The ant or the anthill?

I take no pleasure in what has happened to the hundreds and thousands of individuals who invested in Woodford Investment Management (WIM). Many will lose money, some of them a great deal of money.

They put their faith in a whole host of different people, some or all of whom ultimately let them down.

Of course, Neil Woodford and others will be fine, they have made their money.

There will be an enquiry, several internal investigations, the blame game that’s probably in full swing behind closed doors will become public, a bit of falling on swords will ensue, maybe an FCA fine here or there and perhaps some compensation will appear.

But what lessons will have been learned? Precious few, but there’s a completely obvious one staring straight at you as a private investor.

You simply can’t rely on investment professionals, the FCA, fund managers or anyone to have your best interests at heart.

Or, to put it another way, it is solely your responsibility to make sure you always know what’s going on and to remove as many barriers to your success as you can.

Like all truly great solutions this one is simple, elegant, will stand the test of time and is based on the following premises:

1. The safest way to invest to ensure the investment outcomes you need is to remove as many decision-makers as possible from the investment strategy and process. Less is more.
2. Cheap and simple is better than complex and expensive.
3. The more humans involved in any process, the more present their biases and fallibilities will be.
4. Your financial plan and investment strategy do not require you to consistently generate market-beating returns.
5. You can and will stick to the investment strategy, come what may.

If you don’t agree or can’t abide with each of the points above, there’s little point in reading further. I wish you every luck and will keep my fingers crossed for you and probably even light a candle.

If you are still reading, here is how the WIM and its supporters failed their customers:

1. Neil Woodford – abandoned his previously successful investment style.
2. WIM’s investment team – didn’t keep finding and buying above-average investments as guided by Neil Woodford.
3. WIM’s compliance team – apparently didn’t challenge him and found ways round sensible regulatory limits.
4. HL’s research team – kept on pushing Woodford’s funds, kept issuing supportive votes, kept earning off the back of him.
5. HL’s investment managers – continued to invest with WIM via their multi-manager funds regardless of the performance.
6. HL’s compliance team – it seems raised no objections with the Best Buy list, the closeness of the relationship with WIM or the continual backing of a manager who was clearly struggling.
7. All of the above applies to a plethora of investment committees, Best Buy lists, IFAs all enthralled by Neil Woodford’s past performance.
8. The FCA who it would appear did way too little, way too late with either WIM or HL and the other investment platforms.

This model means you have outsourced everything that matters to third parties whose own interests are not aligned with yours.

You are reliant on WIM to keep up their performance, HL to keep up their research, various compliance teams to hold the correct the people to account and the FCA to have a proper oversight and act quickly at the first sniff of trouble (they knew something was amiss in 2017).

Everyone above simply wants the party to keep going, the fees generated are enormous and that keeps people employed, gets mortgages paid off, and holiday homes and sports cars bought.

Success for you will have relied on many people consistently and continually making correct decisions. And when that stops you lose out.

Success for everyone above means keeping the party going as long as possible, those people have been very successful.

The TCFP way of investing tries to eliminate many of the issues above as follows:

1. The starting point is to honestly, and proudly, admit we really haven’t got the faintest idea what’s going to happen with investment returns at any point in time. Is it going up, down or sideways tomorrow or over the next month? Who knows and why should we care? We are long-term financial plan managers, not short-term investment jockeys.
2. We can be pretty sure that, over the long term, the global economy will keep growing. And that that will provide the sort of inflation-beating returns that will be good enough for your financial plan to have every chance of delivering for you.
3. The question is then how to capture that global growth as efficiently as possible. Our answer is to buy the broadest global equity tracker we can find, making you the part-owner of the biggest / strongest / most successful companies in the world.
4. To that mix we also add smaller companies and emerging market companies to try to capture some of tomorrow’s winners early.
5. In so doing we’ve eliminated the need for (and the cost of) a “professional” to decide which companies / sectors / countries, etc. should be owned and which ignored. We’ll just buy them all.
6. As well as eliminating the “professional’s” cost, we’ve also eliminated their biases, fallibilities, marital status, gambling habits, holiday preferences, school fees schedule (this list is not exhaustive) and each and every thing that might lead them to acting like a human and making a mistake.
7. In place of this reliance on a handful of “professionals” we have, instead, put our faith in the millions of humans employed, directly and indirectly, by the 8,000+ companies you own a bit of.
8. As a collective they are making billions of decisions each year. On average they are only concerned with working in a way that ensures their company remains profitable and therefore they remain employed. What they do to improve their customer’s lives, improves their own.
9. The result of all that is that you are tapping into a massive, unrelenting network of rational thoughts and actions. Compared to one or two people’s “best judgement”.

All of which leaves me wondering why anyone in their right mind would back a single ant or two when you can easily have the whole anthill?

future proofing your finances

advice@townclosefp.co.uk 

Town Close are expert financial planners. Our goal is the same as yours – to help you do the things that are important to you in the time you have remaining.