Neil Woodford, a lesson in humility

Posted by TEBI on June 4, 2019


Readers in the UK will know who Neil Woodford is. For those outside these shores who don’t, he’s investing Royalty. He famously outperformed his peers over many years as manager of the Invesco Perpetual Income Fund. When, five years ago this month, he set up his own fund, the Woodford Equity Income Fund, it was billed as the fund launch of the decade.

Alas, for tens of thousands of investors taken in by the PR and marketing hype, it hasn’t worked out as planned. The fund’s performance has been consistently dreadful and, one after another over the last few months, Woodford’s biggest clients have been withdrawing their money.

Last Friday, the Kent County Council pension fund committee announced that it too what decided to cut its losses, and yesterday, Woodford and his fellow executives took the highly unusual step of suspending trading in the fund, blocking further investor withdrawals until further notice.

Suddenly everyone has an opinion on Woodford and why the fund was doomed to fail. A simple Google search will show you that some of the commentators and publications putting the boot in now once waxed lyrical about his stock-picking prowess.

We British love building people up and then knocking them down again. I’ve written many times about my scepticism of the Woodford cult — the fact that his outperformance was largely down to overweighting size and value, that you can invest in an index fund at a fraction of the cost, and that the odds of reproducing his previous performance were always heavily stacked against him. But I take no pleasure in his downfall.

If anything good is to come out of this sorry affair, I hope that it’s we all learn a little humility.

Hugely intelligent though I’m sure Woodford is, the idea that one person can outwit the collective wisdom of millions of market participants requires an enormous leap of faith. Very few people beat the market any more, at least not on a cost- and risk-adjusted basis or over meaning time periods. Since the global financial crisis, not even Warren Buffett has managed to do it.

We desperately want to believe there’s someone out there, in the massively complex and random world of finance, who knows what’s going and who really can predict the future. But that doesn’t mean that person exists. Even if they do exist, the overwhelming evidence is that they’re almost impossible to identify in advance.

Its time for reflection, time for us all to be a little more humble, and a little more honest with ourselves. I include journalists like myself in that, as well as analysts, brokers, consultants, advisers, fund trustees, investors and, yes, asset managers too.

Strange though it seems to feel sorry for a multi-millionaire, I actually do feel sorry for Neil Woodford. When you’re fêted for years as a genius, it must be crushing to have it gradually dawn on you that you probably aren’t one after all.



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