No quick fixes, no frills, no next big thing. Lord Lee of Trafford, who became the first ISA millionaire, strips retail investing back to basics
LORD Lee of Trafford won’t be investing in the Innovative Finance ISAs any time soon. “I think I’m too old to change,” he says, sitting in the comfortable living room of his Richmond home. “I’m set in my ways and I’ve developed my own style, which I’m not saying is particularly unique and original but it’s a style I feel comfortable with that has delivered for me.”
It has certainly delivered. The former minister in Margaret Thatcher’s government became the first ISA millionaire in 2003 by making conservative, long-term investments in small-cap companies. His tax-free portfolio has continued to grow and is now worth more than £4.5m.
Lee has been investing in the stock market for 58 years, having bought his first shares at the age of 16 with his savings of £45. He invested in a shipping company that had one ship – “unfortunately the ship went down and my £45 went down with it, so it was not a terribly auspicious start”.
However, things looked up and Lee was quick to recognise the “investment attractions” of the Personal Equity Plan (PEP) – the precursor to the ISA – when it launched in 1987. He put the maximum amount you could invest into the tax-free product for the next 16 years.
By December 2003, the £126,000 he had invested was worth a cool, tax-free £1m, thanks to compound growth from reinvesting his dividends and slow-and-steady growth of the stocks he picked.
Lee is an old-school investor to a tee. He is only interested in businesses that he understands, that are profitable, that are paying dividends and where management has a significant stake in the company.
“I don’t invest in start-ups, I don’t invest in biotech, I don’t invest in exploration stocks, I don’t invest in textiles, I’m very wary of construction and I certainly don’t invest in overseas companies,” he asserts. “It’s difficult enough in my view to keep track of one’s investments in the UK, let alone overseas.”
Lee says he is only just getting to grips with the internet and seems a little bemused by the concept of robo-advice. Yet the adolescent peer-to-peer finance industry, which is just on the brink of its own ISA metamorphosis, could learn a lot from Lee’s conservative approach, no-nonsense investment advice and dislike of “casino” investors.
“I believe there’s only two things you need for successful investing, common sense and patience,” he says. “And of those two, patience is the most important. Too few investors have anything like the required amount of patience.
“They chop and change, they see a profit and they take a profit. I believe to make serious money from the stock market, you need to get into something good and stay with it.
“And yes, you may occasionally have a more difficult year, but as long as the company is maintaining or increasing its dividends that’s really what you’re looking for.”
Lee’s investment style has attracted attention. He has written around 250 articles for FT Money and has published a book called ‘How to Make a Million Slowly: My Guiding Principles from a Lifetime of Successful Investing’ (a gushing reviewer on Amazon calls him Warren Buffett for ordinary mortals).
“I’d encourage any serious investor to use an ISA and to put in the maximum amount they can afford,” he says, deeming the ISA “the best savings product in the Western world”.
“In the early years, not as many people participated in ISAs as they should have,” he continues. “Those with limited resources thought they couldn’t afford the [maximum annual investment of] £3,000 a year while wealthier people didn’t bother as they thought £3,000 was neither here nor there.
“Fortunately I was able to generate the resources to invest the maximum amount and what I’ve endeavoured to prove is that by investing each year, with a moderately successful investment performance, one can actually build up quite a significant tax-free pot.”
Lee is an avowed self-select investor and thinks more people should take control of their finances, especially in a low-interest rate environment with an impending pensions crisis. “The opportunities are there and it’s for the individuals themselves to put a little bit of effort in and really go that extra mile, rather than rely on others,” he says.
But he concedes that independent financial advisers can be helpful, due to the country’s “paucity of financial knowledge” stemming from lack of education in schools.
“I think they’re a fairly mixed breed but on balance do I think they’re helpful? Probably yes.”
He is more decisive on ISA managers’ fees. “One of the things I’ve tried to suggest to people with ISAs is that they should ensure that any plan managers’ fees are paid outside the ISA,” he says.
“It’s too easy for the plan manager to drop the debit charge, once or twice a year, on the ISA itself. But then you’re losing some quite valuable tax free money.
“The ISA investor should try to get the plan manager to send a separate invoice for their charges each year and the investor should try to pay those charges outside the ISA, not using that valuable tax free pot.”
This is an interesting issue that the P2P sector has not had to grapple with yet. It seems unlikely that investors going straight to the platforms will be affected, but when third-party plan managers join the IFISA party, will their fees detract from their investors’ tax-free earnings?
Lee is refreshingly optimistic about the future for retail investors and refuses to be dragged down by macroeconomic concerns.
“There will be many new successful start-ups, there’s a huge world out there, wealth and population are growing,” he affirms. “Firms should benefit accordingly and investors should hopefully be able to benefit as well.
“I say to a lot of people, some very intelligent people, your problem is that you apply too much intelligence to it. You can talk yourself out of investing at any stage.
“If you look at the macro picture you can say oh look how unstable the Middle East is, look at the Greek situation, what’s going to happen to the euro, what’s going to happen to our banks.
“You have to say as I do, I believe in company XYZ, I believe it’s very well managed, conservatively set up and I think given reasonable fair wind it will prosper. So get in there and get those shares bought.”
“I believed it was in our long-term political and economic interests to remain in the European community and I still believe that. But in the short term I have been somewhat surprised and pleased by the way the stock market has held up.
“One big plus has been the very speedy changeover from David Cameron to Theresa May, which has brought political stability. The other thing is that the devaluation of the pound has helped many businesses that trade internationally. Most of the companies I invest in do trade internationally so most of them have benefitted.”
“What I think is interesting is that she was clearly a very reluctant Remainer. If you look at some of her comments and speeches, it may well be that privately she was a Brexiteer, but unless she ever declares it we will never know.
“I think she will be a very strong prime minister. I hope she isn’t too autocratic and domineering and adopts a slightly more collegiate approach than she would appear to have adopted so far, but it’s very early days and she’s still in that honeymoon period really.”
…the end of the world
“If you believe in Armageddon I’m not sure what you do anyway. What do you do if you think the end is nigh? Hide under the bed with a crate of whiskey and a couple of bars of gold? It’s just not realistic. You’ve got to work on the basis that hopefully the overall prosperity of the world will increase.”