Practical wisdom from John Lee, is one of the UK’s leading private investor and MP to British parliament.
My Guiding Principles from a Lifetime of Successful Investing: These are the rules or principles that I’ve followed over the past 50 years of investing. These in gist provide some key lessons for the investor
- Endeavour to buy shares on modest valuations – hopefully with an attractive yield and single-figure price earnings ratio and/or discount to net asset value/real worth.
- Ignore the overall level of stock market. Don’t make judgments on the macro outlook – leave that to commentators and economists. Focus on your particular selection.
- Be prepared to hold for a minimum of five years.
- Have a broad understanding of the PLC’s main business activity – one which makes sense to you.
- Ignore minor share price movements. Looking back years hence you will have got it either right wrong; whether you originally paid, say 55 pence rather than 50 pence will be totally irrelevant.
- Seek established companies with a record of profitability and dividend payments – avoid start-ups and biotech or exploration stocks
- Look for moderately optimistic or better chairman’s/CEO’s most recent comment
- Focus on preferably conservative, cash rich companies or those wit low levels of debt
- Ensure the directors have meaningful shareholdings themselves in the PLC an ‘clean’ reputations
- Look for a stable Board – infrequent directorate changes. Similarly with professional advisers.
- Face up to poor decisions. Apply a 20% ‘stop-loss’ – sell and move on. However, ignore stop-loss if there is a major overall market fall.
- Let profitable holdings run. Don’t try to be too clever. i.e. selling and hoping the market will fall to ‘buy back’ at a lower price
Author’s note to encourage AGM attendance wherever possible – Which I reckon is great thing to keep note + the point 11 (advice) above.
Through attending these meetings, I have gained financially, had many amusing interludes, tucked into some excellent buffets and picked up at least one non-executive directorship. The psychology of AGMs is important to understand. The chairman is usually apprehensive, having spent hours with advisers preparing for difficult questions that might arise. Will the recently fired sales manager turn up to wreak his revenge?
Usually, of course nothing untoward happens and the meeting progresses without incident. The chairman relaxes, defenses down. This is the ideal time for a shareholder to move into action.
Take careful note of expressions, reactions, nuances – all valuable information. If the chairman is the dominant shareholder, any lack of family succession points to a future takeover. Sometimes you see clashes within families. Major institutions rarely attend AGMs (having their own private briefings) so the meetings are the private investors’ theater. But be strong wiled. Do not waste the time in which you could be gathering crucial information by going back for a second helping at the buffet. Circulate – and make sure you stay sober. Gaining entry into AGMs usually presents no difficulty – many companies are delighted just to have a shareholder turn up. Some have a table at the door on which sits an enormously inhibiting copy of the share register. However a look of authority, or saying rather grandly that your holding is in “nominee” names, usually suffices. The success, growth and integrity of the company (and thus you investment) is tied inextricably to the personality, abilities and ambitions of the chairman and/or the chief executives. If he owns a flashy BMW with personalized number plates, drips with gold jewelry and has ambitions to own the local football club – bad news. But a conservative car, gentleman’s shoes, love of cricket, faded regimental tie and membership of the local school board spell good news. I exclude from all this the 30-year old, multi-millionaire, whiz-kid creators of IT companies on price/earnings ratio of 50+. These live on a different planet, so normal judgments and personality tests do not apply.