Lessons from the Crispin Odey scandal: In both investment and life, it pays to be wary of the big ego, says RUTH SUNDERLAND
- Story of Odey is a classic in the evergreen City genre – star investor falling to earth
- His demise coincided with the anniversary of another meltdown – Neil Woodford
- Business is a lesson in danger when corporate identity is tied to one individual
Downfall: Crispin Odey
The story of Crispin Odey is a classic in that evergreen City genre: the star investor who falls to earth.
His demise coincided almost exactly with the fourth anniversary of another riches to rags story, the collapse of the Neil Woodford Equity Income Fund.
Of course, when I say wealth to rags, I do not mean that it ended in poverty for himself; those hardest hit were the 300,000 investors who followed him like the Pied Piper.
Having a well-known name above a company’s door has a magnetic appeal to many investors. But the Odey case, like Woodford, is a graphic lesson in the dangers when corporate identity is tied too closely to one person.
Former colleagues have tried to distance Odey the firm from Odey the man. The two are different and the allegations against Crispin Odey are not proven yet the company is in crisis.
Where the biggest selling point has been one man’s supposed genius—it’s almost always a man—any professional or human weakness on their part is likely to have existential ramifications for the company.
The risks of following a star should be obvious. Even the most brilliant are fallible mortals, who may fall under a bus or whose investment style falls out of favor. Yet private savers remain under the spell of star culture.
Often people redouble their misplaced loyalty. Many held out longer than was wise with Woodford, being reluctant to crystallize losses.
When there are thousands of funds and a confusing array of options, it may be easier to be convinced by a plausible personality than to do the research.
True wizards are very rare. Warren Buffett – it’s almost mandatory to put the word “legendary” before his name – is a cult figure thanks to the long-term returns of his company Berkshire Hathaway. The share price has risen 3,787,464 percent from the end of 1964 to the end of last year.
One of the city’s homegrown stars is Terry Smith, who started life in the East End of London and now lives in Mauritius.
His Fundsmith Equity has had its ups and downs, but since its inception in 2010 it has turned in an annualized gain of 15.6 percent, or a gain of 517 percent. Like Buffett, he is an exponent of the annual letter to his “fellow investors,” a vehicle for his witticisms and pearls of market wisdom.
The personality and philosophy of the star investor is a big part of the appeal, but the idea that success is due to one person is largely a myth. Performance is usually the product of teamwork.
It is sometimes difficult to separate happiness from judgment. James Anderson was praised for his brilliance as manager of the Scottish Mortgage Investment Trust.
It delivered stratospheric performance for two decades under his control due to big bets on tech stocks. His reign coincided with low interest rates and a tech boom, an environment that has changed a lot since his departure. Shares are down amid tedious boardroom rows over corporate governance and the size of holdings in privately held stocks.
Easy to blame the new managers, but were the seeds sown in the glory years?
Over time, the mystique surrounding a supposed investment wizard can create an unhealthy atmosphere. Their approach can be seen as superficial and the usual checks can fall by the wayside.
In the case of founders who have a large financial stake, the risks around accountability and challenges become greater. In investments as well as in life, it pays to be wary of the Big Ego.