Woodford Equity Income

talexuser

Interestings points. I did the same and halved IP (was in it for over 20 years) to go into Woodford but took profits in IP long before dumping Woodford when Barnett went nowhere in particular. Your point about Woodford leaving Invesco for more control sounds pretty reasonable. I have a half thought out inkling that a few managers who had a great long term record (eg Bruce Stout in MI - his recent jump was basically the referendum devaluation) have not been able to adapt to the era of QE since many companies have been kept afloat by low interest rates, so the managers normal rules of who to invest in have been skewed somewhat?

short_butt_sweet

cogito wrote: »

Smith has been outperforming in the long run despite Hargreaves Lansdown's attempts to suggest otherwise. As adviser to the Tullett Prebon pension fund for a number of years before setting up Fundsmith, he produced annual returns of around 14% applying the same investment principles.

colour me sceptical, but are the performance figures and historic portfolios for the tullet pension fund publicly available? he would say it's the same strategy, but it is normal for investors to develop their approach to investing over time. it can't be exactly the same, because it isn't a mechanical strategy. i feel we are deep here in smith's sales schpiel, with no solid information to allow us to test how much is fact and how much is presentation.

When it comes to investing, I take the view that if I can’t explain it to an 8 year old, I won’t invest. Smith explains very clearly why he does what he does

well, i don't have a spare 8-year-old to hand, but i suspect that, perhaps we could explain a world equities tracker to an 8-year-old (let's suppose we can, anyway), but we might be bamboozling them in attempting to explain smith's approach. smith likes to present it as simple, but it isn't, really. there is a simple arithmetical explanation for why companies that have superior earnings growth for many years are likely to be good investments. but identifying those companies successfully is not simple at all. it's not always the companies who've compounded earnings at high rates in the past. and if he can't identify those companies with sufficient (it doesn't need to be perfect) reliability, the results may well disappoint. in different economic conditions, there might be fewer such companies, and they might be different kinds of companies from what we'd tend to expect based on the past. so perhaps you can just tell the 8-year-old smith is buying the better companies, so they're likely to beat the average company (or the world equities tracker), but which are the better companies?

presenting his strategy as simple, when there's actually a lot more to it, is something i suspect smith has copied from buffett. of course, he'd probably welcome the comparison to buffett. i notice that, while some crasser investors like to frequently quote buffett, in the hope that that will make people compare them to him, smith goes for the more subtle approach of frequently quoting charlie munger (buffett's vice chairman).

To take that a step further, you can think of companies that pay big dividends like tobacco companies as slowly self liquidating as they don’t know what else to do with their profits so income funds are not for me either.

a very strange comment.

firstly, tobacco companies have been fantastic investments over the last 20 years or so. (this is not necessarily to say they will be in the future.) that's despite being in a declining market, and not having any better use for most of the huge amounts of cash they've generated than to return it to their shareholders. if you're making the point that a business that had equally good cash generation to tobacco, but also had the ability to re-invest a lot more of that cash, without reducing their high return on capital, would be an even better investment, then you are correct. but so what? tobacco has been good enough, and then some.

secondly, IIRC smith continues to hold tobacco shares (philip morris?).

cogito

short_butt_sweet wrote: »

colour me sceptical, but are the performance figures and historic portfolios for the tullet pension fund publicly available? he would say it's the same strategy, but it is normal for investors to develop their approach to investing over time. it can't be exactly the same, because it isn't a mechanical strategy. i feel we are deep here in smith's sales schpiel, with no solid information to allow us to test how much is fact and how much is presentation.

well, i don't have a spare 8-year-old to hand, but i suspect that, perhaps we could explain a world equities tracker to an 8-year-old (let's suppose we can, anyway), but we might be bamboozling them in attempting to explain smith's approach. smith likes to present it as simple, but it isn't, really. there is a simple arithmetical explanation for why companies that have superior earnings growth for many years are likely to be good investments. but identifying those companies successfully is not simple at all. it's not always the companies who've compounded earnings at high rates in the past. and if he can't identify those companies with sufficient (it doesn't need to be perfect) reliability, the results may well disappoint. in different economic conditions, there might be fewer such companies, and they might be different kinds of companies from what we'd tend to expect based on the past. so perhaps you can just tell the 8-year-old smith is buying the better companies, so they're likely to beat the average company (or the world equities tracker), but which are the better companies?

presenting his strategy as simple, when there's actually a lot more to it, is something i suspect smith has copied from buffett. of course, he'd probably welcome the comparison to buffett. i notice that, while some crasser investors like to frequently quote buffett, in the hope that that will make people compare them to him, smith goes for the more subtle approach of frequently quoting charlie munger (buffett's vice chairman).


a very strange comment.

firstly, tobacco companies have been fantastic investments over the last 20 years or so. (this is not necessarily to say they will be in the future.) that's despite being in a declining market, and not having any better use for most of the huge amounts of cash they've generated than to return it to their shareholders. if you're making the point that a business that had equally good cash generation to tobacco, but also had the ability to re-invest a lot more of that cash, without reducing their high return on capital, would be an even better investment, then you are correct. but so what? tobacco has been good enough, and then some.

secondly, IIRC smith continues to hold tobacco shares (philip morris?).

Briefly because I'm short of time.

I can't find figures for the Tullett Prebon pension fund in the public domain. Maybe they are available but that the fund went from deficit to substantial surplus during Smith’s oversight has never been challenged.

Tobacco companies. Smith sold out of Imperial a while ago but continues to hold Philip Morris because of its lead in vaping products (IQOS). Imperial Brands and BAT have seen their share prices reduce by over 30% in the past three years. A high dividend is not much use to me if my capital is being eroded.

Good debate.

Johnnyboy11

100 to 104 in 5 years. Less fees, inflation and the tailwind of a huge GBP devaluation. How did he get it so wrong?

Thrugelmir

Johnnyboy11 wrote: »

100 to 104 in 5 years. Less fees, inflation and the tailwind of a huge GBP devaluation. How did he get it so wrong?

Not everyone is driven by short term performance. Woodford didn't caught up in the Dot Com boom but was rewarded in the era post in terms of performance. What's out of favour eventually comes back in. Vodafone once was a Company that could do no wrong.

cogito

Thrugelmir wrote: »

Not everyone is driven by short term performance. Woodford didn't caught up in the Dot Com boom but was rewarded in the era post in terms of performance. What's out of favour eventually comes back in. Vodafone once was a Company that could do no wrong.

Are you going to risk a few quid then? Woodford was criticised wrongly for not joining the Dotcom boom but now he is being criticised rightly for his recent investment decisions.

Morningstar have just issued a rather damning note on his fund.

"Persistent redemptions, underperformance, and stock-specific issues, combined with the manager's relentless willingness to push the portfolio to its liquidity limit, have resulted in portfolio positioning that we consider extreme," said Morningstar analyst Peter Brunt.

http://www.morningstar.co.uk/uk/news/190135/woodford-equity-income-fund-downgraded-to-neutral.aspx

It's hard to disagree with that.

Regarding Vodafone, it used to be cutting edge. Now it’s just a boring utility.

talexuser

Speaking as someone who left some time ago, it is a question of timing. Nobody was complaining when he was 40% up from launch. Since then it's been pants but he was never a closet tracker, otherwise he could never have had his historic record. Thus he will do the opposite of the market from time to time and your bet is he will perform in the long term. Whether he can recover from this looks bad, but we won't know for some years yet for sure.

Thrugelmir

cogito wrote: »

Are you going to risk a few quid then? Woodford was criticised wrongly for not joining the Dotcom boom but now he is being criticised rightly for his recent investment decisions.

I have a watchlist. I never buy on reputation though. Someone will always have made the right call.

Everything has a price. An excess of negative sentiment can depress share values lower than the value of the underlying assets. Likewise I watch some of the companies bubbling under that are contained in the portfolios.