Lessons need to be learned from Woodford debacle – Birmingham Post article 14.11.2019

The Neil Woodford collapse is a sorry saga.
It should act as a wake-up call to investors to really do their homework and to understand exactly what they are invested in.
Or adopt the multi-manager approach where you may have perhaps 30 fund managers within one fund so offering genuine diversification, ongoing monitoring, use of passive and active strategies, growth and value styles, plus multi assets, such as bonds, cash, property, commodities and not just equities.
It is also a wake-up call to the regulators such as the Financial Conduct Authority whose limited oversight clearly did not extend far enough, while there have been calls for liquidity standards to be overhauled.
But it is also a story of human frailty.
To some Woodford was a genius – “the man who can’t stop making money” is what the BBC called him – and Britain’s answer to Warren Buffett.
He had dodged the bursting of the dotcom bubble in 2000 and sold out of bank shares ahead of the financial crisis in 2007.
Essentially, akin to religious cults, it is very dangerous to put your faith in one so-called Hollywood-style star investor. Because eventually the likelihood is that something will go wrong and, if you don’t pick up on it, then it can cost you dear … as is happening to the many small investors in Woodford Investment Management (WIM) and the associated Woodford Patient Capital.
Mr Woodford has been removed from both while still insisting the decision to liquidate WIM was not in the long term interest of investors.
Perhaps he took his eye off the ball, but latterly his judgement appeared flawed.
Some blame WIM’s alleged loose approach to compliance and risk – the checks and balances of the investment world. Was there anyone strong enough to challenge what might be perceived as his wilder stock picks?
Typically he combined the buying and holding of blue chip stocks with more unconventional investments, backing a string of unquoted businesses in the early stage of development.
He held stakes in BAT and Imperial Tobacco which as cigarette producers many regarded as toxic. He was on the wrong side of the Provident Financial debacle, while Kier and Purplebricks also performed poorly. This set alarm bells ringing.
The unquoted side also had its issues. For example, energy broker Utilitywise slumped into administration.
As the more astute started pulling out of WIM, Mr Woodford was forced to sell the easier-to-shift shares in large listed companies. But that meant his funds were soon close to breaching regulatory defined limits of having no more than 10 per cent of a fund’s assets in unquoted companies.
And once the panic started there was no stopping it.
Patrick Thomas, investment director at Canaccord Genuity, told Citywire: “The star manager culture has been once and for all destroyed. It could be seen as a positive development. The fact that you now have a fund-buying industry who are looking at the process more than individual superstars. Do your homework, humans are fallible.”
Veronique Morel, senior wealth manager at Raymond James, added: “Woodford thought that he was a master of the universe, a big household name who people trusted with their savings. This brings us back to the famous adage – do not put all your eggs in one basket.”
Investing is increasingly complicated and any (amateur or indeed professional) investor who relies on past performance – over his 31 year stretch as a fund manager, Woodford returned 2015 per cent which is almost twice the average return of his peers in the UK Equity Income sector of 1251 per cent – is likely to get caught out.