The laws of the universe remain in force….

Tuesday, 29th October 2019

The laws of the universe remain in force….

Poor old Neil Woodford….

He flew so high. His star burned so bright. He was a master of the universe….

He had it all – in spades – and then some….

The big name, the sterling reputation, the rave reviews, the Midas touch….

The massive earnings, the splendid houses, the flashy motors, the horses and the stables….

  • Simply the best….

But all that was back then – back in the days when Woodford was a wunderkind with his finger on the pulse of the markets….


…. Back in the days when Woodford could do no wrong – when Woodford’s stellar record as a stock-picking broker at Invesco was still up-front, in-your-face and fresh in the mind….

…. Back in the days when he was still building the legend that saw him turn every £10,000 invested in the fund which he managed into a princely £255,000 over two-and-a-half decades….

The shaven-headed operator – who preferred wearing jumpers and jeans to the usual city-boy attire (so cool!) – made ordinary investors rich. No other fund manager could live with him.

He was the financial world equivalent of a galactico. He was a superstar. Papers and magazines begged for an audience or a throwaway comments. There was a time when it seemed that the Daily Telegraph believed Woodford was the only analyst with an opinion worth printing. They referred to him almost daily….

When he left Invesco in 2013 to set up his own fund – which investors supported to the tune of £15 billion – Hargreaves Lansdown referred to Woodford as ‘simply one of the best fund managers’…. 

  • How things do change….

But that was all back then. This is NOW….

If you haven’t seen a newspaper in a while, Woodford has been sacked as manager of his main fund. And last week he took the decision to terminate his company and to abandon its remaining investment portfolios….

His empire has been decimated. His career is over. The twisted wreckage of his reputation smokes on amidst rumors of mismanagement and accusations of greed (Woodford Investment Management was taking £65,000 per day in fees from investors trapped in his fund)….

And, of course, when the man is down, the polished boots that want to kick him are never slow in turning out. These days, the Daily Mail’s Alex Brummer refers to the dethroned star as a mere ‘deranged gambler….’ 

How things do change. There were times when men like Brummer happily stood in a queue to hoist Woodford onto their shoulders. Now they stand ready only to throw him under the oncoming bus….

Woodford came down from on high not so much like a new Messiah but more like a mortally wounded sack of Cheshire potatoes. But you mustn’t worry about him….

He’s got cuts and bruises, no doubt. But they will heal. He might bounce back. Or he might fade into obscurity. It hardly matters which….

His baubles remain largely intact and he sits on a mountainous cushion of money (Woodford and his business partner paid themselves dividends totaling almost £100 million since setting up Woodford Investment Management). Woodford will be okay….

I’m not so sure about his investors. The investor almost always takes the hit and carries the can. But that’s an issue for another day. There’s something more important to take from this….

  • The most important thing….

The most important thing here is that the laws of the universe – which we can track back to the times of the ancient Greeks – remain both intact and in force….

Offend the Gods with hubris (excessive pride or confidence) and nemesis (downfall) will surely follow – just as night follows day….

Woodford might not be ready to take that lesson onboard. But his downfall represents much-needed confirmation for the rest of us that hubris is still liable to be punished by the Gods….

And a good thing too. When a man believes he can walk on water and charm the birds from the trees, he becomes a problem (and a pain in the backside) – and not just to himself….

Woodford got to the point where he believed his own myth. He got to the point of excessive confidence….

He forgot exactly how he’d become such a successful fund manager in the first place – by allocating a large part of the funds under his management into safe and classic income stocks….

Instead he completely changed his strategy and started making big (generally losing) bets on start-ups – young businesses with no track record, no revenues, no profits, no dividends and no guarantees….

It was a complete and utter divergence from what had worked so well for Woodford in the past. He must have thought that his genius in one discipline would instantly and readily transfer to another….

Woodford forgot the lessons of history. Specifically, those that tell you that when an investment manager swaps investment styles it is – more often than not – a portent of difficult times ahead….

Neil Woodford thought the rules did not apply to him. That he could overcome the truths and realities, the checks, guides and balances,  that hold other men – lesser men – back. His ego was cashing big cheques….

It is the very definition of hubris. And Woodford had nobody around with a strong enough spine to tell him that he was acting like a first-class, gold-plated dick….

At that point, it was a done deal. Woodford had gone too far. The Gods had to step in. The die was cast. What else could they do?

  • Sooner or later….

Woodford isn’t the first superstar stock-picker to be brought back down to earth. Nor will he be the last….

Markets, money and the nature of men combine to create an environment where almost any high-flyer is guaranteed to fall to earth eventually….

That’ just the way it is. Superstar status is a strictly temporary state of being. Just give them enough time and – eventually – down they will come….

If you’re going to bet on it, then timing is the difficult thing. When exactly will the star fall out of the sky?

That’s the million-dollar question. And I have no answers for you. Market timing – and how to perfect it – is a problem that confounds many better men than me….

All I can tell you for sure is this: whenever you choose to bet against the superstars, sooner or later you will be right….

That’s the truth of it as we see it….

All the best,

Dave Gibson

Money Truths