Book SummaryBuilt on a Lie, by Owen Walker

1-Page Summary1-Page Book Summary of Built on a Lie

The Journey of a Superstar Money Manager

This section delves into the captivating journey of Neil Woodford, exploring his ascent from an unknown entity to a celebrated investor, followed by his dramatic downfall. It examines his early career, his success at Invesco Perpetual, the factors leading to his departure, and the eventual establishment of Woodford's investment management company. This section also chronicles the remarkable growth of his fund, Equity Income, and the subsequent unraveling of his empire due to substantial losses and struggling investments in small, unquoted companies.

How Neil Woodford Rose From Unknown to Celebrated Investor

This sub-section traces Neil Woodford's early steps in investing, highlighting his initial roles at various financial institutions. It further elaborates on his successful tenure with Invesco Perpetual, where he transitioned from a contrarian investor to one of Britain's most prominent fund managers.

Woodford's Initial Career: Dominion, Reed International, and TSB Group

After failing to secure a position as a pilot, Neil Woodford, holding an economics degree, entered the City of London, seeking a career in finance. His initial foray into investing was during a recessionary period in the early 1980s, beginning as an assistant to a portfolio manager at Dominion, a small insurer. This experience ignited Woodford's enthusiasm for investing, but limited growth opportunities at Dominion led him to pursue further challenges.

He then worked as a novice equity analyst at the Reed International retirement fund, followed by a position in TSB Group's corporate finance division. While these roles offered valuable insights into financial markets, they were not directly in line with his aspiration of becoming a fund manager. During this period, Woodford kept educating himself by pursuing a postgrad finance program at LBS.

Practical Tips

• Turn setbacks into opportunities by identifying alternative career paths that align with your skills and interests. If you face a professional setback, like not getting a desired job, take a step back to assess your strengths and the market demand. For example, if you aimed for a tech role but didn't succeed, consider leveraging your analytical skills in data science or digital marketing, where there's a high demand for tech-savvy professionals.
• Start your investment journey during economic downturns by setting aside a small amount of money each month to invest in index funds or ETFs. Economic recessions often lead to lower asset prices, which can be an opportune time to start investing. By consistently investing a fixed sum, you take advantage of dollar-cost averaging, which can reduce the impact of volatility.
• Create a 'challenge swap' with colleagues where you exchange one low-growth task with someone else's for a month. This can be done within your team or department. By swapping tasks, you not only introduce variety into your routine but also gain new skills and insights from areas you might not have explored otherwise.
• Create a personal "retirement fund" portfolio using investment simulators. Even if you're not managing real money, setting up a mock retirement fund on platforms like Investopedia's Stock Simulator can help you learn how to allocate assets and diversify your portfolio, mimicking the responsibilities of a fund manager.
• Volunteer for cross-departmental projects to gain exposure to new areas of your business. This hands-on experience can be invaluable for understanding the broader business context and can make you a more attractive candidate for internal transfers or promotions.
• Create a personal development plan that includes learning opportunities and skill-building activities directly related to your career goal. This could involve online courses, attending workshops, or finding a mentor in your desired field. If your goal is to become a fund manager, you might focus on courses in financial analysis, investment strategies, and portfolio management, and seek out a mentor who is currently working in fund management to guide you.
• Join a finance-focused book club to engage with others and deepen your understanding of financial concepts. By discussing finance books with a group, you can gain diverse perspectives and insights that you might not have considered on your own. This can be as simple as starting a group with friends or colleagues, or joining an existing online community where monthly reads are centered around finance and investment topics.

Woodford's Rise at Invesco: From Contrarian Investor to Leading Manager

In 1988, Woodford joined Perpetual, a small but thriving investment company located in Henley-on-Thames. Martyn Arbib, the founder, had built Perpetual by recruiting talented, independently minded fund managers and was known for his unconventional approach. Woodford fit this mold perfectly, and soon took charge of Perpetual's funds for generating income. He established a straightforward investment strategy, concentrating on identifying sectors with potential and selecting the top-performing businesses in those areas. He emphasized investing in robust businesses over chasing fleeting stock prices.

Woodford gained renown for his contrarian investment style, particularly for shunning tech stocks at the height of the dotcom craze, which initially led to underperformance but ultimately proved prescient. This success cemented his reputation as a savvy investor, attracting a loyal group of investors and financial advisers. This included Mark Dampier from Hargreaves Lansdown, who became an ardent supporter of Woodford and championed his funds to wide audiences. Woodford's funds consistently outperformed the market, solidifying his position as a top UK manager.

Practical Tips

• Foster a culture of innovation in your personal finance strategy by allocating a small portion of your portfolio to experimental investments. This could...

Built on a Lie Summary Role of Advisers in Guiding Everyday Investors

This section scrutinizes the function of financial advisors and wealth managers in navigating retail investors through the intricate landscape of investments. It examines the emergence of "celebrity portfolio managers" and their influence on investment decisions. It also delves into conflicting incentives within the field and the subsequent failure of advisers to adequately warn investors about the risks associated with Woodford’s funds.

How Financial Advisers and Wealth Managers Guide Investors Through the Complex Investment Landscape

This sub-section examines the complexities of financial advice, highlighting the challenges faced by investors navigating the investment landscape and the responsibilities of finance professionals to provide transparent and trustworthy guidance. It examines the conflicting incentives within finance and the potential consequences when advisers prioritize personal gain over investor interests.

The Rise of Celebrity Fund Managers and Influencers Like Woodford

Investing can be overwhelming for the average person. The sheer number of available funds and products, coupled with how complicated financial markets are, creates a strong need for...

Built on a Lie Summary Uk Investment Industry Evolution and Deregulation Impact

This section explores the historical context surrounding the Woodford saga, focusing on the impact of deregulation in London's financial district during the 1980s—an event dubbed the Big Bang. It investigates how these reforms reshaped the landscape of British asset management, its increasing influence, and the creation of new investment products that imposed a greater burden on individual investors to manage their own savings responsibly.

1980s City of London Big Bang Deregulation and Its Impact on Investment Management

This sub-section examines the profound impact of the 1986 Big Bang deregulation on the City of London, specifically how it transformed the investment management field. The focus is on the shift towards a globalized and competitive financial industry, the rising influence of investment firms and fund managers, and the creation of investment products like Peps, which marked a crucial step in increasing individual accountability for managing savings.

Shift to a Competitive, Globalized Financial Services Industry

The 1980s witnessed a dramatic transformation of the financial landscape in the UK. The Big Bang deregulation, spearheaded by Margaret...

Built on a Lie Summary The Aftermath and Consequences of the Controversy Surrounding Woodford

This section explores the consequences of the downfall of Woodford Investment Management, focusing on its effect on consumer confidence in Britain's investment industry. It examines regulatory lapses that contributed to Woodford's risky strategies, the detrimental impact on investors' retirement savings trapped in his investments, and the implications for reforming the UK investment management sector.

Fallout of Woodford Collapse and Consumer Confidence Damage

The collapse of Woodford IM sent shockwaves through the UK financial sector, shaking investor confidence and prompting investigations into regulatory failings and the role of financial intermediaries like Hargreaves Lansdown. As author Owen Walker illustrates, the controversy revealed a complex and often opaque investment landscape, where ordinary savers, reliant on professionals for guidance, ultimately bore the brunt of the monetary losses, leading to widespread anger and disillusionment. This saga unveiled the deep-seated flaws within a system that allowed star fund managers, like Woodford, to operate with minimal scrutiny, ultimately betraying the trust placed in them by a vast number of investors.

Walker...