Woodford Concerns

cogito

I've never really understood the rationale for investing for dividends. It's not like you’re being paid interest on a loan. The company is just giving you some of your money back.

Aretnap

Linton wrote: »

Also agree. He was supposed to be running an "Equity Income" fund. Nothing wrong with running a small company high risk fund if you have the skills to do it but that is not what his customer base thought they were buying.

Been wondering about this. I'm not familiar with the finer details of exactly what Woodford's KIIDs have said about the fund's aims over the years, but it seems that he was stretching his original remit, at best. In principle, if a fund manager took money from punters on the understanding that he was going to invest it in blue chip dividend payers, then actually spunked it all up the wall on unlisted cold fusion start ups, would said punters have any recourse to (a) the financial ombudsman and (b) the FSCS when it all went wrong? (And whether or not it would apply in this particular case, are there more extreme circumstances in which they would?)

ColdIron

cogito wrote: »

I've never really understood the rationale for investing for dividends. It's not like you’re being paid interest on a loan. The company is just giving you some of your money back.

But it's not just giving your capital back. Your funds are paying you the dividends that are paid to them by the underlying companies that they invest in. Take British American Tobacco. Fags are really cheap to produce and sell, the stuff literally grows out of the ground and it's an addictive product. These tobacco companies are cash rich but have little room for growth (new factories, countries they don't already operate in etc). They choose to reward their investors (your fund) with part of their high profits in the form of high dividends. Your fund pays them to you, hardly a return of capital

If you are young then you are looking for growth or total return and have time on your side. If you are retired and need an income stream, investing for dividends makes more sense and time is not on your side

That's not to say dividends have no value to non-income investors, reinvested dividends give you steady compounding, the engine of investing. However if I was a 20 something I'd prioritise the Amazons and Alphabets of this world over high dividend companies

Horses for courses and all that

AnotherJoe

cogito wrote: »

I've never really understood the rationale for investing for dividends. It's not like you’re being paid interest on a loan. The company is just giving you some of your money back.

If they were just "giving you some of your money back" then after a while they'd have given it all back and would stop !

But they dont, they still keep on giving it back as long as you own the share and you still own the shares.

The rationale for reinvesting is compound growth, nothing more complex than that.

AnotherJoe

Johnnyboy11 wrote: »

WPCT can be bought for 64p this morning, a 21% discount to the NAV (if you believe the NAV).

Knock off at least 6% (probably more now the rest has been revalued), for what is literally a completely worthless investment in a scam company, the cold fusion one. With research of that quality leading him to spend £320 Million :eek: i wonder what the rest of his unlisted companies are like?

Barge poles selling fast on Amazon.

cogito

AnotherJoe wrote: »

If they were just "giving you some of your money back" then after a while they'd have given it all back and would stop !

But they dont, they still keep on giving it back as long as you own the share and you still own the shares.

The rationale for reinvesting is compound growth, nothing more complex than that.

If I have shares in a company worth £10 and they pay me a dividend of £1, how much money have I got? The answer is not £11.

ColdIron

If we ignore market movements and timing, you have £10 of shares and a quid in your pocket

Linton

cogito wrote: »

I've never really understood the rationale for investing for dividends. It's not like you’re being paid interest on a loan. The company is just giving you some of your money back.

In some circumstances such as retirement you may want the cash. Dividends have the added advantage that they are a lot more stable than equity prices. Really dividends are to some extent much like interest on a loan, you spend a lump sum in order to get a steady income.


Another aspect of dividends is that they act as a proxy for solid well-run cash-rich defensive companies which see little opportunity to reinvest in the business - eg utilities, consumer essentials, certain property areas. This is why Woodford did so well in the 1990s when the benefits of such companies were not appreciated by many investors.


The danger of such companies not paying dividends is that they use their profits for takeovers, which generally are shareholder wealth destroying, and for ill-judged ventures in areas outside their competence.

Sterlingtimes

I thought that during the freeze period, the displayed price would remain unchanged, but I notice that it is changing from day-to-day. Will the price reflect ongoing adjustments as they happen?

newatc

Does anyone know that those investments in ill-liquid small companies was a strategy from the start or did he move more into those as a gamble to improve poor performance?