Woodford Patient Capital Share Discussion Threads

[the oxford whale] 10/2/2018 10:40

As said at the time of launch - what qualifications does he have that enables him to pick winners in the biotech space?I'd wager that even most professors in biochemistry would struggle to make a profit long term in this area without huge amounts of luck. What chance does woodford have with his degree in economics and experience in value investing? He's basically relying on the opinion of others to try and determine if a company is likely to succeed or not, which is a recipe for disaster. At least with some of the other stocks eg financials he will be able to get a decent understanding of the value proposition quite easily and will probably end up making a profit on those ones. However unfortunately the gigantic % of the fund that is invested in biotech stocks will be what ends up sinking the fund imo.

[jonwig] 10/2/2018 10:37

@ ltcm1 - he's certainly backed too many horses, but that loses volatility, it doesn't generate it. (Volatility works upwards as well as downwards.) This means that small stakes in big winners lose their portfolio clout.

I generally prefer focussed funds with a few conviction holdings, though these can be bad investments too - look at Pershing Square for an example.

[ltcm1] 10/2/2018 10:05

PUGUGLY - I see what you mean. I don't know how much the weightings really tell you now I think about it. Really we need initial investment/current value plus the deployment of the 150m, with Purp and RM2 being the best example I can think of at either end of the spectrum.

Has NW backed too many horses and opened himself up to enormous volatility? He's running mob handed, got twice the entry of the Grand National! Wouldn't it be better to have started with a field of 30 say? He might say it's safety in numbers but he's looking very concentrated on the top few. A smaller field would have been more managable for a host of reasons.

Jonwig I accept what you say about exiting holdings, it doesn't sound good though!

After watching the youtube vids last night I do applaud what he is doing. However he did stress that he was only backing proven concepts and the companies were 'oven ready' when it comes to monitising the opportunity. But that can't possibly be true for any of the biotechs and the RM2 debacle in my mind puts a major doubt in the more traditional investments.

In the other funds he is making a highly correlated play in that he is buying housebuilders, commercial property, banks and financials. He talks about the market a lot but doesn't have much to say about real incomes, productivity or personal debt levels. It's all very broad brush. Dare I say it sounds a rather dated approach???

topvest I largely agree. The thing is by the time some of them come good the fund could be 70% down and the discount to NAV huge. It could be worth investing in at that point though, but how many of the initial investors will stay around?

On the thorny issue of NAV, Neil argues that he has got in with a huge margin of safety with these companies because for many of them he was the only game in town. I just wondered how true that is and what people think of his theory that there is huge value in this area because investment funds don't play in this sector.

[topvest] 10/2/2018 08:13

The question you have to ask is how many of the speculative story-stocks commonly make it big in this world? I would say its a very low percentage and its a very speculative form of investing where you need to be incredibly lucky, smart or have done very good due diligence. There is a chance that virtually none of his investments come good enough to merit the individually high valuations in the accounts. I personally think its game over for Mr Woodford and this will play out this year. He's a nice guy but he's made some monumental basic mistakes. He should have stuck to value investing. Hopefully, he will get a chance to start again, tear-up his speculative passion and get back to what he once did well. Unfortunately, history won't look kindly on any investment manager that loses most of his AUMs and generates big losses for private investors. WPCT reminds me a little bit of RAB Capital in the go-go mining days. No liquidity.

[jonwig] 10/2/2018 06:37

Some comments came in after my bedtime yesterday ...

He can't have an exit in place for a stock such as Prothena except at the quoted market price - no chance of a special deal. As for an unquoted stock, how can he possibly have an exit in place if he needs to reduce? Any sale price has to be one that the buyer will pay at the point of sale, not months in advance. (No futures market in minnows!)*

And his 30-year experience has largely involved distancing himself from the City. He's based in Oxford, and City fund managers won't forgive him for inventing a new model of zero fees. WPCT was marketed at PIs (aggressively!) with no courting of institutions.

The fund's year end was 31 December, so he'll be able to report rather better numbers than the last month suggests (probably end-April). My worry is that the BoD isn't independent enough to put him on notice. (The Proactive articles said things about that.)

*I've just checked the latest accounts. He uses derivatives for currency hedging but not for investments - in other words, no options or futures contracts taken out.

[pugugly] 10/2/2018 06:24

ltcm1. Good points but weightings from the weightings update list as at 31/12/17 are for the current weights by value as at 31/12/17

not the BOOK COST of the investments (i.e. the amount of cash that was invested)

Without access (it may be thre but I am not sufficiently interested to crawl through all the back data but should be in the last detailed accounts) unfair to judge weighting on current values.

Example - Suppose you had invested 10% of your investment cash in IQE some 2 years ago at sub 20P a little while ago it would have been an 8+ bagger and so everything else being equal and no other movements might account for say 70% of the value of your portfolio which would then be very unbalanced - Even after the current fall to £1 while you would have suffered a significant loss from the top you would still be up 500% on book cost .

[ltcm1] 09/2/2018 23:06

I don't agree that they have gambled in dud companies, there will always be a number that don't work out for whatever reason, quite often events beyond the company's control.

Where I think he might have got it wrong is with the weightings. If say Prothema was a 7/1 shot he should not be putting 9% of the fund into it, that is not optimal under the Kelly criterion. However assessing the chances of businesses making it is not an easy process. But it should be clear to everyone that a business like Purplebricks is less risky in general than a biotech stock.

Regarding the citywire article - I think it is just BS myself and Woodfood will have an exit in place should he need to reduce. It's just sniping and tittle tattle.

[ssr23] 09/2/2018 22:31

“I think you are underestimating the man ssr23.”

The only thing I have underestimated is how amateur the Woodford team are. They have not “invested̶1; people’s money but “gambled”; them in dud companies and the results speak for themselves.

Re exit strategy. There isn’t one. I refer you to the citywire article. Link below.

[ltcm1] 09/2/2018 22:18

Surely he will sell it direct to another fund and will have an agreement in place before these crucial tests are announced. Should they be negative he will have an exit strategy.

I think you are underestimating the man ssr23. He has been in the business 30 years after all, he knows how the markets work.

[topvest] 09/2/2018 22:12

How much has WPCT and his Woodford Equity Income Fund invested in this obscure company....anyone got the number?

Presumably its hundreds of £ millions. He's lost it. Total speculation with other people's money and using debt if it wasn't risky enough in the first place. Its just crazy!

[ssr23] 09/2/2018 22:11

PROTHENA COULD BE WORTHLESS IF NEOD001 fails in the latest trial????

“Given that he will have to disclose his sales because his position is so large, as he sells down every hedge fund in the world will be shorting the stock ahead of Woodford’s sales. There is very little chance that he will be able to realise any value from his holding,’ said one investment manager on condition of anonymity.”

[ltcm1] 09/2/2018 22:10

But he did say very clearly 3-5 years should be the minimum holding and 10 years is the preferred yardstick. Neil says WPCT will 'blow the lights out.'

As I see it the trust could go 50% down in the short term. But in 10 years it could 5 bag or more. He could get a 50x winner from a single investment over that period.

I do think a worry is the weightings though. When you have a big weighting plus a large percentage of the company that looks like asking for trouble to me. It seems like his math and stats might be wrong as much as his company picks. I don't know if it is in line with Kelly betting principles or not but it looks like he may be over staking to me. Not much point having a 10 bagger at 1% if you have cratered two 9% holdings.

I guess it must be a complex issue but has enough simulation been done with the weightings he has???

[ssr23] 09/2/2018 21:53

This is becoming a nightmare investment. My only consolation is that I hold only a small amount. The idea was to slowly build a position as there are some very good companies which could give a decent return over the long term. However any returns are being cancelled out by the duds. Prothena will be the latest blowout. ReNeuron will be another one. A lot of money has been pumped into this company even though there are big doubts whether stem cell therapy actually works.

Woodford and this effing team are a bunch of amateurs. They have now lost a lot of money which will be almost impossible to recover and we are only in the early stages of a possible bear market.

No wonder there is panic and now mass withdrawals from his funds.

[ssr23] 09/2/2018 21:33

citywire.co.uk/investment-trust-insider/news/woodford-backed-prothena-dealt-fresh-blow-after-exit/a1090976?ref=investment_trust_insider_latest_news_list

[topvest] 09/2/2018 20:32

Blimey, missed that. Enormous outflow in 5 weeks.

[chinahere] 09/2/2018 20:16

£1bn of December's £8.2bn gone in 5 weeks:

www.cityam.com/280229/woodford-suffers-gbp1bn-blow-flagship-fund-hit-10-figure

[topvest] 09/2/2018 20:12

Agreed. To be fair, December wasn't too bad on redemptions. January will be interesting as markets were on the way down and criticism of mistakes louder.

[chinahere] 09/2/2018 19:59

The Equity Income Fund is a difficulty too, it's not all liquid and if the redemptions keep coming in numbers as they have recently, there will be less and less stuff to sell.

[topvest] 09/2/2018 19:45

It has £150m of borrowings and investments that need funding. The bank borrowings need paying down if the investments fall in value. The investments fall in value if they don't get funded. All a rather circular spiral I'm afraid given Woodford thought it clever to take massive stakes in his chosen investments which are all in desperate need of cash to fulfil their blue-sky ambitions. The danger of start-up investing.

[mad foetus] 09/2/2018 19:40

Not really topvest. As it is an investment company it has no liabilities other than repaying it's borrowings and paying its advisers and service providers. The viability statement doesn't really work for investment cos. The discussions in the board of Carillion about that statement would have been great, though.

[topvest] 09/2/2018 19:35

It will be interesting what this says in the 2017 Annual Report....The Viability Statement from last year is centred around liquidity which no longer exists to anything near th same extent despite the fact that borrowings have doubled.

Viability statement
In accordance with Principle 21 of the AIC Code of Corporate Governance published in July 2016 and provision C.2.2 of the UK Corporate Governance Code, published by the FRC in April 2016, the Directors have assessed the prospects of the Company over the ve-year period to 31 December 2021. The Directors consider that a period of at least ve years is required to assess the viability of an investment company that holds predominantly young unquoted or small- to medium-sized companies, as they believe this to be a reasonable period of time for such young companies to make meaningful progress on the journey towards ful lling their long-term potential. In its assessment of the viability of the Company, the Directors have considered each of the Company’s principal risks and uncertainties detailed on pages 23 and 24 and in particular the impact of the total collapse of one or more of the Company’s signi cant holdings. The Board has considered the Company’s likely income and expenditure. The Board is particularly mindful that a signi cant proportion of the Company’s portfolio comprises cash and equity assets traded on public markets (52 per cent as at 31 December 2016), which are easily realisable and that can be sold to meet funding requirements, if required.
The Board has given careful consideration to the Company’s estimated annual expenditure on operating costs, the Company’s risks and internal controls, the Company’s asset allocation and diversi cation, portfolio risk, nancial controls, and the restrictions set to the Company’s level of gearing. Following the Board’s detailed analysis, it has concluded that there is a reasonable expectation that the Company will be able to continue to operate and to meet its liabilities as they fall due over the ve-year period to 31 December 2021.

[ltcm1] 09/2/2018 19:35

Thanks jonwig.

'Woodfords Binary Bets Trust' doesn't have quite the same ring to it somehow.

It is a clever name as to every time a holder exits with a loss he can say 'well you weren't patient enough.'

[ltcm1] 09/2/2018 19:25

Neil Woodford 13 Dec 2017 at 9:44 am

All of my personal wealth is invested directly in the funds and the Woodford business, apart from the value of the house that I live in. I could not be more aligned with you and all other investors in the Woodford funds.


Is this a good or a bad thing one wonders??? Has he even put his pension into this then???!!! Maybe he is getting too involved if this is true.

[jonwig] 09/2/2018 19:18

@ ltcm - the allowance for up to 20% gearing was stated in the prospectus, as 'for trading purposes' but, as already mentioned, it now seems to be embedded. All we are publicly told is that it is 'callable on demand'. No point in speculating further, but there is sufficient liquidity in the fund to repay it. It's 20% at the point of investment, not rebased.

The thing about 'patient capital' is that the investee companies are the patients, who need periodic injections of cash to grow their businesses. In theory he had £8m unused overdraft facility (as at 30 June 2017) so perhaps could become a forced seller. (Facility £150m, drawn £142m.)

'Patient' - as I've said repeatedly - has nothing to do with his shareholders, but refers to nurturing his portfolio companies. Yes, many will be calling for funds, it's a natural process for growing early-stage companies. Life-support isn't quite the same!