The Woodford zombie: Back from the dead to show us why ‘star money managers’ are dangerous
🔸 Plus: Britain’s cheapest and most expensive cities, ranked 🔸 John Cleese talks about losing $20 million in his divorce 🔸 Taylor Swift isn't a big deal for her record label 🔸
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Woodford: Back from the dead to remind us why ‘star money managers’ are dangerous
Somewhere out there, under the light of the full moon, beyond the curling mists of the Cotswolds swamps, an undead creature has stirred back to life …
It’s star money manager Neil Woodford!
You may remember his name from the implosion of Woodford Investment Management in 2019. WIM’s Woodford Equity Income Fund was once worth £10 billion and was touted as a “best buy” by Hargreaves Lansdown. Tens of thousands of ordinary retail savers and investors bought into it, thinking — as the word “income” implies — it would provide cashflow for their retirement.
Before WIM, Neil became legendary for his career at Invesco (and for his love of Porsches and horses). “Anyone who invested £10,000 at the start of his quarter-of-a-century career at Invesco Perpetual would have seen their money grow to almost £250,000 by the time he left,” the Guardian once reported.
You can see why people were keen to give him more money
Unfortunately, instead of buying normal, publicly traded stocks that can be sold whenever investors need to cash out, Woodford made the fatal decision to invest in small, unlisted private companies. Private equity is difficult to sell quickly. There is no public market for it. In 2019, investors realised something was wrong and began pulling £10 million per day out of the fund.
Woodford responded by “gating” it — banning everyone else from withdrawing their money.
The fund collapsed, taking with it all the remaining deposits.
Since then, lawyers and the Financial Conduct Authority have been working to salvage what they can from Woodford’s investments. It looks like account holders will get 77% of their invested money back — five years later.
The FCA also ruled that Woodford had a “defective” understanding of how markets and liquidity worked, coupled with an “unreasonably narrow understanding of his responsibilities for managing liquidity risks”.
So what does Woodford have to say about all this?
In his blog, he states that he is not the “villain” here (officially, he is). He didn’t deserve the “onslaught that followed” (he did). “Regardless of who was responsible” (it was Neil Woodford) “investors were trapped in my fund” (by Neil Woodford) and “this will always weigh heavily on me” (because what he did was wrong, even though he doesn’t actually admit that).
The Woodford story is interesting because it underlines some core facts about investing:
Professional money managers consistently fail to beat the market.
Passive investors — people who put their money into index-tracking funds that simply follow the broader market — tend to beat active investors in the long-run.
A study by S&P Dow Jones Indices (which tracks stocks and offers investments) showed that out of 2,132 actively managed mutual funds, not a single one of them — none, zero, nada — consistently beat the market over a five-year period.
Trying to pick individual stocks — buying low and selling high, or jumping in and out of the market — is basically gambling.
If you want to save for the long run, for financial security, or to build wealth then you should invest regularly in vanilla index funds and exchange-traded funds. An S&P 500 ETF or a Nasdaq Composite tracker, for instance.
Crucially, ETFs aren’t run by “star money managers”. They’re run by computers who just follow the market. So you’ll never have to worry about your investment manager suddenly deciding that he’s right and the market is wrong.
As for Woodford, some say he’s out there still, haunting the riding clubs of Oxfordshire, with a really good investment idea, if only you’ll listen …
More from Moneyin2 on investing in stocks
Stocks climb a ‘wall of worry’ — and you shouldn’t worry about it
Stocks & Shares ISA: The tax-free savings account everyone ignores
And for dessert …
Britain’s cheapest and most expensive cities, ranked by average rent and mortgage payments.
John Cleese says his divorce left him “surprisingly poor” and that’s why he’s still working even though he’s in his 80s. “Can you believe when I met her, I had a beautiful house in Holland Park and no mortgage and when I broke up with her, I had a flat in Sloane Square and a full mortgage? How they figured out she was worth $20m, I have no idea,” he told Saga. “Poor” is a relative term, of course: He still spends £17,000 a year on stem cell therapy.
The Labour party is considering reforming the law on cohabiting couples, with a view to giving long-term partners more rights if the couple splits, if it wins the upcoming election. Currently, cohabiting couples don’t have any rights to each other’s property or assets.
Taylor Swift isn’t a big deal for her record label. Her music represents 2-3% of Universal Music Group’s 2023 revenue, according to an analysis by Bank of America. That’s low for UMG because Swift holds the master recording rights to her music and thus her label gets a lower cut.
Andreas Bechtolsheim was the very first investor in Google. He’s now worth $16 billion. He just pleaded guilty to insider trading. Such a weird story.
Funds actively managed by Cathie Wood’s ARK Invest have lost $14.3 billion in value over the last 10 years. Wood disputed the number but admitted to City AM, “we run a strategy that is clearly volatile and very focused”. Yet again, passive beats active!
More from Moneyin2:
The savings account with a 25% return that young people routinely ignore
Ignore financial influencers - the stats say they’re usually wrong
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Photos: Ann Marie Michaels via Flickr; Giuseppe Milo via Flickr.