Neil Woodford is the latest casualty of the principle that what goes up must come down – an adage professional stockpickers spend their professional lives trying to disprove.
For fund managers, anything less than continual long-term growth can be very bad news indeed, as Woodford found when the suspension of several of the most liquid stocks in his fund pushed it past its illiquidity alarm threshold.
As a result, trading in the fund itself was suspended, creating headlines in investment news around the world.
But Woodford is not the first victim of a flat tyre on a previously profitable investment vehicle, as the BBC recently reported.
The broadcaster profiled several of what it called the “Pied Piper-like figures” of the investment community, whose name alone was once enough to garner the trust – and the capital – of their dedicated investor followers.
John Clifton Bogle – better known as Jack – created the first index mutual fund, dubbed the Vanguard Experiment, in 1976.
He died in early 2019 at the age of 89, and his fellow giant of the investment world Warren Buffett paid tribute to Jack’s legacy, saying: “Jack did more for American investors as a whole than any individual I’ve known.”
Index mutual funds paved the way for investors with limited funds to pool their resources, allowing them to buy into a broader spread of shares.
But Bogle was also a critic of the investment industry, and in his later years he even suggested that new investors should focus on funds with automated advisors in order to minimise their exposure to the fees charged by human fund managers.
This was not entirely at odds with his earlier life – his mutual funds and direct marketing to investors had always helped to reduce fees and eliminate brokers entirely, allowing smaller investments to go further.
Anthony Bolton is an investment sector legend, often spoken of in the same sentence as Woodford and known for averaging almost 20% annual returns for nearly three decades as manager of the Fidelity Special Situations fund.
For those who bought in with a portfolio worth just £1,000 in 1979, when Bolton stood down in 2007 their total value would have stood at a dizzying £143,200.
He achieved this while sailing against the wind, including purposely avoiding the dot-com bubble – and therefore also avoiding the significant losses seen by many other investors when it burst.
The legacy stood as a legend for several years but in 2010, Bolton was tempted out of his semi-retirement to manage the Fidelity China Special Situations fund in Hong Kong, which 80,000 investors ploughed millions of pounds into.
Another three years later, and Bolton had failed to replicate his earlier success – leaving an initial investment of £1,000 now valued at a less than delightful £945.
In 2014 Bolton admitted he had made mistakes and retired again, this time seemingly for good, although he is still held in high esteem by many for his successes in the 1980s-2000s.
A born EastEnder, Terry Smith is quoted by the BBC as saying “I don’t start fights with people, but I will finish them,” a line that could have come from the broadcaster’s own soap opera.
Smith is an East End boy done good – in his mid-60s, he now lives in Mauritius and is best known for taking on the bloated fund management sector in the UK with the launch of his own Fundsmith Equity Fund in 2010.
But beneath the surface is a calculating mind with a keen focus on buying good prospects, at good prices, and then doing nothing until they rise in value.
That can include big-name stocks like Nestle and Microsoft, and about 25 of these ‘quality’ names form the core of Smith’s equity fund.
Until recently, Smith was also involved in the management of the Fundsmith Emerging Equities Investment Trust, but although this has achieved positive rates of return since it launched in 2014, it has not outperformed emerging markets as a whole.
The Fundsmith Equity Fund also posted its poorest annual performance in 2018 at gains of 2.2%.
However, it is worth noting that Smith’s star shines so bright that even performance in the low positive percentages is considered below-par at a time when many other funds are losing money.
And so we come to arguably the biggest name in the business, Warren Buffett.
The Berkshire Hathaway chief exec shares a similar strategy to Smith, buying in at a low price and holding for long-term gains, and many investors worldwide follow his guiding light as a result.
For those who bought into Berkshire Hathaway in 1965 with an initial investment of $100, Buffett would have returns more than $2 million, but the 2010s have not been kind to the Oracle of Omaha as he approaches his 90th birthday.
Buffett is quoted as admitting that an attentive investor would have sold his stake in Tesco sooner, while in 2013 Berkshire Hathaway acquired Heinz and later merged the company with Kraft, wiping billions off the stocks’ values in the process.
Despite this, Buffett has plenty of fans in the global investment community – and is a good example of why trust is not linked only to positive performance.
Instead, Buffett owns his errors, and it is this honesty that helps to maintain trust even through turbulent times, keeping him at the top of the tree among those rock-star fund managers of the past 50 years or more.
Disclaimer: The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.