Woodford: Hero to Zero

If you follow the media in any form, you’re sure to have heard of Neil Woodford and his spectacular fall from grace.

He came to my attention very early in my career and as I was learning about fund management, his name came up time and again. He famously decided not to invest in technology stocks before the dot com bubble burst and again, he avoided the global credit crisis.

These decisions afforded Neil Woodford rock star status in the financial industry and indeed, his feted success trickled down to DIY investors who had the confidence to use his funds.

As an advocate of evidence-based investing, I believe markets are broadly efficient and by focusing on risk, diversification, costs and tax, we can deliver good returns that justify our fees. The chances of anyone outperforming the markets for a sustained period are minimal, but star fund managers, promoted by wealthy investment houses, would have us believe otherwise.

Neil Woodford has now come back to earth with a bump. In addition to restricting investors’ access to his funds, he has been abandoned by his most ardent cheerleaders, investigated by our regulator for potential management breaches and there are even articles dissecting his private life.

So, what went wrong? 

Fundamentally, I think he believed his own press, became over confident in his abilities and thought he could continue to beat the market. He was put on a pedestal by a profession that was too financially and emotionally invested in him. The likes of St James’s Place had more than £3 billion in his funds and he was included on a promotional fund list by Hargreaves Landsdown, who arguably kept the faith in him far too long.

Sadly, the man on the street was no different and he has paid the price. When something is being sold to you by reputable companies, you’re going to trust their better judgement, right? But where is their accountability now, when investors can’t access their money?

I take no pleasure in Woodford’s misfortune, because it is the investors that suffer. They are now stuck in his funds, watching their life savings trickle away as the negative press surrounding him compounds his problems.

The moral of this story? 

To quote Chuck D of Public Enemy, “don’t believe the hype.” He wasn’t talking about fund managers, but if the cap fits…

Any financial decision that isn’t evidence-based should be questioned and the risk properly assessed. There is no place for sentiment – the facts are what count. Diversification is the only free lunch you’ll get in investing.

If you’d like to learn more about Belmayne’s approach to managing clients’ money, don’t hesitate to contact me on (01246) 298181 or email: ben.smalley@belmayne-ifa.