Lord (John) Lee must surely be regarded as a hero among private investors. He eschews investing in funds, preferring to make his own judgment on specific shares, based on little more than keeping up with the news and reading investor magazines.
This research has proved sufficient, however, since his personal investments have done rather well. In 2003, his Isa investments reached the value of £1m, having invested £125,000 since the launch of Peps. Now he has published a book setting out his tips, entitled How to Make a Million – Slowly: My Guiding Principles from a Lifetime of Successful Investing.
“I’m an evangelising investor,” he said. “I want to encourage investors to do more on their own and make their own decisions, backing their own judgement, rather than go through funds. But you have to have a really genuine interest and be prepared to put time aside to research, and you’re not going to do that unless you really enjoy it.
“If you aren’t prepared to put the time in, it makes sense to let others manage your money.”
It helps that Lord Lee has a financial background. He trained as a chartered accountant, then set up his own business, an agency that acted as a broker for companies that wanted to merge or be bought out. This turned into an investment bank – Chancery Trust.
At the age of 37, he went into politics, serving as a minister in the Thatcher government. He left parliament when he lost his seat in 1992 and subsequently became a Liberal Democrat peer, mainly because the Conservative Party became “very right wing and increasingly anti-European”.
His time as a businessman and financier helped him in parliament, “not only as an extra dimension of knowledge, but also because it enables you to build up a certain degree of financial independence, which makes you less dependent on the party machine. If you lose your seat, you’re not on your uppers.”
Throughout this time, Lord Lee maintained his interest in investing. His first investment was a £45 share in a company called Aviation and Shipping, which he bought when he was 15, having inherited his father’s interest in the stockmarket. However, after a loss at sea, the company went bust, and the young man lost his money.
Over time, he built up knowledge, taking a greater interest in stockmarkets and companies, to the extent that shares in one company he bought in 2006 are about to yield a sixfold gain. Having invested in the firm at 320p a share – which dipped to 225p in 2009 – it is now being divested through a takeover at £20.75.
Throughout this time he has kept his funds protected from tax through a Pep and Isa. He said: “Tax-free is very important – it’s very important to have a wrapper to receive dividends.” It is also crucial to reinvest dividends, he said, and the compounding effect has been substantial.
He said there are two crucial elements to keep in mind when it comes to being a successful investor: firstly, common sense; secondly, patience.
He said: “Patience is the most important one. Too many private investors chop and change and treat the stockmarket like a casino, and incur costs doing so, wheareas the more serious long-term investor focuses on the long term.”
He has certainly benefited from markets taking a while to catch on with stock purchases he made during the financial crisis. He said: “When we had the sub-prime crisis of 2008, my portfolio suffered on paper, but I didn’t have to sell anything because it was my own money. During that period, I bought at very attractive prices, when excellent companies were yielding double digit returns. I took the view that [the West] would muddle through, and bought highly throughout the sub-prime crisis.”
As a consequence, his portfolio has done remarkably well. While it lost 14 per cent in 2007 and 42 per cent in 2008, it was up 28 per cent in 2009, 29 per cent in 2010 and 24 per cent in 2012.
He said: “During the recent crash, I said to a number of stockbrokers how fortunate they were to be experiencing these conditions, and they looked at me as if I was barmy. But I said it was necessary to go through this period to build up one’s judgement.”
Lord Lee went through his own experience of financial crisis, during the secondary banking crisis of the 1970s when Natwest ran into trouble, so he had faith that capitalism would pull through.
He has also learned over the years to adopt a conservative approach to investing, avoiding startups and biotech companies. He said: “I focused on small, cheap stocks. I focused on companies that were proper, established businesses with a history of profits and dividends, preferably cash-rich or with a very low level of debt – and, importantly, where the executives running the business have significant stakes in running that business: this is crucial.”
He has made mistakes, mostly “selling before a company has fully recovered its potential”. He now has a 20 per cent stock loss approach; if a share falls 20 per cent, he sells it.
He said: “I would take the loss on the chin, not just for financial reasons. If you have a share in which you’re losing significant amounts on your portfolio, it’s there every time you look at it – it saps your confidence.”
As a private investor who has seen an eightfold return on his investment in the past 25 years, it is fair to say Lord Lee could teach the professionals a few things.
Melanie Tringham is features editor of Financial Adviser
John Lee’s career ladder
2006 Appointed a life peer
2001 Left the Conservative Party to join the Liberal Democrats
1986-89 Parliamentary under-secretary of state in the Department of Employment
1983Parliamentary under-secretary of state in the procurement arm of the Ministry of Defence
1983 MP for Pendle
1979 Conservative MP for Nelson and Colne until the constituency was abolished in 1983
1974 Fought first political seat
Early 1970s Sold shareholding in the business
1966 Set up own business, Second City Securities
