Neil Woodford was the UK’s most famous fund manager. His fall highlights an industry both lucrative and dysfunctional
In his classic book A Random Walk Down Wall Street, the Princeton economist Burton Malkiel writes: “A blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.” Last year, the Wall Street Journal threw darts at a list of shares and pitted the resulting random portfolio against those of the cream of the hedge-fund world. The result? The dartboard beat the professionals by 27 percentage points.
The investment world is no place for geniuses; anyone who claims otherwise is a fool or a charlatan. Yet this does not stop money managers touting themselves as gurus, or deter investors looking for stars to follow. Hearts are often broken as a result, and small fortunes laid waste. The unfolding scandal of Neil Woodford is a perfect example. As a star stock-picker at Invesco, he got written up as the man who made middle England rich. Then in 2014 he struck out alone, and the trouble began.