Investing like a billionaire

How the wealthy invest differently

Have you ever wondered, when looking at your pension statement, why the longest bull market rally in history during the past decade has somehow passed you by?

Perhaps it is because the wealthy invest differently.

Jamaican-Canadian businessman and investor Michael Lee-Chin believes they do, and he built an investment philosophy around his observations early on in his career.

The investment framework served Lee-Chin well. The chairman and CEO of Portland Holdings Inc., a privately held investment holding company headquartered in Ontario, Canada, today features on the Forbes list of billionaires with an estimated net worth of US$2.3 billion.

When he started his investment career selling mutual funds, Lee-Chin says, he wanted to find a formula for creating wealth. An engineer by training, Lee-Chin set out to find commonalities in the way rich people were investing successfully.

What he discovered became a personal philosophy and to this day is still the investment mantra of his firm.

“What I found is they own a few, not too many, high quality businesses,” he says. “Number two, they really understand them. Number three, they make sure that they are in strong, long-term growth industries. Number four, they use other people’s money. And lastly, they simply hold those businesses for as long as they remain great businesses. That’s how wealth is created in the real world.”

To create his personal wealth, Lee-Chin followed his investment framework to the letter, even if it meant going against the grain of the typical investment advice that most people tend to receive: to save and to invest the savings into a diversified portfolio.

In 1983, when he was 32 years old, Lee-Chin borrowed $500,000 and invested it into one single stock, Mackenzie Financial, the company he worked for and knew well. Four years later, after the stock value had increased sevenfold, Lee-Chin used the proceeds to buy AIC Limited, a small Ontario-based investment firm. Applying the same philosophy there, AIC’s assets under management grew from $800,000 to $15 billion within 20 years, before AIC’s retail investment fund business was sold in 2009.

Asked why his initial investment with borrowed money into a single stock should not be considered reckless, the self-made billionaire responds with his own questions: “If you own one business, is that reckless? As a business owner, how many businesses do you own, typically? One,” he says.

“A stock is only a piece of a business. You as a business owner understand that business. So, your minimising of risk and minimising of recklessness would be rooted in how much you understand what it is that you do. Investing is no different.”

As far as investing with borrowed money is concerned, Lee-Chin says, one cannot create wealth without capital. Because of the power of compound interest, wealth creation not only depends on the rate of return each year but also the initial amount that can be invested, Lee-Chin explains, citing the ‘future value of money’ formula.

“You cannot create wealth unless you have capital working for you. You can marry into it, you can steal it, you can win it, or you can borrow it,” he says.

For most people, the first options do not exist. “But we can borrow.”

Financial advisors advocate diversification to minimise risk but Lee-Chin says wealthy people would not tell ordinary people to diversify.

Quoting legendary investor Warren Buffett, he adds, “If you don’t feel too ignorant, you don’t need to diversify. The converse of that is you diversify if you are ignorant.”

The average investor can simply look for a business that is well run by an owner-operator who has ‘skin in the game’ and then invest alongside the owner.

“Mr. Buffett is still at the helm of Berkshire Hathaway. So, if you are buying a share of Berkshire Hathaway, you are co-investing with Mr. Buffett. Everything he does, everything he has done, his network, you are tapping into it and you don’t pay a fee for it.”

Buffett also famously said that he is a better investor because he is a businessman and he is a better businessman because he is an investor.

One therefore cannot be a good investor without a business-like approach or run a business well without thinking about rates of return, Lee-Chin says. “The two go hand in hand.”

The 69-year old, who found success in Canada, has nevertheless become one of the most prominent investors in the Caribbean. Portland has acquired hotels, manages one of the largest private equity portfolios in the region, and has significant interests in telecommunications, as well as banking and insurance.

In 2005, Portland partnered with Risley Group to form telecom provider Columbus International, which developed its own deep-sea fibre optic cable network and was later sold to Cable and Wireless, that itself was bought by Liberty Global.

But Lee-Chin is perhaps best known for Portland’s acquisition of National Commercial Bank Jamaica in 2002. He serves as the financial group’s chairman and in May 2019 guided NCB through the acquisition of a majority stake in Trinidad-based Guardian Holding Limited, one of the region’s largest insurers.

While the Caribbean is often described as economically challenging, it makes the region attractive from an investment point of view, he notes.

To spark his interest, investment opportunities must meet three criteria. There must be a difference between perception and reality so that an investor can take advantage of knowledge arbitrage. There must be inefficiencies, which when addressed create more value. And there must be a lack of equity capital. The Caribbean scores highly on all three.

If everybody has the same information and there are no inefficiencies, one cannot create wealth. And if there is an abundance of capital, prices will be high and margins low, Lee-Chin says.

“To me, the Caribbean is a treasure trove. In fact, it is the best place to invest, because of these three preconditions.”

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