Buy, hold, and prosper - Cover Story - investment strategies

Black Enterprise, August, 2002 by Matthew S. Scott

Lee-Chin quotes his role model, billionaire investor Warren Buffett, as if he were the Messiah. And Lee-Chin is a devoted student of the investment icon's buy-and-hold style of investing. He learned of Buffett after picking up a copy of John Train's book, The Money Masters, (Harper Business, $15) in 1980. He has faithfully implemented a Buffett-like strategy ever since.

Lee-Chin says patterning yourself after a successful investor is important because rich people exercise proven strategies to satisfy the three basic goals of investing: preserving capital, maximizing the average rate of return on investments, and minimizing tax consequences. Copying their framework for wealth is the quickest way to get there. "If you can optimize those three variables, the by product is that you become wealthy," says Lee-Chin.

2 USE OTHER PEOPLE'S MONEY

Lee-Chin says one of the shared qualities of the wealthiest people in the world is that they use other people's money to create wealth. "They all have used other people's money because they came to the conclusion that they couldn't work, pay taxes, and save to become wealthy," he says bluntly.

He borrowed $327,000 to make his first millions, but he warns investors to always use long-term financing to fund long-term investing. Lee-Chin also warns investors to only take on debt that they can afford. He counsels against using a margin account for long-term investing because it's a loan you may have to pay back to your broker at a moment's notice should your stock go down in value. "If you don't have any money to make the margin call, there goes your long-term project of trying to get wealthy," he says.

3 INVEST IN A FEW BUSINESSES YOU KNOW VERY WELL

According to Lee-Chin, another thing wealthy people have in common is that their fortunes are usually concentrated in one or two great businesses that they hold long-term and bequeath to their children. How do they do this? He says the rich invest heavily in companies they understand so that they'll know when to buy at bargain prices and they won't sell during tough times. They also make sure those businesses are in industries expecting 10 years of growth or more. "Invest in things you really understand. If you do anything less, you are speculating and you are going to lose your money for sure," says Lee-Chin.

Lee-Chin practices what he preaches. His mandate for AIC's mutual funds is that they should invest in no more than 25 "great" companies. In fact, 60% of the AIC Advantage Fund only invests in five.

4 STAY COMMITTED TO YOUR INVESTMENT PHILOSOPHY

Lee-Chin is a die-hard buy-and-hold investor, which is an intelligent model to follow. Everyone should adopt a fundamental approach to investing if they are committed for the long run. "You need to have principles that you don't violate through thick and thin, regardless of how you feel," he says. "It is most difficult to exercise sound judgment when times are awful because everyone gets emotional. When you are emotional you're apt to make stupid decisions. So if you can keep calm when everyone else is emotional and fall back on principles that are time tested, you'll do well."