Woodford Concerns

Reaper

Moe_The_Bartender wrote: »

Value investing doesn’t work any more. There’s too much information available these days for anyone to have an edge which is why funds like M&G Recovery have been going backwards and part of the reason why Woodford has come unstuck.

I don't share the view Value investing is over. True it has been out of favour for a long time and Growth stocks have dominated. Investors have been willing to bet Amazon, Google etc will keep growing and eventually justify their high prices.

To take a simple measure there is the classic Price/Earnings or P/E. You take the market price per share and divide by the earnings per share to give you a measure of how cheap or expensive a stock is i.e. whether it is good value

In the UK the FTSE All Share currently averages a PE Ratio of 16. Look at Amazon with a PE ratio over 70 and you start to realise if their growth were to level off the share price could very easily have a crisis. At some point I expect Growth to fall out of favour and Value to make a reappearance, but I can't predict when.

itwasntme001

Reaper wrote: »

I don't share the view Value investing is over. True it has been out of favour for a long time and Growth stocks have dominated. Investors have been willing to bet Amazon, Google etc will keep growing and eventually justify their high prices.

To take a simple measure there is the classic Price/Earnings or P/E. You take the market price per share and divide by the earnings per share to give you a measure of how cheap or expensive a stock is i.e. whether it is good value

In the UK the FTSE All Share currently averages a PE Ratio of 16. Look at Amazon with a PE ratio over 70 and you start to realise if their growth were to level off the share price could very easily have a crisis. At some point I expect Growth to fall out of favour and Value to make a reappearance, but I can't predict when.

PE alone does not tell you anything about whether value is good or bad. As you are trying to mention, it is about future expected earnings and how they grow. PE is just looking ahead one year and does not tell you about future expected earnings growth.


Value investors typically buy companies that have stable earnings (no growth expected) and which have a low PE. Some may very well be great value but there will be some that even at low PE ratios are eventually bought too expensive in hindsight.


You can get burnt either way buying value or growth companies. And both types of stocks can make money in any part of the economic cycle. What tends to happen is that during late-cycles, growth stocks under-perform value as growth stocks are more likely to be sensitive to slow-downs/recessions. Note this does not mean all growth stocks under-perform, only on average they do.

Reaper

Yes indeed. I was using a very simple definition of value to illustrate a point. Naturally a value investor looks for more than just P/E

Many of my investments are in growth but it is a position I am increasingly uncomfortable with.

MaxiRobriguez

In a slowing growth environment a lot of people are going to find that companies with a 5-8% dividend yield are suddenly very attractive.

bowlhead99

MaxiRobriguez wrote: »

In a slowing growth environment a lot of people are going to find that companies with a 5-8% dividend yield are suddenly very attractive.

Well, I supposed that's just like how in a low interest rate environment, companies with that reliable 3- 5% dividend yield (there are not really any at 8% without big risks) have already been 'suddenly very attractive' when bonds stopped offering decent yields.

As growth slows, and equity valuations fall, the trillions of investor capital which has temporarily been using income-paying equities as a bond substitute will bail, as it becomes clear that the party is over and 'value equities' don't have the downside protection of fixed income. It's not clear that there will be enough people wanting to move from the Amazons and Alphabets into the (e.g.) tobacco or energy companies which they find 'suddenly very attractive', to compensate for those who are abandoning the dividend stocks - finding such holdings 'suddenly unattractive' by comparison to fixed interest opportunities.

Dividend paying stocks don't make the headlines as much as growth stocks in recent years, but QE and declining returns from bonds have certainly helped their valuations come on a lot considering the perhaps limited growth prospects and how they don't all expect huge demand increases from month to month when the good times roll. For example my holding in first state global listed infrastructure has basically doubled in last five years and is up over 260% in ten - a fund that holds somewhat boring energy companies, railways, communications infrastructure etc. It doesn't now have the same 'downside protection' as some would have thought it offered at the start of the cycle.

Alanuk

This may be a non related question, and I may be posting in the wrong place. I have 1 year fixed savings account with Atom Bank, which matures this month. I notice that Money Saving Expert no longer list Atom as giving the best one year fixed rate even though Atom currently advertise a 1 year fixed rate of 2%, currently better than the best deal mentioned on MSE, that of Smart Save at 1.92%. Is there a reason for Atoms omission?

I am not fully up to speed with the situation with Mr Woodwards investment fund, but know that investors in his fund have been prevented from withdrawing their funds. I also notice that Mr Woodwards fund invested £10 million in Atom in July. Should I steer clear of Atom and move my funds to another provider, albeit for a lesser return ?

Terry98

Atom's best rate is now 1.83% which is most probably why it's not showing on the best deals.

Atom is also FSCS protected which means the first £85000 of your savings are protected.

Interest rates and FSCS details shown here https://www.atombank.co.uk/fixed-saver

AnotherJoe

Given NW's propensity for bad decisions I can see where the concern comes from but if something did go bad with Atom your money is protected. I wonder how anyone would have done who shorted every company he invested in since he left Invesco? I suspect pretty well.

Sailtheworld

If it was so bleeding obvious that Woodford's picks were rubbish why did people invest with him?

It's as if their analysis didn't go beyond the name on the fund. Of course they're wise after the fact but they still believe in star managers like Terry Smith. It's called cognitive dissonance.

AnotherJoe

Sailtheworld wrote: »

If it was so bleeding obvious that Woodford's picks were rubbish why did people invest with him?
Because they didn't look at who he was investing in.
Because they didn't notice that his investing style changed.
Because they didn't do anything even as one company after another he invested in had massive issues?
Because they didn't bale out after he jumped the shark when he bought IH.
Because trusted and reputable companies like HL (especially HL who should be ashamed) didn't dump him years after they should have but instead continued to recommend him and only bolted the stable door after the horse was dead.

It's as if their analysis didn't go beyond the name on the fund.
Indeed. Nail on the head.
Of course they're wise after the fact
Who are "they"? The clueless / naive who stuck with him (trusting their foolish advisers) or those that either didn't invest in the first place or who got out when the significant change of strategy, dodgy dealing (Guernsey and intertwining of WEIF and WPCT) and string of poor choices became clear?
but they still believe in star managers like Terry Smith. It's called cognitive dissonance.

Again, who are "they".
If Terry Smiths companies start going bust one after the other and if he changes from buying household names to physics defying scam companies, I'll be first out the door.
Trust but Verify.


... and another thought, anyone who has an adviser who recommended Woodfords funds within the couple of years and certainly since WPCT bought IH or since the WEIF/WPCT share swap, should change advisers since advisers are meant to know this stuff.