My grandfather passed away last year at the grand old age of 95. He has left behind quite some estate, we are now finding out. His stock investments alone are worth millions of pounds.
While that’s not unheard of, what’s remarkable about my grandfather’s story is that he never had a high-flying job, or earnt a huge salary. In fact, he spent much of his career in the British Army. So how on earth did he accumulate such wealth? And what can we learn from his story?
His investment strategy
It’s becoming clear that much of my grandfather’s wealth was generated from the stock market. Living in Australia in the 1980s, he had the foresight to invest in the four largest Australian banks when they were floated on the stock market in the 1980s and early 1990s. These investments have paid off handsomely.
An A$2,000 investment in the Commonwealth Bank of Australia when it floated in 1991, is now worth around A$130,000 if dividends were reinvested. Given that my grandfather invested around A$50,000 across four banks and a handful of blue-chip mining companies such as BHP Billiton and Rio Tinto, his portfolio has done very well.
The lessons
So what can we learn from this? Well for starters, it’s worth pointing out that he took a risk. He had no idea how these bank shares would perform over the long term. Yet he took the risk and was rewarded. That’s an important point. It’s hard to achieve millionaire status by investing in cash. To generate long-term wealth, whether it’s from stocks, property or businesses, you have to take a degree of risk.
Second, a key takeaway here is that investing doesn’t need to be complicated. All my grandfather did was buy blue-chip companies and hold them for 30 years. He didn’t trade much, preferring to spend his time playing golf rather than looking at his investments. He didn’t buy speculative companies or use derivatives. He kept things very simple, with a blue-chip buy-and-hold strategy. Time in the market and the power of compounding did the rest.
Now you could argue that he got lucky. And I’d agree to an extent. He was in the right place at the right time participating in those IPOs. It’s not often that you get to pick up some of the largest banking stocks in the country for peanuts. Or is it? That got me thinking.
The Global Financial Crisis and Brexit have depressed UK banking stocks massively over the last decade. Lloyds Banking Group shares cost just 68p right now while Barclays trades at 205p. Are these low share prices an incredible opportunity for long-term investors? Could UK banking stocks make investors wealthy over a 30-year time horizon? Obviously, no one knows for sure. But my grandfather didn’t know how things would pan out either when he invested in the 1980s.