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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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.