In 1825s series of interviews with some of the most respected investment managers we hear from perhaps the UK’s best-known of all: the highly-regarded Neil Woodford. He shares his career-defining moments and the advice that inspires him most.
What’s the best piece of advice you’ve received?
I learnt very early in my career that it’s important to focus on optimising returns rather than trying to maximise them. Trying to populate a portfolio with the stocks that you think are going to shoot the lights out can lead a fund manager towards all sorts of trouble. That would be to only look at one half of the equation. The other half, of course, is risk and that is as important as potential return. So, for me, the objective has always been to manage risk and deliver an attractive, optimised long-term return, rather than shooting the lights out. That discipline has helped me to avoid a lot of pitfalls over the years.
What’s your favourite quote?
Warren Buffett famously said, “Be fearful when others are greedy and greedy when others are fearful.”
This has always struck a chord with me. The stock market often exhibits a herd-like mentality which results in investors crowding into certain popular trades, driven more by sentiment than fundamentals. This creates valuation anomalies which I, as an active fund manager, am looking to exploit. I try to avoid stocks if their valuations are stretched and focus on investing in businesses that are fundamentally undervalued. This means I sometimes find myself moving in the opposite direction to the rest of the market.
Which investment decision are you most proud of?
This is a tough question. I try not to think about things in this way but a defining episode in my career was avoiding the dot.com bubble in the late nineties. This was a period of intense market euphoria towards anything remotely related to the internet, in which share prices became completely detached from reality. Not participating meant a long and painful period of underperformance but I was convinced that it was unsustainable and that the bubble would ultimately burst. To this day, I’m thankful that my employer at the time, had the patience for that eventuality to play out – some other fund managers were not so fortunate.
Do you have any investment regrets?
Again, this is a tough question to answer but linked to the late nineties bubble experience, with hindsight I wish I’d been more open with my investors about what I was doing and why. My response to the underperformance and criticism was primarily to get my head down and focus on the portfolios. This is one of the reasons that we have made communicating with investors such a priority at Woodford.
If you were to give a family member one piece of investment advice, what would it be?
Think long-term – simple. Another Warren Buffett quote is, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
Outside of investments, what’s your dream job?
To be honest, being a fund manager is my dream job but I wasn’t always intent on investing as a career path. When I was a lot younger, I wanted to fly jet planes but I gave up on that ambition years ago. Then, after graduating I considered a career in farming before finding my way into the City in the early-eighties.
A relatively new hobby for me is eventing – I learnt how to ride a horse a few years ago. So, I guess being an Olympic equestrian rider could constitute a dream job. There have been older Olympic equestrians than I am now, but I suspect it is exactly that – a dream…
Neil Woodford is Head of Investment at Woodford Investment Management Ltd.
This blog and any responses to comments should not be regarded as financial advice.
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