Amassing a multi-million pound investment portfolio is a great achievement.
Managing to build it up within Isas – where no further tax will fall due on capital gains or income – is an achievement of an altogether different magnitude.
The strict limits on Isa contributions (and contributions to Isas’ predecessor, the Pep) means that reaching Isa millionaire status typically requires a combination of dedicated saving and exceptional investment returns.
Isa allowances have become far more generous in recent years – rising to £20,000 in April 2017– and so in future the club is likely to grow.
But for the time being the Isa millionaires remain a highly elite group, thought to number not more than 1,000.
Of these, Balbir Bagria,a former IT systems analyst, must rank among the most successful.
He and his wife Jasvir have been living off their joint Isa investments since 1999, when Mr Bagria retired at the age of 39. Mrs Bagria stopped working at roughly the same time.
Over the course of the Nineties Mr Bagria and his wife contributed a total of about £176,000, first to Peps and then to Isas.
They stopped adding new money to their respective accounts after 2000. Those initial investments, while substantial, have grown with astonishing success to become a multi-million pound portfolio today, capable of providing an annual six-figure income on which zero tax is payable.
Mr Bagria oversees the portfolio with help from his wife, using standard do-it-yourself Isa accounts from Barclays stockbrokers. Such success has not come without risk.
Mr Bagria runs a highly “concentrated” portfolio that contains only 10 to 15 stocks at any one time.
Far from poring over reams of data late into the night, he commits around six hours a week to research.
The returns have been staggering. If you had given Mr Bagria £1,000 in 1993, he would have grown it to £287,000 by the end of 2016.
Few professional investors can boast any such record. Indeed, his annualised returns of 26pc exceed the performance of billionaire Warren Buffett, founder of Berkshire Hathaway.
Had Mr Bagria done as most Isa investors do and chosen a well regarded unit trust offered by a major fund group, his returns would have been pedestrian by comparison.
The best-performing fund over the period 1993‑2016 – Schroder US Smaller Companies – would have turned the same £1,000 into £25,000.
A commendable result, but nothing next to Mr Bagria’s achievement. The best-performing mainstream UK-invested fund, Fidelity Special Situations, would have grown £1,000 to £21,550.
Telegraph Money spoke to Mr Bagria to find out how he did it.
“My first degree was in biochemistry and my masters was in computer science. When Peps were launched I had been thinking about long-term savings, and I thought they were a great idea,” he said.
“Initially I gave my money to a bank to manage. That got me interested – but the stocks they picked didn’t go anywhere.”
Mr Bagria started picking stocks for himself in 1992, but lost half of his money in the first year. This served as a reality check.
“I decided I either needed to give up and let someone else do it or read up on how to pick stocks. I started reading and discovered that I was capable of doing it,” he said.
He has now read more than 100 books on investing, but credits the late Jim Slater, author of The Zulu Principle and a columnist for TelegraphMoney until his death in 2015, for initially getting him into “growth investing”. He is also an admirer of Mr Buffett.
Mr Bagria’s investing method
Mr Bagria targets shares in companies poised to grow. Specifically, he seeks those with a recent record of 15pc to 20pc annual earnings growth which he predicts will continue.
He will also buy stocks that he feels are not properly valued by the market, even if he dislikes the sector.
Recent examples include property companies and miners. He has only ever invested in UK stocks, saying that to look abroad to the US or Europe would “increase his workload”.
He added: “It’s easier to see the companies around you. I can get a better feel for them, although the US market would be more exciting.”
Investing in such a small number of stocks is high-risk, and so Mr Bagria employs “stop losses” that automatically sell holdings if they fall below a certain point.
He makes a small loss on around half of his stocks, but the stop losses mean he sells out quickly when positions sour.
“I expect a stock to make money: if it starts losing value I conclude that I’ve got my analysis wrong,” he said.
By contrast he hangs on to his winners, and doesn’t have a set gain where he will automatically sell a stock.
His typical holding period is two to three years, and he usually finds himself selling when a stock has fallen slightly from its peak, rather than trying to exit at the top.
Any dividends receivedare reinvested, and the couple’s income is generated by selling holdings.
Recognising a crisis
Aside from picking the right stocks, a major determining factor in Mr Bagria’s success has been his successful navigation of financial crises.
In 1999, at the height of the “technology bubble”, he made a return of 261pc between the start of the year and March.
He then sold out of the market ahead of the crash. Stocks he owned during this period included telecoms firmAmstrad, computer chip companyARM and biotech firm Cambridge Antibody Technology.
He cites two factors that helped him time his sale with such accuracy. “In the Nineties, none of my friends were interested in stocks.
I gave a book to one friend who had it for three years and never read it. “Then, in 1999, my friend started reading that book,” he recalls.
“When the last person gets into the stock market, that tends to be the best time to get out.”
The second was a statement in March 1999 by US President Bill Clinton and prime minister Tony Blair, in which it was said that the human genome sequence should be made freely available to all researchers.
“I sold all the biotech stocks first thing in the morning, and shortly after that I sold my internet stocks too – and that was the start of the crash."
That is not to say he has not had low years. In 2008, his portfolio suffered its worse annual loss, falling by 22.5pc. Mr Bagria put this down to his overconfidence that the recovery was about to begin.
He put 35pc of his portfolio back into stock markets just before investment bank Lehman Brothers collapsed.
“To make matters worse I had jury service on the Monday that Lehman Brothers went down, so I had no phone,” he said.
In 2014, too, he lost 13pc “simply because I did not pick the right stocks”. His most recent successful feat of timing wasbuying into cheap mining companies last year, before the enormous rally enjoyed by the sector.
Over the course of 2016, his portfolio gained 29pc. Stocks he currently owns include housebuilder Redrow, cinema operator Cineworld and semiconductor business IQE.
Isas vs pensions
Mr and Mrs Bagria would not have been able to retire in 1999 had they been saving everything into a pension.
Pension cash can be accessed only at age 55. And the majority of money taken out of a pension is taxed. Based on their current withdrawals they would pay tax at the highest, 45pc rate if their money was inside a pension.
Peter Brooks, head of behavioural finance at Barclays, said: “Mr Bagria faced a typical dilemma when deciding between an Isa and a pension.
“For the majority who follow a traditional path, pensions are a compelling option.
However, those who long for a complete change in their lifestyle before retiring or who want to retire early need to access their savings to make that possible, which an Isa allows.”
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