, 2019

Neil Woodford, for so long the darling and Star Fund Manager in the financial press has had a torrid week in the news following the suspension of redemptions from his investment funds.

 

 

What I fail to see, is why everyone is so surprised by this story. The fund was very concentrated in a small number of UK shares, holding smaller unlisted companies with the aim of boosting the performance from the boring high-yielding stocks. This might have worked for Woodford in the past, but there is no empirical nor academic evidence to suggest that this could be a successful strategy over the long term.

 

The saddest part of the current headlines is that many investors placed substantial amounts, sometimes even 100%, of their portfolios in Woodford funds believing the marketing material and seeing him as some kind of investment management genius. After all, past performance is no guide to future returns.

 

Why are we not surprised?

 

Successful investing is fundamentally about diversification and being in the market as a whole, by which we mean globally, as the UK represents only 6% of world stock market value.

 

There are no extra returns as an intrinsic part of being in a particular country, sector, nor share compared to the market overall (you might be lucky or unlucky).

 

Markets are efficient - The price of a share at any given time is a fair reflection of its value given all known information, the active Fund Manager is merely guessing that it is over or under-priced.

 

It would seem that Woodford ignored these fundamental things.

 

Creating a successful investment experience

 

Rather than relying on the “expertise” of fund managers, we have built an investment process based on empirical evidence and the academic work of several Nobel Laureates in financial economics. To improve the odds of success, the key principles are;

 

Embrace Market Pricing

 

Don’t Try to Outguess the Market

 

Resist Chasing Past Performance

 

Let Markets Work for You

 

Consider the Drivers of Returns

 

Practice Smart Diversification

 

Avoid Market Timing

 

Manage Your Emotions

 

Look Beyond the Headlines

 

Focus on What You Can Control

 

 

Please contact us if you would like more information on our Evidence Based Investing process, and how it can be applied to your pension or investment portfolio, avoiding the worry of Woodford-like headlines.

 

 

Articles on this website are offered only for general informational and educational purposes. They are not offered as and do not constitute financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional. Past performance is not a guide to future performance and may not be repeated. Capital is at risk; investments and the income from them can fall as well as rise.

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