Is Woodford finished?

Mr Woodford is the catalyst for this story, but he is by no means the only one.  I am reminded of a Mafia saying, its business, not personal. Could this happen again? What do investors need to do now?

Is Neil Woodford finished? The probability is yes.  It’s mathematics and human nature.

We all know that Neil Woodford has been granted star fund manager status.  Historically, if you compare his time at Invesco with the FTSE All Share, then Neil Woodford was a clear winner.  There can be discussions as to whether beating the FTSE All Share is a fair comparison, but actually, it does not matter as the maths doesn’t alter as you’ll see.

If the FTSE All Share generated a return of 10% and Mr Woodford outperformed by 30%, that makes a massive difference over time. We all understand compounding.  The question is did he outperform consistently?  Did he outperform every month, every day, even every hour?  The answer is no.  His outperformance was therefore inconsistent. 

For most investors, short term inconsistency is not an issue providing long term consistency is achieved.  What Mr Woodford needs is time to hopefully outperform.  If we add time to the equation, as a variable, investors need to give Mr Woodford time to allow consistency of outperformance. How much time will he be given?

His recent history shows that’s not easy. And even if he outperforms immediately, will it last?

Imagine if, after a short time period, Mr Woodford has outperformed, and then he suffers a downturn, either through poor decisions or even from market changes, what would investors do?  Would they stay with him during that downturn or would they start to revisit the problems they face today? Investors may think, what if it’s another serious problem?  Is it a case of Groundhog Day?  Do we still stay invested or do we sell? In other words, has Mr Woodford’s shield of infallibility been so seriously cracked investors lose faith?  It’s a story where Mr Woodford is damned if he does well and damned if he doesn’t.

You would also want Mr Woodford to have clarity of thoughts.  It is likely his professional anxiety has never been higher.  When under attack, all our decision making can be affected.

Then what about motivation. He is independently wealthy. No one knows what tomorrow may bring, so accepting the stress and anxiety, at whatever level, is unlikely to be health-enhancing, especially over time. So even if he can turn matters around quickly, is it a short hooray as investors are given a chance to exit? We could then be full circle.

Is it time for someone to have a quiet word to Mr Woodford to say enough is enough? 

I understand when you are psychologically knocked down, and you have a persistent personality type, you will get up again and fight on.  The point is at what stage do you step back and realise it’s not as important anymore. There is more to life. Mr Woodford may feel he needs to get back his reputation by helping his investors regain their losses, which is commendable but is he the best person to do that? Investors can’t spend Mr Woodford’s reputation!

His story sends a message to all investors. Do you know what is happening with your money? Do you really understand the risks?  The next time, we may not see such a dramatic fallout by closing a fund, and instead, the risks and costs are carried over the longer term which impacts on your future financial security.

What will you do today about your investments?