As I highlighted in the marketing email, Lord John Lee has shown that any person in society has the capability to invest and grow their capital and achieve financial freedom in their own lifetime. This Featured Article is aimed at showing you how the ex-Conservative MP did it and how you, too, can do it if you choose to.
For those who have clicked into this article from the website rather than from the marketing email (8th Jan, 2016), here is the number one reason why it is worth reading on:
- From 1987 to 2003, Lord John Lee, an ex-Conservative MP in the UK (full biography below), by investing modestly annually, had invested a total of £150,000 into a stock market savings programme. At that stage, his capital had grown to £1.0 million. But, in my view, that’s not even the real message. Thereafter, he invested nothing further. Yet, by end 2015 his capital had grown to £4.5 million, 30 times his original investment. That’s the wonder of compounding, and it’s within the grasp of many people in society who choose to take investing seriously and who want to achieve financial freedom within their lifetime and independence from the state.
We believe that one of the most useful features for subscribers to the GillenMarkets website/newsletter is our monthly Regular Investor slot which aims to ensure that subscribers have the tools to replicate, or even partially replicate what Lord Lee achieved.
Our monthly Regular Investor slot invests real money each month into three different strategies (€3,000 in all, or €1,000 into each portfolio each month). Three separate portfolios/strategies gives subscribers a choice in terms of which approach they prefer to follow. Investing real monies and monitoring progress monthly brings accountability to the process. The Regular Investor feature alone is a strong reason for becoming a subscriber to our website/newsletter.
Compared to saving through bank deposits, there are two principal advantages of regular investing in stock markets:
- It significantly reduces the risk of mis-timing your entry (i.e. investing just when markets are overvalued). Investing in good times and bad irons out the volatility and means that you are investing when markets are undervalued as well as sometimes when they are overvalued.
- It allows you to methodically obtain the superior returns that stock markets have traditionally delivered. Over the long-haul, stock markets have delivered returns of circa 5% above inflation annually, which compares to 1% for bank deposits.
In the 6th December 2015 Weekend Edition of the Financial Times, Lord John Lee, businessman, ex-Conservative and Liberal MP in the UK, now a member of the House of Lords and, for many years, a columnist with the Financial Times, published his record of having started a regular investment programme in the UK stock market back in 1987. The attached PDF is a copy of the original article in the Financial Times (please do not circulate the article).
Lord John Lee – Investment Record (1987 – 2015)
|1987 – 2003 (17 years)||£126,000||£1,000,000||8.1x||18.6%*|
|2003 – 2015 (12 years)||£1,024,000||£4,500,000||3.7x||13.1%|
|1987 – 2015 (29 years)||£150,000||£4,500,000||30.0x||13.4%*|
* these compound per annum returns are estimates on our part as we don’t have the actual amounts invested nor the actual returns in the individual years. Nonetheless, we believe they are realistic enough for demonstration purposes.
And his record, outlined in the table, is remarkable for a numer of reasons:
- He turned £150,000 into £4.5 million over a 29-year period. In other words, he grew his capital 30 fold, which we estimate represents a 13.4% compound per annum return. Bank deposits averaged 4.5% per annum over the same period. That is the reason why we might choose to save through the stock markets (or, indeed, property). Returns have always been higher over the medium- to long-term compared to risk-free bank deposits.
- The £150,000 was invested into his portfolio over the 1987 to 2004 period (an 18-year period) i.e. he invested nothing thereafter.
- His returns were well above average, but not remarkable (i.e. not Berkshire Hathaway-like). He always invested in UK smaller companies which were offering good dividend yields, trading on low price-to-earnings ratios and that had solid finances. In the Financial Times article of the 6th December 2015, experts highlighted that an investment in a representative basket of UK smaller companies – say through UK smaller company funds – would have achieved similar returns.
In other words, Lord John Lee has demonstrated that what he achieved is within the grasp of everyone in society. In our view, there are a number of key lessons from Lord John Lee’s experience:
- investing over time reduces the risk of mis-timing your entry into markets.
- compounding takes time but works phenomenally in your favour the longer you are investing; and
- for the majority of people in society, the stock markets are the easiest way to achieve financial freedom.
Returns from bank deposits simply don’t allow you to grow your capital at a suffient rate, and certainly not these days.You can start small in the stock market, but you can’t do this with property where you need a sizeable lump-sum to get going and that normally requires you to borrow. But, as we all learned in 2008, debt adds significant risk to an investment programme.
In any event, if you prefer property assets over business assets you can buy property stocks or REITs (real estate investment trusts) that are listed on stock markets. In other words, if you have a preference for owning or investing in property, the stock markets can accommodate you. In Ireland, we now have three property REITs listed on the Irish Stock Exchange (Green REIT, Hibernia REIT and Irish Residential Properties REIT). The idea of buying small parcels of property REITs, which have diversified property portfolios with a maximum debt of 50% of asset value, is a far more attractive propostion to buying a single physical property, in our view.
Now back to our website. Two of the three Regular Investor portfolios that we invest €1,000 into each month have defined investment strategies which we believe will not only deliver returns far above bank deposit returns over time, but should also control the risks that are part and parcel of investing in the stock markets. The higher volatility that marks stock market investing apart from investing in physical property often puts off those new to stock market investing.
But the very point of our website offering and 1-day training seminars is to assist subscribers to navigate this volatility while having the opportunity to obtain returns that are much higher, over time, than what can be earned from bank deposits. With bank deposits offering a near-zero return, a situation that may well persist for a few years yet, the case for building a portfolio of assets in stock markets is even more compelling these days than when Lord John Lee started out.
We don’t promote our Regular Investor Strategies as likely to do as well as Lord John Lee has done, but after just six years we appear to be on our way to demonstrating that a regular investment programme in stock markets is a powerful way to save and grow your capital over time.
The Chart below highlights the progress of both portfolios which were started when the website was launched in November 2009. To date, by investing €1,000 into each portfolio each month a total of €74,000 has been invested to date. The Subjective Portfolio – where we subjectively select a stock or fund in which to invest from the list we cover on our website for subscribers – was worth €107,060 on 21st December 2015, the last time we updated the valuation. That represents a compound per annum return of 10.9% over the initial 6-year period. The Low Price-to-earnings Portfolio – which follows a disciplined method of buying the FTSE 100 stocks on the lowest price-to-earnings ratios – was worth €100,538 on the 21st December 2015 for a compound per annum return of 10.4%.
Starting a savings programme and building an asset gives you choices later in life; the choice to perhaps retire early, the choice to take a year off and do a world tour, among many other choices. Financial freedom is an attractive goal in life for many, and our view is that it is within the grasp of everyone in society.