10 Steps To Making A Million From Shares

Published in Investing on 14 March 2012

Some simple ways to help you on the path to a £1m portfolio.

It must be the ambition of me, you and every other ordinary investor reading the Fool -- to make a million from shares.

Just think. A £1m portfolio could mean...

...no more work,

...no more worries,

...and the financial freedom us Fools have always dreamt of.

I don't know about you, but I'd love to own a £1m portfolio, put my feet up every day... and simply live off the dividends.

Adopting the correct mindset

But I know reaching that magic million won't be easy. Indeed, after I received this free Fool report -- "10 Steps To Making A Million In The Market" -- I've recognised I must adopt a hard-work mindset to compounding my existing portfolio into seven figures. So I'm certainly going to follow what the report advises and:

  • Trim my current expenditure, remembering that a penny saved is a penny earned -- and that such savings can also be invested over time and can count towards my million;
  • Fund my investment contributions by automatic direct debit, so I'm not tempted to blow my surplus cash, and;
  • Commit to those regular payments for the long term, so there's no giving up when the markets undergo a bad patch (as they always do these days).

I'll also continue to take advantage of tax-efficient ISAs, in which my share portfolio can grow free of capital-gains tax (CGT). You see, the 10 Steps report reminded me that CGT is charged at up to 28%, and made me think that one day I could avoid a hefty tax bill by using ISAs... if my shares ever grow at a very significant pace of course!

Top ten multibaggers

Talking of 'significant pace', I know that I'll need to pick some exceptional winners to stand a good chance of scoring a million from shares. Indeed, the 10 Steps report lists Anglesey Mining (LSE: AYM), Antofagasta (LSE: ANTO), Rangold Resources (LSE: RRS) and Tullow Oil (LSE: TLW) as among the 'top ten multibaggers of the last ten years'.

Those four stocks have each apparently produced 28%-plus annual returns since late 2001, which I must admit does confirm the potential for handsome gains if the last tricky decade for shares extends well into the next decade. Certainly if you pumped large sums into Anglesey, Antofagasta and so on ten years ago, that magic million might not be that far away now.

Less obvious winners

What I found more interesting in the 10 Steps report, though, was how some less obvious companies have earned loyal investors fantastic profits over time. In fact, I was amazed to discover that dull names such as bus group Stagecoach (LSE: SGC) and fizzy-drink firm AG Barr (LSE: BAG) have produced 18% annual gains since 2001.

Indeed, blue chips such as BHP Billiton (LSE: BLT), British American Tobacco (LSE: BATS) and Rolls-Royce (LSE: RR) have also provided similar annual gains, which underlines how obtaining super-profits from shares -- and ultimately building a £1m portfolio -- does not always have to rely on unfamiliar names or small-cap mineral plays. I must say I'm relieved about that.

The true power of dividends

Now another 10 Steps stat that really impressed me concerned the power of dividends. Like you perhaps, I've read plenty of articles over the years explaining how company payouts have generated the bulk of long-term market returns. However, it's not until you see the real figures for a familiar share that this vital message is really brought home.

According to the 10 Steps report, the shares of British American Tobacco have recorded a 412% gain during the last ten years. Not bad. But had you reinvested all the dividends collected on the way, the total return would have swelled to 725% -- and turbo-charged an 18% annual average gain into a stunning 23% average annual return.

To underscore the difference reinvested dividends could make on the path to a million, I've cut and pasted the following (really big!) chart from the 10 Steps report:

Harness The Full Power Of Reinvested Dividends

So if I invest £10,680 in an ISA and then enjoy BAT's 412% capital gain -- but spend all the dividends I receive -- I'd see my money grow to about £54,000.

However, if I invest £10,680 and then sit back to enjoy BAT's total, dividend-reinvested 720% return, my pot would surge to more than £87,000.

For me at least, that extra potential £33,000 could certainly make all the difference in achieving a landmark £1m portfolio!

Millionaire inspiration

Though I've only covered a fraction of what "10 Steps To Making A Million In The Market" has to offer, the full report has really given me extra inspiration to compound my own small portfolio towards the £1m mark.

That may take some time to achieve of course, but if I invest all my spare cash, shelter my shares from tax within ISAs... and of course, relentlessly hunt down attractive buying opportunities, then maybe one day I can enjoy that seven-figure sum... and put my feet up!

Let me add finally that I ordered my copy of 10 Steps just by clicking here and I received it by e-mail straightaway. I can also confirm the report was entirely free, came without any further obligation and contained masses of other stats and information that I'm sure you'll find useful. I hope you enjoy the report as much as I did.

More on the economy, shares and millionaires:

> The Motley Fool owns shares in BHP Billiton.

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

WealthyInvestor 14 Mar 2012 , 9:04pm

As a big fan of the Motley Fool I find this kind of article/advertisement really disappointing, because you are better than this. It's somewhat irresponsible to post this kind of piece. I don't think I have ever met an investor that can achieve a sustainable year on year increase of 15%. I consider myself to have advanced capability when it comes to investing, and on average in the last fifteen years have never achieved less than an 8% increase per annum, but to suggest that figures of 15% are achievable consistently is just misleading and appeals to the naive. Admittedly recent economic turmoil has enabled some people, myself included, to make spectacular gains, buying banks like Barclays in 2008 for pennies and selling them less than a year later for over £3, but to suggest that is normal or most people could do it would be both irresponsible and ridiculous.

I looked at your free report and its a work of fiction, primarily because it appeals to the same human weakness that makes the lottery numbers each week seem so very obvious just AFTER they have been drawn. As a friend of mine once said, the greatest super power you could ever have would be the gift of foresight. Sadly, most investors have to rely on a combination of skill and luck, and for the vast vast majority, to quote the voice of the lottery balls, it won't be you.

TMFMayn 15 Mar 2012 , 8:57am

Hello WealthyInvestor,

Thanks for the comments.

As a big fan of the Motley Fool I find this kind of article/advertisement really disappointing...

My article and the report was about giving people the inspiration to work hard, save hard, invest hard and try and do better than they otherwise would with their portfolio. I saw the report as motivational, and simply outlining what could be achieved if the necessary perspiration was performed. Indeed, we'd all like to make a million from shares -- certainly I would -- but I did actually write in the article that it "won't be easy". What's more, there are actually people around who have made a million from shares, so it is not impossible. That said, making super-charged gains consistently requires special talent and dedication I agree.

Within the article, you will recall that I wrote "I'll need to pick some exceptional winners to stand a good chance of scoring a million from shares" and I think you do the wider Fool audience an incredible injustice if you think they are naive enough to think exceptional winners just drop from trees. You see, the interesting point for me within the report was that 'dull' names such as Stagecoach and BAT have provided 15% or so annual average gains during the last ten years, so obtaining super-profits from shares does not always have to rely on unfamiliar names and resource plays and pure outright gambles. There was nothing in the article or report that I could see about just buying bombed-out banks, builders, pubs etc or penny shares and cashing in less than a year later -- the report mentioned various shares and buying and holding for years as far as I remember.

I looked at your free report and its a work of fiction, primarily because it appeals to the same human weakness that makes the lottery numbers each week seem so very obvious just AFTER they have been drawn. As a friend of mine once said, the greatest super power you could ever have would be the gift of foresight. Sadly, most investors have to rely on a combination of skill and luck, and for the vast vast majority, to quote the voice of the lottery balls, it won't be you.

Well, people are human. Shares are different to the lottery because the former can be dictated by skill and experience (which can be developed), while the latter is down to pure luck. Yes, the lottery odds are extremely poor, but so what? People have a flutter on the draw for a bit of excitement, and I don't see anything wrong with that myself (I always up for a few euromillions tickets if there's a mega jackpot!) With shares, we all have to start somewhere and, to be frank, I think it quite arrogant for an investor with an "advanced capability" to effectively suggest 'don't you bother trying to score large gains with shares, as you may not have the skill' I say everyone with a desire to learn about shares and better themselves ought to dedicate themselves to developing their stock-picking talents/strategies and have a go -- maybe they could make a million. They will never know if they give up after reading your advice.

Anyway, I am happy for Fools to judge the report for themselves. As I say, I found it quite motivating. Here is the link: http://www.fool.com/fool/free-report/tmfuk/ten-steps-to-making-a-million-in-the-market-147280.aspx?aid=4413&source=uddsitedi0000001

Mayn


AleisterCrowley 15 Mar 2012 , 10:30am

The easiest way to end up with a £1m portfolio is to start with £2m...

brightncheerful 15 Mar 2012 , 11:02am

In December 12, 1980, one share of Apple stock (APPL) was worth $2.75, which has grown to $589 or so yesterday.

Spreading investment in shares around, diversifying as it's known, is arguably one of the slowest and most unreliable ways to make money, let alone a million. Every successful investor I know has focussed on a particular sector, got to know it inside out so as to know when to buy and sell and kept at it through thick and thin.




AleisterCrowley 15 Mar 2012 , 12:33pm

Yes, but....I can almost guarantee that every unsuccessful investor has failed to diversify. If you diversify your returns will be somewhere around the middle of the distribution..if you concentrate you'll probably either do very well or very badly. If you think you can find the next Apple, go for it. I'd rather try and 'optimise' a tracker-like portfolio.

DashingDave123 15 Mar 2012 , 1:37pm

Anyone can look up the shares that did best over the last 3, 5 or 10 years and write an article saying how well we would have done owning them. This tells us nothing useful as we did not know which shares they would be until after the event and nor did the writer. The thing they never tell you is how to pick the best shares in advance, except in the most vague and wooly terms, like buy great companies with a competitive advantage. When is the Fool going to tell us something useful?

iamanindividual 15 Mar 2012 , 2:14pm

I agree with WealthyInvestor et al's comments. I've found Fool to be irritating, as it seems to treat people as if they are stupid. I'd prefer real company analysis rather than the snake oil that appears to be the mainstay for them these days. Tell us what you think are companies to buy, when not to buy, when to sell or hold if you have them, but over a long (ie 10 year) time frame. Not these irritating articles that would make a "pump and dump" scheme blush. And I'm across the UK, US and AU articles, and they're all the same rubbish.

rober00 15 Mar 2012 , 5:15pm

"The easiest way to end up with a £1m portfolio is to start with £2m"

I totally disagree with the above. The easiest way is to start with a billion NOT 2m!!!

Additionally, as share investment is a zero sum game to make a million necessarily involves someone else(others) losing a million.

In order to do this IMO involves you having skills most others do not have and at the very least these take time and tremendous effort to
acquire. Taking the simple steps mentioned in the 10 step report so "generously" offered by the Fool is hardly likely to lead to success, especially if the index tracking approach pushed by the Fool is adopted.

TMFKipper 15 Mar 2012 , 5:39pm

Fools -- I'm struggling to understand how you'd take issue with the notion of us providing a free investing report for your consumption and consideration. Not everything will suit everyone -- we're motley after all.
As with all our advice -- here on the free site and behind our premium wall -- we provide it as a basis for others to use, or not, to hopefully become better investors. That could be help with living below your means, getting started with investing, understanding a key company metric, valuing a share, diversifying your portfolio, and the list goes on.
Our mission is to help the world invest better, and with everything we do we hope you're better off with us than without. Here on the free site we'll continue to provide thought-provoking and truly motley content for help with your investing. Take it or leave it.

WealthyInvestor 15 Mar 2012 , 7:44pm

I'm glad to see that Motley Fool followers do indeed appear to be more intelligent than the article/advertisement that warranted my original comment implies, and I have to say I agree with the sentiment expressed in much of the above.

TMFMayn, I am well aware that many people have made a fortune from investing! I'm one of them! I started with nearly nothing and transformed my life through the stock market, I have also published a book about how I did it! I guess if I worked for Motley Fool I would probably name that book right here along with the link to it on Amazon! (also available in Kindle version now....!)

However, just because some people have taken an approach that has paid large dividends over time, doesn't mean it's appropriate to post articles that will potentially mislead, even if from the nicest of intentions. Those who need to be inspired to invest, probably shouldn't be, even if you do think you know better.

Best wishes.
Wealthyinvestor.

Fool216728268 15 Mar 2012 , 8:11pm

agree completely with WealthyInvestor. Having been a fan of the fool for years, im starting to get fed up with these posts that are just a reharsh of information that i have read elsewhere in a book which i shall not name.

far too much either promoting pay services, or getting signed up to more junk mail arriving - promising riches.

jaizan 15 Mar 2012 , 8:16pm

I don't think the report deserves the criticism it is getting.

Of course there's not much in it for the experienced investor, however there will be inexperienced investors reading this site.

Bombadil79 15 Mar 2012 , 8:30pm

I think the responses to this article are way too harsh. The idea of buying and holding for the long term is what made many investors large sums of money. Dividend reinvestment over decades can make a huge difference; this is the power of compounding at work. Many studies have shown this, including some good examples in 'Smarter Stock Picking', by David Stevenson. However, I do agree readers must continue to monitor their holdings to ensure forecasted dividend and share growth is being maintained.

Bombadil79 15 Mar 2012 , 8:40pm

Jaizan, I think many experienced investors can get set in their ways; they happened to make money that way and become blinkered. Look at the variety of ways the dozen investors made their money in 'Free Capital' by Guy Thomas. All millionaire ISA investors.

goodlifer 16 Mar 2012 , 12:05am

rober00
"Share investment is a zero sum game.
Not necessarily.

Hold shares in a decent company, and

you get your dividends,
the company's share price gets a boost,
the workers get their jobs,
the customers get a decent product at a reasonable price,
God's in his heaven
and all's right with the world.

lookingforclues 16 Mar 2012 , 6:29am

The purpose of the article is to appeal to the psychology of greed and tempt us into eventually subscribing to stuff we have to pay for.

Of course they are hardly going to say that are they.....

AleisterCrowley 16 Mar 2012 , 10:35am

Well, for a bit of balance, I enjoyed the article and report (whilst not agreeing with everything contained therein)
The TMF free content is pretty good IMO, given that they have to write for such a varied audience. I'll always read stuff by TMFMayn,Pyad, Tony Loton and many others.

ANuvver 16 Mar 2012 , 1:29pm

I like the Fool. It fulfils its stated remit, particularly "to educate". So to sit at the back going "Know it" "Boring", "Wrong" isn't really on. Might you be sitting in the wrong classroom?

And if you don't like a sales pitch, you can always say no. Isn't that a very Foolish principle?

As to those just coming to grips with this stuff for the first time, there's plenty of free content and disclaimers. Anyway, not everyone is going to embrace the DIY approach so whole-heartedly. Some might be quite happy to purchase reports, extra content, etc.

To a certain extent, the fully-formed Fool shouldn't really need The Fool at all. But we all seem to enjoy and benefit from the community.

rober00 16 Mar 2012 , 4:28pm

goodlifer - sorry but you are wrong!!!

Investment is a zero sum game for every winner their is an equal and opposite loser(s). This has nothing to do with the companies in which you invest. It is a simple mathmatical fact and if one does not understand this, then one is at risk of making big losses.

goodlifer 16 Mar 2012 , 5:32pm

Thanks rober00

"Investment is a zero sum game for every winner their is an equal and opposite loser(s)."

If I buy a couple of grand's worth of Plastic Plastic Pills, who actually loses, and how?

motivefinder 17 Mar 2012 , 11:30am

stock market is a casino, simply a casino--nohing but a casino
when buy volume less than sell volume price goes down, vice versa-- it should have opposite.
does the stock price depends on buyer or seller --not at all. we all buy and sell towards a set prefixed price every moment.

RobinnBanks 17 Mar 2012 , 2:17pm

I enjoyed this article and found it informative; I think some of the comments are far too harsh. I am sure we can discard anything we do not agree with without such destructions..
I have only had cause to seriously complain about one MF article out of the hundreds I have read over several years. I value the information and entertainment imparted by all concerned, including many commenters; thank you all for the free education.

goodlifer 17 Mar 2012 , 7:58pm

motivefinder

"We all buy and sell towards a set prefixed price every moment."

How can you be so sure?
And what precisely do you mean?

goodlifer 17 Mar 2012 , 11:12pm

Hi again rober00,
I
According to Investopedia, "Options and future contracts are examples of zero-sum games.... Gambling is also an example of a zero-sum game.

"A stock market, however, is not ( though in goodlifer's opinion it can be, and often is) a zero-sum game because wealth can be created in a stock market."

Of course Investopedia may have got it all wrong.
What do you think?

goodlifer 18 Mar 2012 , 7:06pm

Hi yet again rober00,

Sorry to bother you again, but how just does a difference of opinion on this question make you likely to incur big losses?

snikmij 19 Mar 2012 , 12:24pm

Interesting article, agree somewhat with both sides of the arguement.

All I would advise for any new investor, start off investing with small amounts of money monitor companies news and diversify.

And I treat Motley fool articles with a score of 0.0 to 1.0.

0 to 0.5 would be dodgy and be careful investing, 0.5 to 1 as worth considering. The above article I personally score as 0.5, be careful but consider it.

BIACS 15 May 2012 , 3:19am

goodlifer is exactly right and Rober00 I'm afraid you're not correct on this one. Currency investing would be a better example of a zero sum game - the stock market is entirely different. If I buy shares in a business selling a new unique industrial product and it makes 1m profit in a year from selling this product, and then the industry purchasers who buy it also make extra profit themselves from using this new technology, and then all of these companies pay higher salaries to their employees because they are doing so well, and these employees then spend their money into other businesses in the economy - this is mutually beneficial wealth creation. There is no loser here (unless you count the "opportunity cost" of the person who originally sold me his shares in the business who might have been better off hanging on to them - but this is hardly the same thing and certainly does not constitute an "equal and opposite loss" in the way described). Just because you buy shares from someone does not mean there is necessarily a loser on the other side - this is in marked contrast to zero sum transactions which always involve an equal balancing loss elsewhere.

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