Lord John Lee’s book, How To Make a Million – Slowly, was only published as recently as 2014, but I think it is a classic among books about investing and I heartily recommend it.
Maybe Santa will see how good you’ve been during 2019 and leave a copy in your stocking!
I read the hard-won wisdom within and want to shout out “Yes! that’s exactly how we should all be investing!”
The book explores the 12 guiding principles that Lord Lee has followed in more than 50 years of successful investing. I paraphrase them below.
1) Buy shares on modest valuations
Lord Lee looks for attractive dividend yields, single-figure price-to-earnings multiples, and a discount to net assets or true worth.
2) Ignore the overall level of the stock market
The advice here is to ignore the macroeconomic outlook completely and to focus on the prospects of the company underlying the shares you are considering buying or holding.
3) Be prepared to hold for a minimum of five years
Businesses take time to grow or to realise the benefits of a catalyst for growth. Patient investors could be handsomely rewarded with dividend and share price gains.
4) Understand the business
Underlying every share is a business and you need to have a broad understanding of how it works, how it makes money, and how it can expand. You don’t need the inside knowledge of the chief operating officer, but you do need to know how to interpret events that may affect the enterprise.
5) Ignore minor share price movements
Share prices wiggle about. But if you’ve picked well you’ll know for sure that you were right over a five-year-plus investing timescale.
6) Look for a record of profits and dividends
Avoid start-ups and other speculative companies.
7) Look for moderately optimistic directors’ comments
Negative comments are bad. Raging positive comments will probably not be present with a low valuation. But a moderately optimistic outlook could gain traction.
8) Focus on cash-rich firms with low debt
A well-financed company has resilience and more options going forward.
9) Look for reputable directors with meaningful shareholdings
The directors need to be able, honest, and have ‘clean’ reputations. They also need to have ‘skin in the game’. If they don’t believe in the potential of their own company, why should you?
10) Look for a stable board of directors
If the directors are always changing, there could be something wrong. It’s a similar story with the company’s advisors.
11) Face up to poor decisions
Lord Lee advocates using a 20% stop-loss. However, he says he ignores it if there is a major market sell-off.
12) Let your winners run
The big gains will likely come from sticking with a winning company. Many investors sell their shares to soon and miss out.
That’s a taster, but the book is a great read and full of time-tested insights that could help you succeed in the markets in 2020 and beyond.