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.

Photo: Getty
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Who will win in Stoke-on-Trent?

Labour are the favourites, but they could fall victim to a shock in the Midlands constituency.  

The resignation of Tristram Hunt as MP for Stoke-on-Central has triggered a by-election in the safe Labour seat of Stoke on Trent Central. That had Westminster speculating about the possibility of a victory for Ukip, which only intensified once Paul Nuttall, the party’s leader, was installed as the candidate.

If Nuttall’s message that the Labour Party has lost touch with its small-town and post-industrial heartlands is going to pay dividends at the ballot box, there can hardly be a better set of circumstances than this: the sitting MP has quit to take up a well-paid job in London, and although  the overwhelming majority of Labour MPs voted to block Brexit, the well-advertised divisions in that party over the vote should help Ukip.

But Labour started with a solid lead – it is always more useful to talk about percentages, not raw vote totals – of 16 points in 2015, with the two parties of the right effectively tied in second and third place. Just 33 votes separated Ukip in second from the third-placed Conservatives.

There was a possible – but narrow – path to victory for Ukip that involved swallowing up the Conservative vote, while Labour shed votes in three directions: to the Liberal Democrats, to Ukip, and to abstention.

But as I wrote at the start of the contest, Ukip were, in my view, overwritten in their chances of winning the seat. We talk a lot about Labour’s problem appealing to “aspirational” voters in Westminster, but less covered, and equally important, is Ukip’s aspiration problem.

For some people, a vote for Ukip is effectively a declaration that you live in a dump. You can have an interesting debate about whether it was particularly sympathetic of Ken Clarke to brand that party’s voters as “elderly male people who have had disappointing lives”, but that view is not just confined to pro-European Conservatives. A great number of people, in Stoke and elsewhere, who are sympathetic to Ukip’s positions on immigration, international development and the European Union also think that voting Ukip is for losers.

That always made making inroads into the Conservative vote harder than it looks. At the risk of looking very, very foolish in six days time, I found it difficult to imagine why Tory voters in Hanley would take the risk of voting Ukip. As I wrote when Nuttall announced his candidacy, the Conservatives were, in my view, a bigger threat to Labour than Ukip.

Under Theresa May, almost every move the party has made has been designed around making inroads into the Ukip vote and that part of the Labour vote that is sympathetic to Ukip. If the polls are to be believed, she’s succeeding nationally, though even on current polling, the Conservatives wouldn’t have enough to take Stoke on Trent Central.

Now Theresa May has made a visit to the constituency. Well, seeing as the government has a comfortable majority in the House of Commons, it’s not as if the Prime Minister needs to find time to visit the seat, particularly when there is another, easier battle down the road in the shape of the West Midlands mayoral election.

But one thing is certain: the Conservatives wouldn’t be sending May down if they thought that they were going to do worse than they did in 2015.

Parties can be wrong of course. The Conservatives knew that they had found a vulnerable spot in the last election as far as a Labour deal with the SNP was concerned. They thought that vulnerable spot was worth 15 to 20 seats. They gained 27 from the Liberal Democrats and a further eight from Labour.  Labour knew they would underperform public expectations and thought they’d end up with around 260 to 280 seats. They ended up with 232.

Nevertheless, Theresa May wouldn’t be coming down to Stoke if CCHQ thought that four days later, her party was going to finish fourth. And if the Conservatives don’t collapse, anyone betting on Ukip is liable to lose their shirt. 

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