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Quick Thought Of The Week: Pear-shaped

Neil Woodford is not that much of a household name in Asia. But in the UK, the fund manager was one of the most celebrated stock pickers in the money-management industry. He was virtually untouchable – until he was.

£10,000 invested in his Invesco Perpetual fund in 1990 would have turned into over £300,000 just 25 years later. That is a compounded return of 14% a year. His fund which was invested primarily in income shares, helped him secure “super star” status.

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He crushed the Asian financial calamity; he rode out the dot.com boom and bust, and he even trounced the Great Financial Crisis. Woodford could, it would seem, walk on water.

His downfall, however, was that he actually believed he could.

He left Invesco to start his own fund that at times would, bizarrely, invest in small businesses that were not even listed on a public exchange. At first things went well. Then it started to go pear-shaped.

Pedestrian returns

Woodford had lost his Midas touch.

Investors began withdrawing their money. The fund, which, at its peak had over £10 billion in assets, now only holds around £3.7 billion of investors’ money. Withdrawals from the fund have been suspended to stem the further haemorrhaging of cash.

There are lots of reasons why Woodford has not performed well. Brexit certainly hasn’t helped.

But for me, Woodford’s mistake was abandoning his incomparable skill at picking income shares, which he was, unquestionably, very expert at. A 25-year track record cannot be attributed to luck.

However, we can’t fit a square peg into a round hole.

Perhaps Woodford felt that an annualised return of 14% was too pedestrian. Perhaps he believed that he could do even better by employing a different strategy.

The lesson for all of us is to find an investing style that we are comfortable with. Some of us don’t know what that is yet. But once you do, just stick with it. I have.

There is absolutely nothing wrong with a 14% annualised return for 25 years. For goodness sake – it means that we could double our money every five years. I’ll take that any day.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.