Woodford Concerns

Malthusian

westernpromise wrote: »

I read somewhere that if 1,000 completely inexpert people play the stock market, they'd have something like an equal chance - 33% - of either making money, or losing money, or breaking even each year.

The chance of them breaking exactly even is nil. You could however define "breaking even" as "losing or winning a small amount that puts you within the middle 33%".

That aside, the "lucky rat" theory is completely correct. When I first saw it, it involved getting 1,000 lab rats to pick stocks by putting a button in their cage wired to a stock ticker. Then you discard the ones that do badly. As you say, eventually you will be left with one that has never lost in 17 straight years. You'll also have a few rats that are still geniuses because they only had one bad year and 16 straight years.

The caveat is that you have to ensure the button has a lock-out delay on it, otherwise the rats become day-traders and will whittle the fund down to zero. As long as all the rats are churning stocks infrequently enough to capture the long-term growth in the market, then some will start outperforming and if you started with enough rats, eventually you'll have a Woodford.

harrys66

Midas wrote: »

It's incredible that they were still pushing this line as recently as January https://www.hl.co.uk/news/articles/waiting-with-woodford

WOW .... kate marshalls final statement .... "We could be wrong. If we are we’ll put our hands up. It might be tempting to change our opinion now to be rid of the current discomfort, but we don’t think it would be the right thing to do. We still think long-term investors will be rewarded."

modern crony capitalism... in that HL's incompetance which made them (kate included) so much monies in fees on every in/out transaction on this fund walk away suffering (by law) no PERSONAL FINANCIAL consequences

molerat

Some difficult questions may be posed elsewhere about the investment of council tax payer funds. With a previous history of shaky investments Kent County Council tried to withdraw £250M and it seems that large single request is what triggered the suspension. https://www.kentonline.co.uk/kent/news/council-to-pull-millions-from-pension-fund-205907/

Scarpacci

Reaper wrote: »

Many of his bets have been hit by Brexit fears, but if there is any sign of that being resolved in the near future (in a non-disastrous way!) then confidence in those stocks such as house builders may return.

He is a high conviction contrarian investor. So it all depends whether you think his strategy will come right in the end or whether you think he has picked too many turkeys recently to trust.

The problem he seems to have ignored is that it's not just a question of sentiment when it comes to housebuilders and these domestic cyclicals. These businesses don't just keep humming along in bad times, letting you wait out a period of low valuation.

Their [usually narrow] profit margin disappears. Their balance sheets become overextended. Their creditors get antsy. They have to cut the dividend. They have to make rights issues, which either sees the stake diluted or increased in cash terms. Which only raises the hurdle of getting an adequate return from the investment.

His line has always been that it's a sentiment problem with Mr. Market undervaluing British domestic stocks, but if that's true why have so many had to cut dividends or make rights issues? He has seemingly been blind to the issues in the companies he owns, insisting the UK economy was stronger than it looked and everyone else was ignoring it.

cogito

Three weeks ago Woodford doubled his stake in Card Factory to just over 10%. Today it seems he has reduced his holding to under 9%.

He claims not to be a forced seller. Yeah, right.

Uxb1

Meanwhile Kent CC is apparently outraged that it was not given privileged insider info in advance from Mr Woodford that the fund was about to be suspended.
Well that's nice is it not....
https://citywire.co.uk/funds-insider/news/kent-council-hits-out-at-woodford-over-funds-suspension/a1235476?ref=citywire-money-latest-news-list

Mistermeaner

Uxb1 wrote: »

Meanwhile Kent CC is apparently outraged that it was not given privileged insider info in advance from Mr Woodford that the fund was about to be suspended.
Well that's nice is it not....
https://citywire.co.uk/funds-insider/news/kent-council-hits-out-at-woodford-over-funds-suspension/a1235476?ref=citywire-money-latest-news-list

id love the council to explain their investment strategy and why now is the ideal time to sell

not that im directly affected just curious as to the process a public body goes through to make such decisions... i would hope someone (or someones) managing ~250mil of money that isn't theirs is somewhat more savvy than following the herd

dividendhero

HL should put their money where there mouth is. It appears HL clients own around 30% of WEI, HL should buy 30% of WEI's assets at 90% of book value. This would
(1) Improve HL's reputation
(2) Ensure they're customers losses are minimised.
(3) Inject liquidity into WEI
(4) If HL have faith in Woodfords abilities, they should emerge with a profit

or will they just hang their customers out to dry?

westernpromise

Malthusian wrote: »

The chance of them breaking exactly even is nil. You could however define "breaking even" as "losing or winning a small amount that puts you within the middle 33%".

Yes, I think that's how it was expressed - clearly made money, clearly lost money, or went more or less sideways. These last, the middle 33%, would be those who never lost enough in any year for it to matter or feel like a setback. So they would still be in there next year.

Malthusian wrote:

As you say, eventually you will be left with one that has never lost in 17 straight years. You'll also have a few rats that are still geniuses because they only had one bad year and 16 straight years.

And of course even in the year when they were in the middle 33%, half of the 16-year rats / geniuses would still feel like masters of the universe because they would still be "outperforming", apparently, most of the market.

This would tend to cement belief in their skill, because even when lose, they still look better than most.

As long as all the rats are churning stocks infrequently enough to capture the long-term growth in the market, then some will start outperforming and if you started with enough rats, eventually you'll have a Woodford.

That's an interesting point. Over most 17-year periods there would be growth, so in fact, there might be more than 33% clear winners each year because just by being in the market at all some gain is likely.

It's terrifying actually. I don't know how many fund managers there are, but there may very well be enough of them for the apparently good ones all to be just...lucky.

gadgetmind

I have skimmed the thread, so sorry for any repetition.

1) Yes, diversify, but holding multiple funds in the same sector is a high fee "closet tracker", so just buy the tracker.
2) If you go for conviction, and put it all on a star manager who does the same, then things will be great until they aren't. Reversion to mean is real, "hot hands" are a myth.
3) Go global, go multi-asset, and (IMO yet lots of evidence behind it) go passive. Rebalance using a spreadsheet once a year. The only free lunch is rebalancing of uncorrelated assets and this also takes the "monkey brain" out of the equation, and it shouldn't be in there.
4) Woodford's "secret sauce" that has let him beat UK equity income sector in the past, is a) some luck investing in UK equity income, b) actually knowing what he's doing with unlisted securities. I would kind of consider buying his patient capital trust as part of the unlisted part of a portfolio just as I hold RIT Capital Trust, but IMO someone needs to totally focus on this sector and not using it to juice up some equity income fund.