Spreading risk through widely diversifying your asset portfolio has long been the mantra of investment gurus, but this premise has been roundly shot down by Jamaican-Canadian billionaire Michael Lee-Chin.
In a thought-provoking presentation to participants at the February luncheon seminar of the Barbados International Business Association (BIBA), Mr. Lee-Chin dismissed the strategy of wide diversification as a “flawed premise”.
Drawing on his own investor principles gleaned from studying the methodologies of America’s most successful investors and honed through over 30 years of practice, Mr. Lee-Chin pointed out to the large gathering at the Hilton Barbados, Needhams Point, St. Michael, that the way in which mutual fund portfolios were conventionally managed went totally against the grain of the five principles of wealth creation.
In the opening to his presentation on, “Prosperity through Challenging Conventional Paradigms” the billionaire investor who is counted as one of the world’s wealthiest business people by Forbes magazine, illustrated his five principles drawn from the successes of America’s wealthiest investors, particularly Warren Buffet: one, that wealth is created by owning a few high quality businesses; two, that wealth is created when the person owning those few businesses fully understands them; three, that the businesses owned are in long-term growth industries; four, that financing is done by prudently using other people’s money; and five, that the few businesses owned are owned for the long-run.
In contrast, noted the Executive Chairman of the Canada-based Portland Holdings Inc, most mutual fund portfolios comprise 100 to 300 different equities and therefore, it was impossible for investors placing their money with such a fund to adhere to any of those five principles.
As an example of how he challenged conventional paradigms, he shared the story of AIC Limited and how after purchasing the company in 1986 for CDN $200,000, he pared down the holdings from over 200 to less than 20 businesses as per the five principles mentioned. As a result AIC’s assets under management grew from CAN$1 million to CAN$15 billion at the company’s highest historical business peak.
Mr. Lee-Chin also pointed out that wealth is created by entrepreneurs who can be very nimble and creative; characteristics which he suggested were impeded by going public since public companies were governed by committees and boards which could not be as quick and responsive as private owners. Moreover, he pointed out that the public equities market was also stifling to investors who saw their decisions and emotions governed by the opinions of analysts and the vagaries of the stock market on any given day.
In the question-and-answer session that followed, Mr. Lee-Chin emphasised that the investor principles that he was promoting were not only for the wealthy but could be used by even small individuals who wanted to grow their wealth. He advised individual investors to invest in a few companies in long-term growth industries and if the investor did not understand the industry in which he or she wanted to invest, he or she should draw on expert advice from someone who did. Moreover, he advised that investors should seek funds from a financial institution to undertake investment and then be prepared to own the equities over the long-term.
Mr Lee-Chin’s investment firm, Portland Investment Counsel based in Canada, has been described as being in the business of democratizing formerly inaccessible opportunities in order to make it possible for every investor to build a portfolio no different from the wealthy.