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Woodford, Buffett Bot and FRC Survey

There was a very good article in the FT on Saturday on the “rise and fall of a rock star fund manager”, i.e. Neil Woodford. Essential reading for those who have lost money in his funds. A tale of hubris and obstinate conviction it seems. They report that lawyers are looking at a possible claim for investors but I cannot see any obvious grounds. But lawyers like to chase ambulances. Panorama are also covering the Woodford debacle on Monday.

That well-known phrase “Where are the customers’ yachts” comes to mind. While Woodford and his associates have made millions from his management company, the customers have lost money. That is an issue that the FCA might wish to consider but I cannot think of any immediate solution.

Another article in Saturday’s FT was on a Buffett “App” which would imitate the value investing style of Warren Buffett. Neil Woodford was once known as Britain’s answer to Buffett in the deadwood press but that is now being forgotten of course. This new App from Havelock London is aimed to imitate the investing style that is claimed to be the source of Buffett’s above average long-term performance.  They claim that App will focus on long-term value rather than short term performance which is the approach of most such “quant” investors. This was the marketing pitch of Woodford’s Patient Capital Trust in essence as you can tell from the name.

But in my view this whole approach that you can pick out sound investments by clever analysis of the historic financial numbers or of other metrics is simply misconceived. I have explained why this is so in my book “Business Perspective Investing (see https://www.roliscon.com/business-perspective-investing.html ). One reason why Buffett was so successful, which is obvious if you read about his career, is that he looked carefully at the business models of the companies in which he invested and such matters as the barriers to competitor entry. Yes you can cover some of his analysis by looking at return on capital or other metrics of a company, but that’s only half of the story. You need to understand the business from the perspective of a business analyst.

The Financial Report Council (FRC) have just published a survey on “The Future of Corporate Reporting” (see   https://www.frc.org.uk/news/october-2019/future-of-corporate-reporting-survey ). As the announcement says: “Respondents views will inform the FRC’s project which seeks to make recommendations for improvements to current regulation and practice and develop “blue sky” thinking. A key aim of the project is to challenge the FRC to think more broadly in responding to the recommendation by Sir John Kingman to promote greater “brevity, comprehensibility and usefulness in corporate reporting” moving forward”. So this is something all investors who read company reports should look at. It should take no more than 15 minutes to complete they assure us. I completed it in not much longer.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

One comment
  1. Jeremy Prescott 21st October 2019 at 8:05 pm

    Excellent FT article, the best I have seen on this sorry tale. Interesting that Woodford’s background t Perpetual, always lauded for being an hour away from the City and all that investment noise, meant that he also had limited contacts to introduce or with whom to explore new ideas when the funds rolled in. Hargreaves Lansdown, Link and the FCA come out with tarnished reputations and, as survivors, probably face several more years’ investigation – maybe lessons will be learned. The dividends taken out by the Woodford (£98m mentioned) and Hargreaves founders add insult to the injury caused to the investors involved.

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