Don't take business lessons from Downton Abbey

Lord Grantham: no businessman.

Caution! Don't read on if you haven't watched the first episode of the third series of Downton Abbey

Downton Abbey is normally leisurely viewing, but high-net worth (HNW) ears will have pricked last night at the news that Lord Grantham has invested his fortune in a doomed railway company and faces ruin.

Going from hero to zero – with the inevitable family fallout – is something that keeps even the wealthiest awake. So a quick analysis of Grantham’s mistake may put a few minds at rest today.
   
Diversification is the buzzword of many portfolio managers. Complicated as it sounds, the idea condenses into the simple thought that investing across a series of asset classes, sectors, geographies and maturities achieves the same returns as investing in one stock, but – crucially – with less risk.

The concept is sufficiently appealing that some HNWs go overboard on it though. Breaking their fortunes into a thousand pieces after liquidity events, they unknowingly diversify themselves into mediocrity and ensure that, while safe, their money won’t grow at the rate required to counter inflation, family spending or the taxman.

A balance therefore needs to be struck, and Lord Grantham would have done well to listen to the advice of Murray, his money manager, in this department.

Academics currently posit that the vast majority of diversification benefits can be achieved with 12 to 18 holdings. This represents a happy balance between, at one end, concentrated investment in the few first class opportunities that come our way in a lifetime, and, at the other, the don’t-put-your-eggs-in-one-basket mentality.

What it comes down to is that when you are worth hundreds of millions – as Lord Grantham was – the battle is not so much investment management as risk management.

Wealth preservation is the Holy Grail, and the fallout of failing to achieve it will be graphically laid out in Julian Fellowes' third season.

This article first appeared in Spear's.

The cast of Downton Abbey. Photograph, Getty Images.

Freddy Barker writes for Spear's.

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Theresa May knows she's talking nonsense - here's why she's doing it

The Prime Minister's argument increases the sense that this is a time to "lend" - in her words - the Tories your vote.

Good morning.  Angela Merkel and Theresa May are more similar politicians than people think, and that holds true for Brexit too. The German Chancellor gave a speech yesterday, and the message: Brexit means Brexit.

Of course, the emphasis is slightly different. When May says it, it's about reassuring the Brexit elite in SW1 that she isn't going to backslide, and anxious Remainers and soft Brexiteers in the country that it will work out okay in the end.

When Merkel says it, she's setting out what the EU wants and the reality of third country status outside the European Union.  She's also, as with May, tilting to her own party and public opinion in Germany, which thinks that the UK was an awkward partner in the EU and is being even more awkward in the manner of its leaving.

It's a measure of how poor the debate both during the referendum and its aftermath is that Merkel's bland statement of reality - "A third-party state - and that's what Britain will be - can't and won't be able to have the same rights, let alone a better position than a member of the European Union" - feels newsworthy.

In the short term, all this helps Theresa May. Her response - delivered to a carefully-selected audience of Leeds factory workers, the better to avoid awkward questions - that the EU is "ganging up" on Britain is ludicrous if you think about it. A bloc of nations acting in their own interest against their smaller partners - colour me surprised!

But in terms of what May wants out of this election - a massive majority that gives her carte blanche to implement her agenda and puts Labour out of contention for at least a decade - it's a great message. It increases the sense that this is a time to "lend" - in May's words - the Tories your vote. You may be unhappy about the referendum result, you may usually vote Labour - but on this occasion, what's needed is a one-off Tory vote to make Brexit a success.

May's message is silly if you pay any attention to how the EU works or indeed to the internal politics of the EU27. That doesn't mean it won't be effective.

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.

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