If you are a regular follower or reader of news about stocks and the stock market, chances are that you’ve heard of the name Neil Woodford. But if you’ve never heard of him, we are here to tell you who this somewhat controversial person is and why he is in the news again.
Who is Neil Woodford?
Woodford is a UK stock picker who ran an investment firm that infamously collapsed in 2019.
He first made a name for himself at investment firm Invesco, where he worked for 26 years. At his peak, he was in charge of more than £15 billion of investors’ money.
In 2014, he left Invesco to start his own company, Woodford Investment Management, through which he set up a couple of notable investment trusts and funds.
The firm was initially successful, but trouble came knocking on the door a couple of years later.
In March 2019, the Sunday Times ran an exposé, revealing that Woodford’s flagship fund, the Equity Income Fund (which had already been under-performing for two years) had less than 20% of assets in FTSE 100 companies as compared to 50% when the fund was first created in 2017. Most of the fund was invested in risky, early-stage and unlisted companies.
Deeply concerned, investors rushed to pull out their money, essentially overwhelming the fund.
The ultimate result was the suspension and later the shutdown of the fund by its administrator. The administrator also removed Woodford as the fund’s investment manager in late 2019. A few days later, he closed down his company.
What happened to investors’ money?
Unfortunately, investors had to wait for months to get their money back because of the manner in which the fund was closed. Most of the fund was also in illiquid investments that could not be sold quickly.
According to the Daily Mail, the fund still owes close to £200 million to investors as of right now. Those who backed the fund from the start currently sit on losses of more than 25%.
The events leading to the suspension of the fund are being investigated by the Financial Conduct Authority. A court battle is also underway to try to secure compensation for investors.
Why is Neil Woodford trending again?
Neil Woodford has been in the news again after announcing his intention to set up a new investment firm. The firm will be called Woodford Capital Management Partners and will be based in Buckinghamshire and Jersey.
Unlike his previous firm, the new one will only raise money from professional investors.
Not surprisingly, following the events at his former company, the news about Woodford opening a new investment firm has been met with scepticism.
At this time, we wait to see whether investors are willing to forgive and forget and potentially give this controversial stock picker a second chance.
What’s the lesson for investors?
Needless to say, investors could not have foreseen the collapse of the Woodford fund and the loss of their money.
But there are a few key lessons we can all learn from the story.
First of all, before you invest, make sure you have some cash for emergencies and that you’ve taken care of your debts. Investments can sometimes backfire. If you don’t have a contingency plan, you might be left scrambling to pay your debts or handle unforeseen expenses.
Secondly, always do your research. Only hand over your hard-earned money once you’re sure you want to invest. And even after handing it over, keep watching to make sure it’s still being invested in the right places.
Also, never put all your eggs in one basket. This is a lesson that those who ploughed all their money into Woodford’s fund learnt the hard way.
Diversification, which involves spreading your money between different kinds of investments, will help reduce the risk of the portfolio underperforming or losing money.
Having said all that, the story of Neil Woodford should not completely deter you from investing in stocks and shares. The stock market still has a strong track record of helping investors build wealth.
Yes, there’s still a risk, but with a well-researched strategy and a proper investment vehicle like a tax-efficient stock and shares ISA, the potential for gains, particularly in the long term, is still there.
For more tips and information on investing, check out our comprehensive investment guide.
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