Become an ISA millionaire - John Lee style

Tuesday, May 27 2014 by
27
Become an ISA millionaire  John Lee style

John Lee has "always believed that most investors and analysts over-complicate matters." By using a simple strategy that blends value with quality, Lord Lee of Trafford has managed to beat the FTSE 100 in ten out of the twelve years following 2001. The average annual performance of his portfolio has been 12%, while the FTSE 100 has returned a measly 1.1% per annum. The FTSE Small Cap did better, growing by 4% annually, but still lagged behind John Lee’s portfolio. In his best-selling book, How to Make a Million Slowly, Lord Lee tell us how he did it.

Dicing value with quality

Lord Lee has a strong focus on buying stocks cheap, insisting that “I focus on just two yardsticks: dividend yields and PERs.” He prefers to invest in companies with single-digit P/E ratios, on the basis that this is “safer” than expensive stocks where the “expectation of profits growth is already built into the share price.” Lee tells us that investing in stocks with a P/E ratio around 20 is “bad news” if the company fails to meet market expectations, simply because the price has further to fall.

Low P/E ratios also leave scope for share price appreciation. Lord Lee explains that investors should look for “upward re-ratings” to occur when companies “increase profits each year”, but were bought with a low P/E. John Lee also likes to see a dividend yield - ideally around 5% coupled with a track record for paying the dividends - on the basis that the “dividend acts as a significant discipline on the Board in that it has to find cash, each year, to pay those dividends.”

Sticking to small caps

Lee also has a particular interest in small caps, insisting that “no small cap can be too small,” and that around 25% of his current portfolio is made up on companies with a market capitalisation of less than £50 million. He outlines “small caps tend to be less well covered by analysts and thus offer greater opportunities to be ‘discovered’ by private investors.”  

Taking direction from directors

Lord Lee advises investors to ensure that directors have meaningful shareholdings in the PLC. He outlines that “a director has the inside track on knowledge about the company and an advantage over the outside investors.” If a company is doing well, the directors should be the…

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Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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9 Comments on this Article show/hide all

pdownes 27th May '14 1 of 9
2

I had a go at making one of these. This is much better! Thanks for posting.

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Paul Scott 27th May '14 2 of 9
3

Excellent article! Pleased to see that I hold 2 out of the 6 companies in this screen, with one other under serious consideration.

I've not used the "divi streak" field before, nor did I know how to exclude certain sectors, so this has given me some useful new ideas to try out with my own stock screens. Worked examples like in this article are particularly helpful, so thanks again.

I only recently came across John Lee, but very much like his investing style. It's simple, common sense Value investing. Which always works in the long run.

Regards, Paul.

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purpleski 28th May '14 3 of 9
1

Thanks for this article. Really useful and as Paul says I have a couple of these in my portfolio. I came across Lord Lee when I read Free Capital a while ago (plus of course his column in the FT) which was one of the first books I read when I started investing and helped me begin to understand what sort of investor I am (or certainly am not - I am not cut out to be a day trader or one who makes asenine comments on ADVFN!)

Interestingly because of Lord Lee's public status he is one of the few investors in the public eye and therefore one of the few investors where you can see exactly what he owns. Go to

http://www.parliament.uk/biographies/lords/lord-lee-of-trafford/1132

Christie (LON:CTG) and Dart (LON:DTG) have performed well for me and GVC Holdings (LON:GVC) (which he does not own but is above) is also starting to perform.

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jjis 28th May '14 4 of 9

In reply to post #83639

Thanks for the link to his holdings - good to see he still holds S & U - which I wrote up one here when his book first came out:

http://www.stockopedia.com/content/sampu-plc-positive-ims-a-classic-john-lee-stock-79800/

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Paul Scott 28th May '14 5 of 9

In reply to post #83640

It looks as if that link to Lord Lee's holdings is not properly updated. Fiberweb for example was taken over by PGI, so its shares were compulsorily purchased by PGI in Nov 2013.

So because of that, I would not rely on it being an up-to-date list of his holdings.

P.

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jjis 28th May '14 6 of 9

In reply to post #83653

In that case that is quite amusing or worrying regarding the Government's record keeping as they say on the site:

The Register of Lords' Interests lists every relevant interest registered by Members of the House of Lords. The Register is updated every 15 minutes, except during recess.

All Members of the House of Lords biography pages contain the current Registered Interest data for each Member.  

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peterg 28th May '14 7 of 9

In reply to post #83654

In that case that is quite amusing or worrying regarding the Government's record keeping as they say on the site:

The Register of Lords' Interests lists every relevant interest registered by Members of the House of Lords.

Well, their record keeping is always only going to be as good as the records they are given - which is where I'd reckon the reason for this discrepancy is far more likely to lie!

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carmensfella 28th May '14 8 of 9
5

Just to mention that if any of you want to meet John Lee, see him present to investors and also discuss many of his holdings then do come to the Mello Weekender event on the middle Saturday on the 8th November 2014 as he will be attending the event all day and presenting at least twice during the day.

Some early details of the event are here...http://www.freesharedata.com/melloweekender

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bsharman 29th May '14 9 of 9

In reply to post #83637

A really good article Alex. I may purchase the book to add to my ever increasing library of investment books!
Paul: I also hold 2 of the 6 companies on the list: BEG (a good 'one-way bet' on interest rates rising, with a good yield whilst you wait) and SAL (a recovery situation?!). The one that is on my watchlist is TLPR but have not yet pushed the button. It does seem very good value but the reason that I have not yet bought is that I have concerns about future regulation. Do you have any insights about this?
Cheers, Ben

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About Alex Naamani

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