Book review: How to Make a Million – Slowly

John Lee was a conservative MP from 1979 to 1992 and as Lord Lee of Trafford he now sits as a Liberal Democrat peer in the House of Lords. For 14 years he wrote about his investments in the My Portfolio column of the Financial Times.

The book reproduces some of his previous articles, and combines this with his thoughts on investing in individual company shares. As you would expect from the title, he takes a patient approach, similar to Warren Buffett, but he attempts to explain the other rules he has developed in his share dealings. As he had managed to turn his contributions into an Isa or Pep of £126,000 into a portfolio worth over £1m by 2003 he would appear to be someone worth listening to.

Anyone looking for great insights will be disappointed, as so much of the book is common sense. His basic rules include the aim to buy shares on modest values with an attractive yield and it must be with the expectation that you are going to hold it for five years. Always try and have a good understanding of the business and only invest if the directors have meaningful shareholdings. Lord Lee is keen on established companies and avoids start-ups, exploration or biotech. The rule that he did not have at the beginning and wishes he had, is to have a 20 per cent stop loss. If the share falls, then get out and go and accept the loss.

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He then looks at the types of companies he likes: small cap, established, conservative, dividend-paying and cash-flow positive. He concentrates on dividend yields and price/earings ratio, hoping for the double whammy where earnings rise and so the stockmarket re-rates onto a higher p/e ratio. He emphasises patience, insisting that value will come through in the end, although with some companies many shareholders will have died waiting. At one point he says sometimes he feels he is creating a portfolio for his grandchildren – PZ Cussons is a company he has held for 36 years.

Lord Lee ignores the macro picture and researches individual stocks, reading as many articles as possible and studying the accounts, in particular the chairman’s and chief executive’s statements for comments on future trading. He covers some of his successes and failures. Apart from the expected mistake of simply buying the wrong company, his main mistake has been selling rising stock too soon.

The book can appear a little repetitive at times, as what he writes in the book is frequently repeated in the reproduced articles. However, the point about patience is explained well and to quote Warren Buffett, “lethargy bordering on sloth remains the cornerstone of our investment style”.

Harry Kerr is managing director of Avalon Investments

Published by FT Publishing International