Unlike the best UK shares, Bitcoin has little in the way of fundamentals to support its price. I reckon the cryptocurrency maintains its lofty valuation based mainly on demand from speculators. So, if investors lose interest in Bitcoin, the price could have a long way to fall and that’s a risk I’m not prepared to take.
However, judging by the growing numbers of ISA millionaires in the UK, investing in the best UK shares is a well-trodden path to making a million. The first to publicly come ‘out’ as an ISA millionaire was Lord John Lee. But recent estimates suggest there are now around 1,000 people with at least a million in their ISA accounts.
How Lord Lee finds the best UK shares
How did they do it? Well, in 2014 Lord Lee published a book fleshing out his investment strategy. It’s called How To Make a Million – Slowly, and it’s a great resource to add to your investment library.
So what are the best UK shares? To Lord Lee, it’s clear that they tend to be those representing companies with smaller market capitalisations. He says in the book he’s something of a small-cap specialist. Indeed, smaller companies have plenty of room to grow. And if you pick a good one, the share price can go a long way over time.
When buying shares, Lord Lee focuses on conservative, cash-rich companies or those with low levels of debt. And he aims to buy when valuations are modest. Typically, he looks for a low earnings multiple, an attractive dividend yield and a discount to net asset value or the to the real worth of a business.
He wants the directors to have meaningful shareholdings in the company themselves so their interests are aligned with his. And he expects moderately optimistic or better outlook statements before buying. Having bought, Lord Lee is prepared to hold for at least five years.
However, not all of Lord Lee’s selections have performed as he hoped. And he reckons one of the key factors in his overall success is facing up to investment mistakes quickly. To do that he applies a 20% stop loss to his investments. However, he ignores his stops if there’s a major overall market fall. Such a strategy would likely have kept him invested through the coronavirus crisis, for example, as well as helping him remove the under-performers from his portfolio during normal times.
I think Lord Lee’s approach to running his portfolio is interesting. He invested his way from the £126,200 he put into his tax-free share accounts to more than £1m. And a key part of his strategy was to limit the losses from poor-performing companies. Such acknowledgement of his own investment ‘mistakes’ has likely saved him from losing thousands and accelerated his overall gains.
The other part of his strategy for execution involves allowing his profitable holdings to run. He cautions against trying “to be too clever” such as by selling in the hope of buying back at a lower price after a market fall. I reckon Lord Lee’s simple-but-effective strategy is a great way to aim for a million via shares.
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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.