12 golden rules from Lord Lee
These are the 12 rules that FT columnist John Lee has followed while building his £4.5m Isa investment portfolio:
1 Try to buy shares on modest valuations — hopefully with an attractive yield and single-digit price/earnings ratio, and/or discount to net asset value.
2 Ignore the overall level of the stock market. Leave the macro outlook to commentators and economists — focus on your own selection.
3 Be prepared to hold for a minimum of five years.
4 Have a broad understanding of the main business activities of the companies you invest in — pick ones that make sense to you.
5 Ignore minor share price movements. Looking back in years to come, you will either have got it right, or got it wrong. Whether you paid 95p or £1 will be totally irrelevant.
6 Seek established companies with a record of profitability and dividend payments (avoid start-ups, biotechs and exploration stocks).
7 Look for moderately optimistic (or better) comments from chairman and chief executive in company reports issued to the stock market.
8 Focus on conservative, cash-rich companies and those with low levels of debt.
9 Ensure the directors have meaningful shareholdings themselves in the company, and ‘clean’ reputations.
10 Look for a stable board with infrequent directorate changes. Similarly with professional advisers.
11 Face up to poor decisions. Apply a 20 per cent “stop-loss” — sell and move on. However, ignore the stop-loss if there is an overall market fall.
12 Let profitable holdings run. Don’t try to be too clever, that is selling and hoping the market will fall to buy back at a lower price.