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Mar 4, 2019

Jamaican-Canadian Billionaire Reveals His Investing Religion

by Kelley Keehn

Kelley KeehnWorking in the financial industry, I meet some pretty affluent people. But it’s not every day I get the chance to chat with a billionaire, as I did recently with Michael Lee-Chin, who also happens to be one of Canada’s 20 richest individuals.

His journey from modest beginnings to mind-boggling wealth is fascinating. Born and raised in Jamaica, with parents of Chinese descent, he was the eldest of nine children who had to grasp responsibility at an early age. Michael came to Canada in 1970 to pursue university studies, but after graduating he was unable to find work here in his chosen field of study (civil engineering). So, he shifted course and transformed himself into a financial advisor, then used the knowledge he gained to become an extremely successful investor, entrepreneur and philanthropist.

With a nice sum of money earned through some shrewd stock investing, Michael purchased AIC, a Canada-based wealth management and mutual fund business. He took it from about $800,000 in Assets under Management in 1987 to more than $15 billion at business peak, then sold the mutual fund business to Manulife in 2009. He also had the foresight to seize investment opportunities in his native Jamaica, including a 65% stake in the highly profitable National Commercial Bank Jamaica Limited, the country’s largest bank. He is founder and CEO of Portland Holdings, a private investment company with investments in a variety of businesses including Mandeville Private Client Inc. an investment dealer, and Portland Investment Counsel Inc., an investment management firm.

When we connected by phone last month, Michael generously gave me 90 minutes of his time. Naturally, I wanted the scoop on his money-making secrets. How did he become so well-off? What tips and tricks can he offer average investors like me? His lessons for investing and creating wealth took me by surprise, largely because they are straightforward and easy for anyone to apply.

Here is a condensed transcript of our conversation, which has also been edited for clarity.

How did you get your start in Canada?

Lee-Chin: I came to Canada to study civil engineering at McMaster University. I’d saved just enough to get me through first year. I didn’t know how I was going to fund second-, third- or fourth-year, but I came anyway. At the end of first year I got a job on campus but there was no way I was going to save enough.

I was desperate so I wrote to the Prime Minister of Jamaica. I said: “I’m a starving first-year engineering student and have been writing to your department that gives bursaries and scholarships. Every year I hear that you send an emissary to Canada to recruit graduates. Sir, you cannot harvest unless you sow.” To my surprise, he replied a month later and said, “The next time you’re in Jamaica, come and see me.” So, I bought a ticket and went to Jamaica.

I didn’t meet the Prime Minister then, but I presented my marks to the Ministry of Education and they gave me a three-year scholarship. That was how I completed university. After I graduated in 1974, I was bonded to go back to Jamaica for a minimum of two years where I worked as a road engineer for the government. In 1976, I returned to Canada to search for a job in civil engineering. I sent out 100 resumes and got 100 rejections. So, I decided instead to become a mutual fund salesman with Investors Group. That’s how I got my entry into the financial industry.

Early in your career you developed a framework for investing, which you still rely on today. Can you describe it?

Lee-Chin: When I started, I had to cold call prospects because I didn’t know anyone with money. When people agreed to meet with me, I would sit at their kitchen table and ask myself: “What is the highest value added I can give this family as their financial advisor?” The answer that kept coming back: make them wealthy. And if they’re already wealthy, make them more and protect it.

Now the engineer in me contemplated another question: is there a formula that, if practiced consistently, would generate wealth? At the time—this was 1977—we didn’t have Google, so I read, I observed, and I studied the strategies of successful investors. After some time, I concluded that yes, there is a formula that connects every wealthy person. They do five things:

1.          Own a few high-quality businesses;

2.          Really understand those few businesses;

3.          Make sure those few businesses are in strong, long-term growth industries;

4.          Use other people’s money prudently; and

5.          Holding those few businesses for the long run (buy and hold).

So, I thought the first conversation I should have with my prospects is to educate them on what I learned— these five laws or principles for generating personal wealth. I called this my framework, which I developed in 1978, and it has governed my behaviour thereafter. Today, the framework is unchanged. If everybody followed these five things through thick and thin and over the long run, the outcome is they’d become wealthy.

How did you make your first $1 million?

Lee-Chin: I applied those five principles to my own personal portfolio. Because if I can’t create wealth for myself, how can I be advising clients on how to create wealth. I wanted to lead by example. In October 1983, I borrowed $500,000 to invest in one stock, Mackenzie Financial Corporation, at a cost of $1 dollar per share adjusted for future splits. It was more than my net worth at the time. Within four years, the stock price jumped to $7 per share and my investment was worth $3.5 million.

What happened next? How did you go from millions to billions?

Lee-Chin: By 1987, I had significant asset growth as a result of applying the five principles. I thought that I should really start managing a fund or a family of mutual funds based on these principles, because I came to the conclusion that the typical mutual fund product in the marketplace is not designed to create wealth for clients. It is structurally flawed. It fails against the five laws for wealth creation I outlined previously.

One, wealth is created by owning a few high-quality businesses. The typical mutual fund owns 200 different businesses. Two, wealth is created by really understanding what you own. If you own 200 different businesses as a portfolio manager, it’s impossible to understand them all. Three, wealth is created by making sure that what you own is in a strong, long-term growth industry. If you own 200 different businesses, some will be in great industries, some will be in bad industries. That’s what you get when you diversify like the typical mutual fund does. Four, wealth is created by using other people’s money prudently. If you own 200 different businesses, are you sure each has a crackerjack Chief Financial Officer? You can’t be. And last, wealth is created by simply holding what you own for the long run. Your typical mutual fund has a turnover ratio of 80% per year.

So, I decided to create a mutual fund that was honest to those five principles. In 1987, he bought AIC Ltd. and started the AIC group of funds. The first was the AIC Advantage Fund: it had 15 securities and 60% of the assets were deployed in asset management companies. It was likely the only mutual fund in the world with only 15 securities.

AIC went on to become a multibillion-dollar company at business peak. Your approach certainly worked! You also saw great investment potential in your native Jamaica. Can you share some highlights?

Lee-Chin: Sixteen and half years ago, if you invested US$100,000 in the S&P 500 and the Morgan Stanley Emerging Markets Index, your investment today would be worth US$430,000, in that vicinity. If you invested the same US$100,000 in National Commercial Bank Jamaica Limited (NCB), your investment today would be worth US$2.2 million.

Our company bought a majority stake in NCB in 2002 and transformed it from a bureaucratic organization into a selling machine. At the time, no one saw Jamaica as an investment nirvana. We did, based on the investment criteria I mentioned earlier. Bloomberg did a study of stock markets around the world over the last five years and where you would have made the most money. It was not the TSX, New York Stock Exchange or the Australian Stock Exchange – it was the Jamaica Stock Exchange. It has gone up by almost 300% over that time.

Philanthropy is important to you. Your family has made several multi-million-dollar donations. What advice can you give to others thinking about creating their own legacy?

Lee-Chin: To me, personal fulfilment is summarized in the mantra ‘prosperitas cum caritate’: “doing well and doing good”. To live a fulfilled life, I believe you have to do three things: do well financially, do good for your community and live a life of passion. Unless you are clear about what a fulfilled life is, you’ll never achieve it.

Do you have any words of wisdom for older Canadians who want to engage their adult children in finance and investing, which is difficult for some?

Lee-Chin: First, elderly people shouldn’t be investing like elderly people if they plan to leave an inheritance to their offspring. Part of their investment dollars should therefore be invested as a young person would with a long-term view.

Second, you need to lead by example by having investment principles and living by them. You have to have a framework and once you do, then you can measure everything against it. People ask: “how is it possible this guy came from Jamaica and he’s one of the wealthiest people in the world?” I say it’s possible and it’s not difficult to understand. The only way you can make consistent unemotional decisions is if you have a framework or value system for investing. That’s the best advice I can give.

 

Kelley Keehn is an award-winning author, personal finance educator and is the Consumer Advocate for the Financial Planning Standards Council (FPSC). She has written nine books on personal finance including Protecting You and Your Money; A Guide to Avoiding Identity Theft and Fraud and A Canadian’s Guide to Money Smart Living. Kelley is the Marilyn Denis show’s personal finance expert, was the host of the W Network’s Burn My Mortgage, sat on the National Steering Committee on Financial Literacy, currently serves on the Financial Consumer Agency of Canada’s Consumer Protection Advisory Committee, the Ontario Securities Commissions’ Seniors Expert Advisory Committee, and is a member of the OECD’s International Network on Financial Education