Simon English: Star stock picker Neil Woodford eclipsed by subprime bet

This is star stock picker Neil Woodford on July 14 discussing his own recent, dodgy, performance, in particular, his 20% holding in beleaguered doorstep lender Provident Financial.

Recent news from Provident had been “clearly not helpful” he agreed, but Woodford gets upset when people criticise short-term performance. Woodford told his army of followers: “More often than not, the market overreacts in response to bad news, even if the causes are only transitory. We believe this to be the case here.”

He added: “We believe Provident’s dividend is unlikely to be affected by this temporary event and the long-term attractions of the group remain very much in place.”

Hm. Markets 4, Woodford 0. And Woodford is lucky to have nil.

It is not easy to understand why Woodford so grossly under-reacted to the news coming out of Provident. The dividend has now gone and if it has long-term attractions they are lost from sight.

Woodford has had other lapses in judgement lately, notably Allied Minds, Circassia and AstraZeneca and is heading for a rotten 2017 (2016 wasn’t too great either).

Does he still believe in what he wrote about Provident just three weeks ago? His people shuffled their feet and whistled quietly in response to this, as shares in Provident crashed more than 60%.

Provident gets described as a sub-prime lender, which makes it easy to forget that it is also a FTSE 100 member (though not for much longer).

Market old-timers were scratching their heads to recall when a FTSE 100 company ever fell so far so fast. Marconi maybe? Royal Bank of Scotland?

Even these plunges took place over many days rather than in minutes.

Where does Woodford go from here? He can’t really dump the stock, even if there were willing buyers, since that would be a terrible admission that he got this one completely wrong.

Doubling down, ramping up his holding, would be brave, but surely foolhardy. So, he’s stuck with his 20%

All of which goes to remind us that a long-term bet is usually a short-term bet that failed.

Worrying times

Is this a Northern Rock moment, a harbinger of doom? Provident Financial isn’t a structurally significant lender, nor is it too-big-to-fail, so probably not.

But it is big enough for ordinary savers to start worrying whether deposits are safe.

Certainly, no one is going to think this a good time to put money into Provident rather than take it out. In terms of maintaining confidence, Provident’s statement today doesn’t do it any favours.

If it has a plan, it didn’t feel fit to share it.