Advertisement
Features

The world’s greatest investors: John Banks

John Banks was born in Maidstone in 1627 and went on to make his fortune from lending money.

John Banks was born in Maidstone in 1627 and studied at Cambridge before using his father's connections to become a successful merchant. He lent money to businesses and the government and took equity stakes in companies including the East India Company. He served as an MP during the dying days of the Commonwealth, but was made a Baronet by King Charles II in 1662. In 1672 he became the governor of the East India Company.

What was his strategy?

While his investment in the East India Company was his most prominent one, the bulk of his fortune came from lending money. He appears to have been an early value investor, buying debt at a big discount to its face value. He also regularly lent money to the Treasury at relatively high rates of interest.

Did this work?

In 1655 Banks was given £11,000 (£1.9m today) as a wedding gift by his father-in-law. Seventeen years later his estate was worth £102,000 (£15.7m), reflecting an annual return of 14%, making him one of the richest men in England. In 1672 the English government defaulted on its debts. Most of the government's creditors were bankers who had lent money they themselves had borrowed from depositors. They were therefore wiped out. However, Banks had lent his own money, while he had also dabbled in stocks, real estate and cash. As a result, he could negotiate with the Treasury from a position of strength.

The lessons for investors?

Banks's success in evading a debtors' prison shows the importance of adequate diversification, limiting your leverage and keeping enough money in liquid assets. Keeping his eggs in several baskets meant that large parts of his portfolio were in sectors unaffected by the bankruptcy. Keeping a lid on his own leverage meant that he didn't have any creditors clamouring for repayment, while liquidity bought him time to negotiate with the Treasury. The British state has never defaulted again, but investors who have opted for the debt of other countries have found out the hard way that sovereign paper is far from risk-free.

Advertisement
Advertisement

Recommended

How the fear of death affects our investment processes
Investment strategy

How the fear of death affects our investment processes

Many of our investment decisions are driven by one simple fact: the knowledge that, one day, we will be dead. Here, in an extract from his new book, J…
2 Jan 2020
The good investments of the 2010s – and the bad
Stockmarkets

The good investments of the 2010s – and the bad

John Stepek takes a look back on which investments did well and which did badly in the decade that’s about to come to an end.
26 Dec 2019
How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
7 August 1978: Love Canal declared a disaster
This day in history

7 August 1978: Love Canal declared a disaster

On this day in 1978, US president Jimmy Carter declared a Federal Emergency over contamination from toxic waste stored at the defunct Love Canal.
7 Aug 2020

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Platinum: the precious metal that looks set to play catch-up with silver and gold
Silver and other precious metals

Platinum: the precious metal that looks set to play catch-up with silver and gold

Gold and silver continue to soar, but there's still time to get in. And there's another precious metal that looks set to go on a bull run too, says Jo…
7 Aug 2020
Don’t despair on dividends – these companies could be set to bring them back
Income investing

Don’t despair on dividends – these companies could be set to bring them back

The value of dividends paid out by UK stocks has plummeted this year as companies “rebase” their payment policies. But things could soon start to look…
6 Aug 2020