Investing Lessons From a Billionaire

Mega-investor Michael Lee-Chin espouses a unique philosophy

Lee-Chin’s rationale for favoring these stocks?
– They’re in a strong, long-term growth industry driven by a growing and aging population’s desire to create wealth. They also benefit from underfunded pension funds and a new focus among consumers toward individual savings and investing.

– Each asset management business has a strong, recurring cash flow. As an added bonus, fees are collected from investors automatically each month, so there’s no need for them to maintain a collections department. This reduces their costs and increases profitability.

–They have no inventory or physical plants to lose, damage, or become obsolete.

–Their assets are off the balance sheet.

–They are highly scalable; revenues can double or triple without incurring additional costs.

–They have great operating leverage, and their costs grow slower than their revenues.

The performance of these stocks is hard to beat. Lee-Chin notes that in the last 25 years, Franklin Resources Inc. has gained 261%, meaning an investor who bought $5,000 worth of Franklin shares in 1985 would today have $1.31 million. Likewise, he points out that Eaton Vance’s shares have increased 115% over the same 25-year period. A $5,000 investment in Eaton would be worth $581,900 today.

Lee-Chin says that sticking to his investing philosophy and identifying positive qualities within a particular company are keys to successful investing. “These are the same characteristics I recognized in 1983 when I went out and borrowed $500,000 as a young man and put it into one stock. And that’s the only reason I am where I am today.

This article originally appeared in the March 2010 issue of Black Enterprise magazine.

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