We all make mistakes. Nobody picks a winning stock or fund, every time. You will always buy some losers, and I’ve held two of the biggest of recent months. Yorkshire-based polyhalite potash fertiliser miner Sirius Minerals (LSE: SXX) and fallen star fund manager Neil Woodford’s flagship fund, LF Woodford Equity Income. Or rather, his former flagship, because he has now been cast overboard.
Highs and lows
I’m not complaining. I knew the risks (although I never expected Woodford of all people to foul up so badly). Save your sympathy for the locals who put a fat chunk of their life savings into Sirius, hoping that it would regenerate an economic backwater, or relied on Neil Woodford to manage the bulk of their retirement savings. I’ve still lost real money, though, and I can’t afford to do that very often.
I bought Sirius a couple of years ago, when the share price was trading at around 35p. Right now, the share price stands at 3.15p. I have lost 85% of the money I’ve invested, and will lose the rest until CEO Chris Fraser can engineer a remarkable turnaround.
Some people think he can. A government-backed rescue package would send the stock flying to where it was and higher. If it returned to the level I bought at, it would turn £1,000 into more than £11,000. So far, the Treasury has been cautious. The risk is almost impossible to assess, making this a total punt, and I’m not a gambler.
From big to small
Luckily I bought CF Woodford Equity Income soon after launch, so I benefited from his first successful year. After that it was all downhill, but I hung on in the hope that his strategy would finally come good, while ignoring the fact that the blue-chip dividend investor now fancied himself as a small-cap stock picker, with disastrous results.
Woodford also got his timing wrong on Brexit, investing in British companies that should recover when our EU exit was resolved, only for the process to drag on longer than anybody expected. He also made a string of lousy stock picks from Kier Group to Provident Financial, which meant failure on three separate fronts, rather than just one. One factor ties it all together – hubris. Almost three decades of being told you’re a genius can only go to your head.
According to my Hargreaves Lansdown account, I’m only 25% down on Woodford. I expected that to be a bigger hit but I’ll find out more next year, when the fund winds down and we all get what’s left of our money back. So what was the one thing I got right in this apparent omnishambles?
I diversified.
Even at its peak, Sirius Minerals never made up more than 0.5% of my portfolio. With Woodford, it was less than 1.5%. Year-to-date, my ISAs are up around 12%, including both capital growth and dividends, so overall I am still richer than before.
Individual share price meltdowns and fund collapses hurt, but as long as you spread the risk around, you can still come out on top.