‘How to become an Isa millionaire like me’
The original ‘Isa millionaire’ tells Lauren Almeida the secret to his success over 60 years
Lord John Lee of Trafford is believed to have become the first person to have amassed £1m in their Isa, back in 2003. Two decades on, his recipe for success is unchanged – and his seven-figure portfolio is growing.
While thousands of DIY investors stuff their Isas with global funds and trendy technology stocks, Lord Lee has built his wealth on an unshakeable love of high-quality British shares and chunky dividends.
“My portfolio is almost entirely in the UK,” he says. “There are plenty of attractive businesses here and they trade globally. Investing in Britain means that I get the benefit of our corporate standards, as well as international trade.”
Lord Lee, an ex-conservative MP who served in Margaret Thatcher’s government, defected to the Liberal Democrats in 2006. Now a life peer, he has more than 60 years of stock-picking under his belt, and a portfolio that spans some of Britain’s largest businesses to the “small caps” on its junior stock market.
But the size of the companies is irrelevant to Lord Lee, so long as they tick all the boxes for his quality checks. “I invest in conservatively managed companies, with not too much debt and an established business.
“I avoid start-ups, biotech stocks and mining and exploration companies. That is not to say that people cannot make money in these areas, but they usually require specialist knowledge. Successful investing is about avoiding the losses, and having more profits than failures.
“One of my first investments was in Pifco, which was a Manchester based electrical manufacturer. It ticked all my investment criteria – a family controlled business, carefully stewarded, with a lot of cash and rising profits. It had a dividend yield of 6pc at that stage.
“Eventually it was acquired by an American business, so I achieved a very useful dividend income during that period and then capital growth thanks to the takeover.”
Lord Lee does not invest in companies that do not pay dividends – but refuses to identify as a so-called “income investor”.
“Dividends and quality go hand in hand,” he says. “The payment of a dividend is very important, aside from the obvious benefit of receiving cash. It indicates that not only is a company making a profit, it has enough to commit to shareholders. The declaration of a dividend gives an indication of the company’s overall judgement on its future prospects. Few businesses want to announce a dividend one year and then reduce it the next – it sends a message.”
The London stock market looks particularly compelling from this angle. The FTSE 100, which tracks its largest listed companies, offers investors a forward dividend yield of 3.9pc.
This yield is flattered by the lowly valuation of British shares. International investors have shunned the market over the past decade, as a lack of high growth technology businesses, combined with the lingering impact of Brexit, has dented confidence.
But it means that Britain remains undervalued. The FTSE 100 trades on a forward price-to-earnings multiple – which measures how expensive shares are relative to profits – of 10.4. That is 13pc below the average level it has traded over the longer term, and well below global stocks, which trade at a forward p/e of 15.9, according to the broker Bestinvest.
Lord Lee thinks Britain is fertile hunting ground for investors looking for quality businesses with attractive yields. His largest holding is Treatt, a chemical manufacturing company. Shares in the business, which specialises in flavour and fragrance ingredients, have had a rocky year, down by 40pc. But over the long-term it has been a top performer, up by more than 500pc in the past decade.
“This is a unique business,” Lord Lee says. “The majority of its rivals are American or European, but this is a British company with global sales. More recently its shares have fallen, but I think this is symptomatic of a negative correction in the British stock market that has gone too far.
“Take [insurer] Legal and General. Its shares yield 9pc. Or [fund group] M&G, which yields 8pc.”
Lord Lee has been taking advantage, snapping up shares in Goodwin, an engineering firm that yields 3.1pc, and Hollywood Bowl, which yields 4.8pc.
“Investing is a long-term operation. You need to look at least three to five years ahead,” he says. “To be successful you need two things: common sense and patience. Patience is by far the most important.”
Lord Lee
‘I avoid start-ups, biotech companies and mining stocks’