If youve ever wanted to go into the mind of a professional money manager and learn a bit about what makes them tick, I suggest you read The Single Best Investment.  If you want to learn more why dividend investing is considered a viable, long-term plan to build wealth, then read The Single Best Investment.

Lowell Miller, the author, is the President and lead portfolio manager of Miller/Howard Investments Inc. a firm that manages over $1 billion of other peoples money. Hes been a professional investor for more than 30 years.  In his spare time, Miller is a sculptor, a writer and holds a 5th degree black belt in Aikido, all pretty cool for a money guy.

After hearing about this book from various bloggers, DIY Investor I recall, I figured Id buy it and put it on my nightstand.  I finally got through this a few months ago.  It took some time, but it was worth it.

The title of the book, first of all, certainly intrigued me but the pages that followed were more than enough to keep me captivated. One of the things that made this book enjoyable to read was the writing style of Miller. He speaks plainly and openly with little technical jargon. There are no complex terms or theories to decipher. There are no graphs to be hoodwinked by. The graphs that are included are pretty much common knowledge: when inflation is factored in fixed-income investments always lose to equity investments, and holding cash does even worse. Instead labouring on these facts, Miller instead wrote a book for financial builders, people who want to understand how best to leverage the forces of time, modest, reliable and compounding growth to their advantage. Miller reminds his readers that investing is really, investing a methodical accumulation of capital through a sensible, disciplined plan that recognizes shares are not as he puts it little numbers that jump around in the paper every day. They represent a partnership in a real business.

Miller prescribes than any investor, can and should have a reasonable set of financial goals to work towards because they will always be plagued by financial doubts and uncertainties. Unlike many aspects of ones life, price and market changes cant be explained away. They just are. Therefore, because the market is always beyond our control and will frequently give us some emotional discomfort, you are wise to select a strategy that avoids playing the market but being an investor in it.  Buying and holding established companies that have a great history of rewarding investors in good times and in bad through consistent dividend payments, can be one such strategy Miller explains. Like a well-made old wool blanket, investing can be solid and comfortable, if you approach it sensibly.

Overall, I found The Single Best Investment an enjoyable read. It galvanized many dividend investing concepts and also highlighted a few new ones for me. The novice or experienced stock investor will enjoy this book. Each chapter is summed up quite nicely with key messages extracted from the chapters essays. Although the book has a distinct U.S. stock market bias, Canadian investors will benefit from Millers plain, blunt mantra – invest in the compounding machine that is dividend paying stocks and avoid story stocks or what the talking heads will praise.  Stick with what has worked (and rewarded investors) and dont look elsewhere Miller claims. Steady and dependable (dull and boring) will undoubtedly win the race.  

In the weeks to come, I hope to share my favourite takeaways and quotes from Millers book. Stay tuned for that post. 

What about you, have you read The Single Best Investment?  If so, what was your take?  If not, are you intrigued?

Cheers,
My Own Advisor

The book is a collection of sayings, aphorism, and thoughts that will help stretch your brain. It is an easy read with only 128 pages, great for reading on a train or plane. In case you are wondering who Procrustes is, I’d rather not tell you to avoid ruining the concept of the book for you.

Taleb fans should find The Bed of Procrustes: Philosophical and Practical Aphorisms an interesting read.

As I mentioned in my Very Merry Christmas post, my wife and I have lots to be thankful for. For many reasons, 2010 was a good year, one that saw many changes.

Its amazing how fast 12 months goes

This past year was my first full year of blogging and a rewarding one at that. I enjoy blogging although I admit its a challenge to try and post an article everyday, even every other day!

Kudos to many personal finance and investing bloggers out there, my peers, who are able to a) spend the time and b) develop the excellent content for their blogs, many of you everyday.  I read your articles for inspiration, to find out what makes you tick and understand where your financial journey is headed to learn from you in hopes of tailoring my own path. I hope you learn something from My Own Advisor too.


As 2010 draws to a close, I want to offer thanks to all my readers, folks who have commented on my blog and the personal finance blogging community at large who have shared their thoughts and opinions with me over the last 12 months. I hope 2011 will be even more exciting.

My sincere thanks, in no particular order, is extended to:

Ram @ Canadian Capitalist

Big Cajun Man @ Canadian Personal Finance Blog

Michael James @ Michael James on Money

Dividend Growth Investor

Addicted2dividends @ The Loonie Bin

Marie & Robb @ Boomer & Echo

Frugal Trader @ Million Dollar Journey

Passive Income Earner

Andrew Hallam

Larry MacDonald

Kevin @ Invest It Wisely

The Financial Blogger

Dan @ Canadian Couch Potato
 
Jason @ Ending The Rat Race

Mich @ BeatingTheIndex

Canadian Financial DIY

Dividend Dollar

Matt @ Dividend Monk

Robert @ DIY Investor

Mike @ Money Smarts Blog

My Journey to Millions

Money Energy

The Money Gardener

The Dividend Blog Guy

Tiny Potato

Youngandthrifty

Preet @ Where Does All My Money Go

101 Centavos

Rob & Melanie @ Canadian Mortgage Trends

Derek Foster

OperaBob from The DRIP Investing Resourcing Centre

Jon from Canadian DRIP Primer

Balance Junkie

(I hope I didn’t forget anyone?  It certainly wasn’t intentional!)

Looking forward

In 2011, I hope to accomplish many things on the personal finance and investing front. Here are some ideas, goals and fluffy objectives Im toying with that will be solidified in the weeks to come:

Grow our dividend income by X percent.
Optimize our RRSPs.
Maximize our TFSA contributions for this year ($5,000 each).
Make X lump sum mortgage payments or reduce our mortgage by X percent.
Move my blog to Word Press.
Join the Yakezie Challenge.
Participate or contribute to a MoneySense, Canadian MoneySaver or Canadian Business Online article.
Improve my analysis of Canadian and U.S. dividend paying stocks.
Expand my personal finance body of knowledge.
Share mistakes Ive made as My Own Advisor and how Im trying to learn from them.

Until 2011 with more posts to share, I wish everyone a very Happy New Year!

Cheers!
Financial Cents

This interview was originally published on December 17, 2010 at thekirkreport.com

Charles Kirk: It is with tremendous pleasure that I offer my last interview of 2010 with Mark Minervini.

As with many traders I interview, Mark requires no introduction as he is one of the most highly-respected independent traders of our generation. His blog in recent years has instantly become one of the must reads out there as he often shares market commentary and analysis which shows why the respect so many have for Mark is so well-deserved.

Moreover, his experience and past history of savvy market calls is legendary. It is with little doubt that we can all learn a lot from him! We hope you enjoy and find this focus interview helpful in your own journey toward more success in the markets.

Kirk: Hi, Mark. First of all, thank you for taking the time to answer our questions. I speak for many members who have a great deal of respect for you and we sincerely welcome you to this interview series.

Mark Minervini: You do a great job, Charles, and Im honored to be a part of it.

Kirk: Please tell us a little bit about how you got interested and started in trading.

Mark Minervini: I dropped out of school in the eighth grade in pursuit of a career as a drummer. From the money I made working as musician, I bought my first stock in 1983, which was a few hundred shares of Allis Chalmer. Shortly after, I read Richard Loves book, Superperformance Stocks: An Investment Strategy for the Individual Investor Based on the 4-Year Political Cycle. Everything Ive created with regard to my trading approach since stems from Loves initial impression on me, specifically from his writings in chapter 7.

Kirk: What was one of the most important lessons you learned early on?

Mark Minervini: That no one was going to do it for me; no one was going to make me rich except me. I learned that you must take responsibility for your results in the market and in life if you want to be exceptional. Secondly, I learned that in order to do well in the market you must be consistent; consistency is what separates the pro form the amateur. In order to have consistent success, risk must be managed in relation to potential reward as standard operating procedure. Youre not going to make just one trade, rather hundreds or even thousands of trades; its all about how much you make on average versus how much you lose on average over time. Lastly, I realized that I simply had to get to the bottom of what actually worked in the marketplace and ignore all the opinions and theories.

Kirk: Was there anyone out there who helped you greatly during your initial learning curve? If so, what did you learn most from them?

Mark Minervini: My Mother and my Father. I learned it was ok to do what I love; to go after my dream. I also learned it was ok to be unconventional. I was given the room to be creative. My parents trusted me. I always knew I was supported emotionally. Financially, we were poor but my parents supported my dreams.

Kirk: Indeed, it is so important to have a strong support structure in place. In a nutshell how do you currently approach the market and what is your primary trading strategy?

Mark Minervini: I approach the market from a risk first approach. My trading strategy is called Specific Entry Point Analysis or SEPA. We look to enter trades at low risk entry points relative to potential reward. Primary focus is not to lose money. Secondary focus is not to lose money. And, the final focus is to make more on average than I lose.

Kirk: You remind me of Buffett who said he had only two rules: 1) Never lose money and 2) see rule number 1! What do you see as the primary benefits from employing a strategy that focuses on both fundamentals and technicals?

Mark Minervini: The benefits are having all the pertinent information that is consistent with big winning stocks. We know what to look for both fundamentally and technically. I have seen stocks bought on pure technicals and the guy buying the stock doesnt even know that there was a cash offer or a proposed merger right at the price he paid. Refusing to look at fundamentals or any information that gives you an edge is usually because the individual just doesnt know how to use the info, or has some bias based on personal opinion or tradition.

Kirk: Why is this kind of trading best for you and, more importantly, why do you think it works so well?

Mark Minervini: My strategy works well because its my strategy. I know the strengths and, more importantly, the weaknesses of what it is I do. It also works well because I allow it to work and stick with it even when it runs into difficult times. Nothing works well if you keep changing your approach. To be a master you must be a specialist, not a jack of all trades.

Kirk: What do you trade mostly? Equities, options, futures, ETFs, currencies, etc.?

Mark Minervini: Only equities.

Kirk: In an average week how many trades do you make? What is your average hold time and how many positions do you have open at any given time?

Mark Minervini: During an average year I may make 400-500 trades. About half of that turnover is a result of taking small losses, which Im out of pretty quickly.

Kirk: What would you say are your primary strengths and weaknesses as a trader?

Mark Minervini: Discipline is my primary strength. And the willingness to admit when Im wrong and move on. My weakness is I usually sell early and often leave money on the table. But I dont really view that as a weakness, just something that could be improved upon. When you move in size you have to get out when the getting is good.

Kirk: In my experience it is often better to sell too early than too late Mark! How have you learned to mitigate your weaknesses and focus more on your strengths?

Mark Minervini: By not focusing too much on my strengths. If youre good at buying and bad at selling I would focus on selling; if you improve your selling you will have a complete game. Focus on making your weaknesses strengths and then you will have no weaknesses. Exploit your strengths and improve your weaknesses.

Kirk: What have been some of the most challenging lessons you have learned?

Mark Minervini: That you cant be everything. You must commit to a strategy and sacrifice other strategies. The problem with the market is its like playing poker however; you always get to see the next cards even though the hand is over. You always see what would have happened. This is very difficult to deal with for many people. To be successful, you have to understand that trading is NOT about picking highs and lows, its about making money.

Kirk: Very good. What are some of the key rules that you consider before selecting any potential trading opportunity?

Mark Minervini: How much am I risking is the very first concern. Also, does the stock meet all the necessary criteria? If the risk is acceptable and all the entry criteria are met, I enter the trade.

Kirk: What would you say is your average win: loss ratio for your trades?

Mark Minervini: I average 2 to 1.

Kirk: How has your overall performance been recently, as well as over the past few years?

Mark Minervini: Its been about the same as always. Im a consistent 2:1 trader.

Kirk: What would you say are your favorite kinds of technical and fundamental set-ups?

Mark Minervini: The ideal set-up is a stock emerging from a constructive consolidation with strong accelerating earnings and sales.

Kirk: Can you give us a recent example of a set-up you found to be very attractive and worked well in this market?

Mark Minervini: CML. Bought it on 11/24. Sold it on 12/7 for a quick profit.

Kirk: Have you noticed any trading set-ups more prone to failure than they have been in the past?

Mark Minervini: No. Not much has changed. Contrary to what many believe, its not different this time. LOL

Kirk: To help us understand your trading approach, can you talk about a recent successful trade from start to finish?

Mark Minervini: LULU. Supported by excellent fundamentals, the stock emerged from a double bottom pattern that formed from 4/15 11/04. I bought the stock on 11/05 the day the market topped just before a pullback of about 5% in the major averages. The stock was held through that market pullback because it acted normal and held above our stop. This gave me the conviction to add to the position as it emerged through its next buy point in November. I sold the stock (most likely too early) on 12/09 when they reported earnings up about +50% from the initial purchase from about a month earlier.

Kirk: Now please tell us about a recent unsuccessful trade.

Mark Minervini: Shorted GMCR; shorted the rally in October and November after the big break on SEC news. Stock rallied and stopped us out

Kirk: One of the things I most appreciate about you is how much you stress proper risk management. If we can, lets talk a little bit about position sizing. Can you provide an example of a recent trade and explain your method for determining the size relative to your own trading portfolio?

Mark Minervini: I want to own as much as I can but generally no more than 25% of my portfolio (as liquidity permits). You are not going to make huge returns being too diversified. However, I only risk what I can get out of safely based on liquidity.

Kirk: Thats interesting. I think many would be surprised at the idea of having any position anywhere near 25% of an entire portfolio. Besides over diversification and liquidity concerns, what common mistakes do you think many traders make concerning position sizing?

Mark Minervini: They dont know what an optimal position size should be based on their own risk/reward and risk tolerance. For instance, if youre a 2:1 trader, your optimal position size is 25%.

Kirk: Ok. I think I understand what you mean, but please explain this position sizing formula more in detail so others can perhaps apply it in their own trading. Can you offer another example?

Mark Minervini: Ok. First, its important to understand that you are not going to achieve huge returns consistently being overly diversified or by relying on diversification for protection. You will only get a smoothing effect. When you own a bunch of stocks you end up with two problems: the first being that you just cant watch and know all you need to know about each of them. The second problem is that you will have a difficult time getting fully invested quickly when opportunity presents itself and more importantly, getting liquid if you need to raise cash in a hurry. In addition, the math just doesnt support it. Depending on the size and risk tolerance of your portfolio you should typically have between 4 or 8 stocks and for large portfolios maybe up to as many as 10 or 12 stocks. This would provide sufficient diversification but not too much. The Optimal-f formula can act as a starting place for you to understand optimal position sizing based on expectation. If Ken Heebner of CGM Funds can move around billions of dollars in just twenty names and still manage to beat the market, then a personal portfolio can surely manage sufficiently with 4-5 or 10-12 stocks. If you lose 5-6% on average and even if your position size is at 25% exposure, youre still only be risking about 1.25% of your capital per trade. Of course, if you dont have an edge, then you will lose no matter what your position sizing is.

Kirk: Good, thats helpful. So, do you use and set stops, Mark? If so, whats your stop loss method?

Mark Minervini: I always know where Im going to get out of a trade before I get in. I aim to lose no more than 5-6% on average over time on my losers.

Kirk: Do you ever average down into a losing trade?

Mark Minervini: Theres a reason Paul Tudor Jones had a sign posted on his wall that read Losers average losers, and that reason is because its true. I almost always only add to a position if it proves itself and then I may add to my position at a higher price, not lower.

Kirk: Do you scale up and into winning positions? If so, how do you know when to increase a position size relative to your overall portfolio?

Mark Minervini: Yes. I generally move money into the better performing names at subsequent pivot points or set-ups.

Kirk: All good traders dedicate a lot of time and effort to improvement and reducing mistakes. How has your trading method evolved and improved over the years?

Mark Minervini: It just becomes more and more crystallized because I continue to focus on the same timeless principles, which allows me to become more and more of a specialist. The power of a narrow focus is amazing. The key is to be a real pro at something. Know all you can about a style or a tactic. Then you can build on that foundation. Traders give up too easily and jump around too much when things get difficult. How good do you think Kobe Bryant would be if while he was developing his skills growing up every time he had a really tough game he changed to a different sport or played a different position?

Kirk: I couldnt agree with you more Mark. I see this problem among many. Can you provide an example of something you thought was true when trading early in your career and now believe is just completely wrong?

Mark Minervini: Yeah, everything. But I learned very quickly sound principles. It just took me many years to master the application.

Kirk: Why do you think most traders fail?

Mark Minervini: Here are 6 reasons:

1. Poor selection criteria; usually based on personal opinion, theory or tips and bad advice
2. They dont stick to and commit to an approach; style drift
3. Dont cut losses (#1 mistake made by virtually all investors)
4. Dont know the truth about their trading they fail to conduct in-depth post analysis
5. Treat trading as a hobby not a business
6. Want too much too fast; learning a skill takes time

Kirk: Please describe a typical trading day for you. How do you organize and dedicate your time?

Mark Minervini: Most of my work is done the night before. I already know what Im going to trade before the open. I watch the market all day long, never leaving my desk for more than a few minutes during trading hours.

Kirk: How much time and attention do you pay to others opinions about the market and/or stocks you are trading?

Mark Minervini: Zero. I avoid outside opinions like the plague!

Kirk: Are there any tricks of the trade that you use to help maintain a consistent successful approach over a long period of time?

Mark Minervini: Yeah, long hours, hard work, a sound approach and discipline. There are no tricks or big secrets. Again, is there a secret to having a good basketball shot? It starts with a good coach, proper practice, plenty of hard work, discipline and sacrifice.

Kirk: Amen. However, most traders I know have a set of rules that they have learned from past mistakes. What are a few of yours that you think most traders would benefit from?

Mark Minervini: Hard work alone wont cut if you dont have a sound approach and if youre not doing the right things. You must be facing west if youre looking for a sun set. Approach each trade from risk first; ask how much can I lose. Dont risk more than you can expect to gain on average. Know the truth about your trading; study your results carefully. Never average down. Always cut your losses; keep your losses small. These are fundamental rules that should never be compromised.

Kirk: I suspect like all good traders you are working on improving your performance in some manner. Can you share what youre specifically working on right now?

Mark Minervini: Sticking to the rules. Always making sure we stick to the rules. We have a great approach, I dont like to get to tricky and over complicate something that requires a straight forward approach.

Kirk: Youve been trading for some time now. What would you say are the biggest changes in the markets and trading in general youve seen during your career, both good and bad?

Mark Minervini: The order handling rule change in 1997 has changed the way stocks move short-term because Market Makers dont really keep inventory anymore. Its a topic that would require a lengthy discussion; maybe we could talk about it another time. Other than that, not much has changed except more information moves faster than before.

Kirk: What advice would you give a person just now beginning to trade the markets?

Mark Minervini: Find a good mentor. Commit to a strategy. Cut your losses. Tune out the media. Take full responsibility for your results.
Kirk: What do you think are the greatest misconceptions beginning traders have about trading the markets and about trading systems?

Mark Minervini: Way too many to mention. Just about everything a beginner thinks is a misconception.

Kirk: A number of people who read my website desire to trade for a living and I receive a lot of questions concerning capital requirements needed to start and how to make the transition to trade full-time. Do you have any words of wisdom or rules of thumb to share along these lines?

Mark Minervini: I started with a very small sum of money and turned it into a fortune. Capital is not the challenge. Mastering yourself is the challenge. Discipline is the challenge. Persistence is the challenge.

Kirk: Do you think trading for a living is getting more difficult or easier for the average individual investor? Why?

Mark Minervini: Much easier. Tools for pros and amateurs are virtually identical. The pro has no edge. The individual has the advantage. No real liquidity concerns for the small trader versus the big fund manager. Its a fantastic time to be a stock trader!

Kirk: When all is said and done, in your experience, what is the best way to learn how to trade?

Mark Minervini: Trade. As Ralph Waldo Emerson said: Do the thing and you shall have the power. And then conduct post analysis. Learn to be objective. You could try and find a mentor. However, the chances of getting great advice are slim at best. Trading is just like any other profession, there are only a handful of really outstanding practitioners.

Kirk: Do you have any books, websites, etc. that you highly recommend beyond your own website?

Mark Minervini: The Kirk Report. Why is there anything else? LOL!!!

Kirk: You are too kind Mark. Although I know both of us share a love for the markets and trading, what are your long-term career plans and future for your website?

Mark Minervini: I honestly dont know for sure. My long-term plans are too stay healthy and be a good father to my daughter. This past year I started a pilot training program. Also, we now offer my research to the individual investor not just exclusively to the institution anymore. It feels good to help others achieve their goals. I think I may continue to develop that. Why hog all the good trades for myself? LOL!

Kirk: What are some of your personal passions beyond the market?

Mark Minervini: Ive been a drummer since I was 6 years old and I continue to play. I play tennis, train boxing and lift weights to stay in shape, and I play an occasional round of golf.

Kirk: Finally, if you had only one piece of advice to share with all traders, what would it be?

Mark Minervini: Believe in yourself and never give up. Persistence is more important than knowledge. Make an unconditional commitment to trading and you will not fail.

Kirk: Thank you so much Mark. I really enjoyed this interview and Im sure others will find it helpful.

Before I acknowledge all the great articles Ive read over the last week or so, I want wish my readers a very Merry Christmas and Happy Holidays!



2010 was a great year for my wife and I and we have lots to be thankful for. I guess like many folks at this time of year, I find myself being very reflective, which is a good thing in my opinion. Over the last 12 months, I started this blog, met some respected bloggers in the Ottawa area like Canadian Capitalist, Big Cajun Man, Michael James and Larry MacDonald, got married and had an amazing honeymoon, travelled to foreign countries, saw my sister-in-law beat cancer, bought and moved into a new house and watched some of our close friends start families with happy, healthy children. It has been a very rewarding year.

My guess is as good as yours what will happen in 2011 but I must say Im looking forward to what that might be


Over the next couple of weeks, chances are youll see some random posts. I do hope to post Part 2 of my interview with Derek Foster before the calendar turns to January but other than that, no promises. Im going to take some time to unwind, settle into the new place, catch up with family and friends and simply enjoy the holidays.  The red wine is calling now…


Whatever your plans are this holiday season, I hope they keep you safe, happy and healthy. I look forward to sharing more of my financial independence journey with you in 2011.  I think it’s going to be a great year!

Merry Christmas!
Mark

Here are just a few of the excellent articles I read this week.

If you’ve been following my blog, you might recall a few months ago I called out to Derek Foster, wondering what Canadas Youngest Retiree has been up to.

Back in September, Derek was a busy guy.  I found out he completed an interview with MoneyTalk host Patricia Lovett-Reid, he was preparing for a speaking engagement in Toronto at Canadian MoneySaver’s Investment Conference, he was putting the finishing touches on his new book and as always, he was helping raise his five kids.  I don’t know about you but that seems more like a year’s worth of work, let alone one month.

For those of you who don’t know who Derek Foster is, here’s a quick bio (photo courtesy of his website):

• Derek was born in Ottawa in 1970.
• Derek was able to become a millionaire and leave the proverbial rat race at the age of 34 by using various investing strategies, many he believes any investor can emulate.
• Derek, ”Canada’s youngest retiree” is a well-known Canadian author and has shared his personal investment experiences and strategies in his National Bestselling Books:
• Stop Working:  Here’s How You Can!
• The Lazy Investor: Start with $50 and no Investment Knowledge
• Money for Nothing: And You Stocks for FREE
• Stop Working Too:  You Still Can!
• *The Idoit Millionaire (*Latest book, Fall 2010)
• When not writing books or giving speaking engagements, Derek spends time with his wife and five children in Ottawa (in my old neighbourhood no less).

For a couple of years now, maybe like some of you, I’ve been both entrigued and somewhat skeptical of Derek’s investment journey.  I’ve read a few of his books (Stop Working:  Here’s How You Can! and The Lazy Investor) and to be honest I’ve been more inspired than skeptical of his success.  Sure, he may have had some great timing on his side and some risker investments paid off, but sometimes you make your own luck as well.  I know others don’t feel the same and have written so.  That’s fine because everyone is entitled to their own opinion. 

Overall, I’m happy for Derek because he had a dream, saw it fulfilled and then some.  Investment timing, luck, skill or otherwise, he’s a fortunate guy. 

I’m glad I got the chance to chat with Derek for almost a couple of hours a few weeks back.  Here’s what he had to say in Part 1 of My Own Advisor interview.  I hope you enjoy the read.

*     *     *     *     *     *     *     *     *

My Own Advisor:  Thanks again for the interview Derek. It’s a busy time of year for everyone and I’m glad you got back in touch with me. It’s great to finally chat with you – enough email already!

Well, onto my questions.  Ready?

Derek:  Fire away Mark.

My Own Advisor:  Youve just released the latest book in your Stop Working series entitled The Idiot Millionaire: You Can Become Wealthy! What inspired you to write this book?


Derek:  To be honest, it was largely because of the 2008-2009 economic downturn. Because my personal situation had changed since I originally left the rat race at 34, (I was earning an income from other sources such as book sales, etc), I wanted to switch my portfolio to higher growing dividend-payers as this would save me tax and generate better returns over the long-term. BUT I wasnt as smart as I thought I was; hoping to sell my stocks at one price and trying to get back in at a lower price. In some cases, it worked. I bought businesses like JNJ, Shoppers Drug Mart and Phillip Morris at reasonable prices. For other businesses, it didnt work. For example, I waited too long for Canadian bank stocks. I missed the bottom and their subsequent run ups in price. Admittedly I missed that boat. I would buy some if prices to crept lower. I guess the title of my book really applies to me, kind of tongue-in-cheek.


My Own Advisor:  What makes this book unique in your Stop Working series?

Derek:  More so than any of my previous books, this one discusses a companys competitive advantage. I describe what I mean by this and how investors would do well to invest in those companies that have it and it also offers a list of those companies.


There are many companies out there that are worth owning, companies that pay dividends but they do not have any economic moat around them. This is important because ideally you want to buy companies that not only pay dividends, but that increase their dividends over time and also have great growth opportunities because of their advantaged products and services. My new book includes a pretty good list of these companies in Canada and the U.S. In the U.S. for example, Coca-Cola quickly comes to mind. In Canada, Enbridge.

My Own Advisor:  Switching gears a bit, tell me about your investment strategy. Still a dividend investor?


Derek:  Absolutely, but my approach or maybe should I say my focus has changed. Before I was more focused on higher yields for income generation, maybe slower-growing stuff but now my needs have changed. I mean the books generate income which was an unexpected surprise (because being an author or a writer is not usually the path to riches). Really though, Im fortunate to have some other income streams with no debt and so things are different for me at 40 than 34 when I wrote Stop Working (Heres How You Can Too!). Geez, that was six years ago. Im now more focused on companies that have their moats and good long-term growth prospects. I try to explain that in plain language in the new book.


Also, the reality is many folks dont retire from the workforce at 34, or even 40 or 50. They are working their way towards retirement bit by bit and hopefully this book will provide them with a more complete list of companies to help them out.

My Own Advisor:  A short time ago, when the market was falling (in 2008-2009) you sold all your dividend payers. I read a few articles about that. You took some heat. Can you walk us through that decision?

Derek:  I was an idiot but at that time, I sold my shares in early February 2009, I thought I could get back in later and at cheaper prices. Turns out I did and I didnt as I told you before. I managed to buy a lot of stocks much more cheaply but a large part of this was luck. I benefitted from put-option premiums and the incredible strength of the Canadian dollar. After I sold my stocks, I remember humming and hawing for a couple of weeks – should I say anything to the media? The books encouraged folks to do the opposite; buy and hold dividend-payers for income. I didnt want to be hypocritical but I can see why some people were a little put off, you know what I mean? In the end, my approach did save me money and I came out ahead but not on everything; I missed the boat on those Canadian bank stocks and some other companies I would like to own.


The book (The Idiot Millionaire) actually includes some of this stuff and Ive got some details in there about my prices when I got back in.


My Own Advisor:  Made any recent purchases?


Derek – Yeah, I bought Strayer Inc (a for-profit university) at a pretty reasonable price. It just made sense with our Canadian dollar being so high and the recent stock price weakness due to pending potential changes to loans for students. Im very comfortable with this holding but I realize there are potential risks. The stock price had dropped from over $250 earlier this year to under $140 where I bought it. This is even cheaper than at the March 2009 low of $159 and the Canadian dollar is much stronger now, so the stock price is actually 30% below the March 2009 bear market low (in Canadian dollar terms).


My Own Advisor:  Something more fun now. Whats on your Christmas list for 2010?


Derek:  Well with five kids in house, Christmas is really for them, not me. Ive never been one to covet stuff, Im not materialistic. I finally got a GPS this summer for our trip out West and Ive got a laptop computer. During our trip, once the kids were in bed and all the chatter had stopped for the day, I pulled out my laptop and wrote a couple of pages (for the new book). Honestly, Im a cheap guy. If a burglar came to my house, he would quickly leave in disgust as my material possessions are not really worth stealing (except perhaps for my Sienna minivan). When I look at stuff, I always ask myself, is this really going to add any value to my life? If the answer is no, I dont buy it. I guess nothing Mark. I dont even own a cell phone. I guess I dont consider myself important enough to need one.


I had to laugh at this last response. I mean, with five kids, how can Christmas NOT be all about them?
 
It was great to chat with Derek.  He’s a bright and funny guy.  Foster’s fast track to early retirement through  savings and diligent investing in Canadian and U.S. dividend paying stocks may not appeal to everyone but I think it’s inspirational.  In the end, we’re all trying to achieve financial freedom and regardless if you’re a fan or a critic, learning something from Derek Foster can and should be done.  That doesn’t mean you need to follow his path or emulate what he did.  Knowledge is always different than the application, but learning what works and what doesn’t for you is important.  I’m trying to build my investment knowledge and application all the time because in my opinion, continuous improvement is critical to success. 
 
In Part 2 of my interview, you’ll hear more from Derek about his portfolio allocation and his stock market predictions for 2011.  Stay tuned for that blogpost after Christmas. 
 
I hope you enjoyed Part 1 and as always, I look forward to any comments!
 
Cheers,
Financial Cents

Who they are:

Its a well-known, established Canadian dividend-payer in the energy sector, generating primarily electricity and making sure that electricity gets to their customers. A bit more details from the Emera website:

With strategic energy services and infrastructure that includes electric utilities in the Northeastern US, Atlantic Canada, St. Lucia, Grand Bahama and Barbados, a pumped storage hydro-electric facility, natural gas pipelines, a gas-fired power plant, an energy services company and a renewable tidal energy company, Emera has a diversified portfolio with $5.7 billion in assets.

Indeed.

Why I picked them:

Emera (EMA) continues to evolve, becoming more diverse; growing investments (quotations directly from EMA website):
-For 80 years, Nova Scotia Power Inc., a subsidiary of Emera, has been the primary supplier of safe and reliable power to Nova Scotians.
-In 2001, Bangor-Hydro Electric Company was acquired to provide a secure source of electricity for 117,000 customers in eastern Maine.
-EMA owns 19% of St. Lucia Electricity Services Limited, an electricity utility serving some 50,000 customers in St. Lucia.
-EMA owns 25% of Grand Bahama Power Company, serving some 19,000 customers on the Caribbean island of Grand Bahama.
-EMA has a 50% joint venture interest in Bear Swamp, a hydro-electric facility in Massachusetts.
-EMA has a 12.9% interest in the Maritimes & Northeast Pipeline and built the Brunswick Pipeline, both transport natural gas to customers in Atlantic Canada and northeastern U.S.
-EMA owns Emera Energy Services, an energy management company, Emera Utility Services, the largest utility services contractor in Atlantic Canada, Bayside Power, a gas-fired power plant located in Saint John, New Brunswick.

They own an 8.2% interest in OpenHydro, a renewable tidal energy company.
More recently, in November 2010, Emera announced plans with Nalcor Energy to bring energy from the Lower Churchill Project to Newfoundland and Labrador as well as to consumers in the Maritime provinces and New England. Under the agreement, Nalcor will build the generating facilities; Emera and Nalcor will jointly develop transmission capabilities to enable the movement of energy from the Churchill River. This agreement will promulgate a new, regulated transmission utility in Newfoundland and Labrador that will create subsea transmission between Newfoundland and Nova Scotia for the next 35 years. This phenomenal investment is worth over $6 billion CDN; major infrastructure.
Current dividend yield about 3.5% (steady and fits my wheelhouse).
Five year average dividend yield over 4% (solid).
Dividend payout ratio (a tad high) around 70%, but in line with their five year average ratio of about 75%.
Five year average dividend growth rate over 5% (good).
Growing close to $4 billion in market capitalization (good).
Little competition in Atlantic Canada as a power source (very good, the only major game in town).
Increasing earnings over the last few years; (2010 was about $1.6 billion (very good)).
Flying below media hype for the most part, Emera increased their dividend to $0.325 in November 2010, their second bump this year (excellent).
Paid dividends consistently, every quarter for almost 20 years; since 1992 (excellent history).
Has had 17 dividend increases since 1992 (excellent).

I bought Emera because simply put, I couldnt find many reasons not to. It is also a holding in XDV and I think most dividend investors would do very well to hold many of the stocks in this ETF. Just my opinion (and part of my long-term plan).

In closing, I bought a few shares of Emera because Nova Scotians, New Englanders and folks in the Carribean are just like me, we all need power and electricity to live. Like I mentioned in an earlier post, you can put off buying a car, a new suit or even pair of shoes but I doubt you will put off turning the lights on when you get home from work tonight. I know I didn’t. You’ll also probably fire up your computer (to read this post or no doubt catch a hockey game on the tube this week – all requiring electricity. Like other Canadian-dividend payers in my portfolio, my plan to is reinvest all dividends paid to buy more Emera shares every quarter. While I wish I could have purchased EMA lower than my $29+ entry point early last month, I really don’t mind what I paid to get a bunch of shares. I got some other stocks on the cheap this summer and the reality is, you can’t do it all. Also, my $29+ per share will look pretty good when EMA moves to over $35 in 2011. Just a hunch. Finally, I simply enjoy being invested than sitting on the sidelines waiting for the perfect Emera buying opportunity. Im not into timing the market. Forecasting stock prices is like forecasting the weather – I figure Im doomed in each. Instead, Id rather be in the market at reasonable prices and get paid in the process.

Hopefully my primary investing strategy, my dividend investing strategy will continue to work, one more Canadian dividend-payer at a time…

What do you think about my purchase? Good or bad or indifferent, I’d like to know!
Any dividend-paying stocks you have your eye on?

Cheers,
Financial Cents

Vineyards at Domaine St. Diego Bodega (winery), Mendoza, Argentina.

In my last post, I mentioned our vacation to Argentina has quickly come and gone, but not without many memories and experiences. In this post, I’ll wrap-up what we enjoyed about this fine country…and provide more pictures too!

Our vacation started in Buenos Aires and we stayed in BA for 5 full days. It was an amazing city and as my last post mentioned, full of culture. Beyond visiting and enjoying numerous cafes and restaurants, we also visited the city’s fine arts museum, their beautiful parks, watched some tango in rustic San Telmo neighbourhood, visited the botanical gardens in the heart of the city, the city zoo and also the Recoleta cemetery these latter three attractions certainly left an impression on us. The botanical gardens are filled with stoned paths that wind their way through spacious grounds, most of it filled with flora from around the world with over 8,000 plant species represented. Next door, the city zoo featured a diverse composition of indigenous birds and monkeys, giant turtles, llamas, elephants and bears. The Recoleta cemetery pays tribute to some of Argentinas most notable and important historical people. Created in the early 1800s, it is the citys oldest operating grave site and was really more of a necropolis.

The tomb of Eva “Evita” Peron, Recoleta cemetery, Buenos Aires, Argentina.

The cemetery covers numerous city blocks and you can literally spend hours touring the tombs. Like most tourists, we visited the tomb of Eva Evita Peron, who was largely responsible for women receiving the right to vote in Argentina and used her political power to build hospitals, schools and playgrounds for lower-class Argentine citizens. Overall, an amazing experience – this cemetery is a must-visit in Buenos Aires.

Other Buenos Aires highlights worth mentioning:

-Our Bus Tourista tour, it gave us a great overview of the city.
-Tartas at Ninas (near Juncal and Bustamante) in the Barrio Norte neighbourhood, for $18 pesos ($4.50 CDN) we got one of the best lunches (and deals) in Argentina. (Tartas are best described as a small, baked pies filled with various meats and veggies. When done right, these things are amazing…)
-Shopping in Palermo, my wife got some amazing deals, I like deals!
-Beautiful plazas and districts, including Plaza de Mayo (the political heart of the city), Puerto Madero (the port, waterfront district) and Plaza San Martin (in the nucleus of the city amid flowering and towering jacaranda trees).

Trees nearing bloom in Plaza San Martin, Buenos Aires, Argentina.

After our stay in Buenos Aires, our LAN flight took us northeast for 3 full days to Puerto Iguazu, a small city near Paraguay and Brazilian borders. As my last post mentioned, we went here to visit the spectacular canyon of waterfalls that were shaped some 120 million years ago from geological upheaval. This UNESCO World Heritage Site is in our opinion, another must see if you go to Argentina. Although the national park in Iguazu can be seen in one very full day, we took our time and made two days of it. Our first day was quite adventurous. Not only can you hike and walk various circuits to get some up-close, breathtaking views of over 250 falls, you can also pay 100 pesos (about $25 CDN) per person and take a high-powered motor boat right into the falls! We did this and it was thrilling. We just hope our waterproof camera pictures turn out! The second day we explored the parks tropical jungle on a 10 kilometer trek that took us through huge cupay trees (South American hardwoods) with our hike ending at a small waterfall and pond. We both took some time here to have a small picnic and a swim simply time to soak in our surroundings. We had some other neat experiences in Iguzau, such as a visiting a lookout point where you can see both Paraguay and Brazil (separated by only a river) but the national park in Iguazu was the reason for our visit and rightly so!

Just a few of the huge falls in Iguazu, Argentina.

After a few days in the park, including an afternoon of sun helped by some very big beers at our resort-like bed and breakfast (B&B) we boarded another LAN flight to take us from Iguazu to Mendoza, via Buenos Aires (there are no direct flights, BA is the hub).

Round # 1 of our 1 L Quilmes beer by the pool, Los Troncos, Iguazu, Argentina.

Our travel day behind us, we spent 4 full days in Mendoza. Like Buenos Aires, Mendoza has many things to do for one, visit wineries, LOTS of them. Within a radius of a couple hundred miles, there are well over 1,200 wineries (bodegas) – from very big enterprises who produce tens of millions of bottles per year to small, boutique, family-owned wineries that produce a few thousand. We had the luxury of visiting (and tasting) a bit of everything on our private wine tour, bodegas big and small; Malbec, Cabernet Sauvignon, Cabernet Franc and Merlot just to name a few. Another highlight for us in Mendoza was Parque San Martin. Under the direction of French architect Carlos Thays, the park was completed in the early 1900s which was adorned with many beautiful sculptures and a rose garden. Also within the parks grounds, there is a stadium, a zoo, some university buildings, a monument that commemorates the crossing of the Andes by Jos de San Martn and his army, and a large lake which has The Regatas Club on its shore. Simply put, its a great way to spend a day, and we did.

Parque San Martin, Mendoza, Argentina.

Last but certainly not least, our other major experience in Mendoza was our Alta Montana tour (high Andes mountain tour). As the name suggests, a small tour bus took us up, way up, into the Andes mountains from Mendoza and back again. The entire trip was long, about 400 kilometers in total but well-worth every climb and turn. Starting from the wine region and the foothills, our journey took us into the Andes to over 10,000 feet, right to the Chilean border. On our way up, we visited the Aconcagua park entrance, where skilled mountain climbers (not us) begin their 15 kilometer journey to climb the highest mountain in the Western hemisphere. At almost 23,000 feet, it is a very big mountain indeed, the biggest weve ever seen and one of the Seven Summits.

The top of Aconcagua, from our view down below, at 10,500-feet.

Other Mendoza highlights worth mentioning:

-The five plazas in Mendozas city center, great to stroll through, people-watch and simply relax and enjoy amongst the water fountains.
-Dinner at Azafran amazing food and you can bring your own wine. You can have a five-star, three or four course meal for $80 CDN per couple!

My petit filet at Azafran, Mendoza, Argentina

I could go on, but thats probably more than enough. Besides, this is a personal finance and investing blog, not a travel blog We have tons of stories about the people we met and our B&B owners in particular all great people whom we owe a huge thanks for making each night in each city, comfortable and safe. Thanks to Tesorito, Los Troncos and Plaza Italia B&Bs!!!

Like I mentioned in my last post, while its great to travel its also great to be home. In a future post, Ill discuss what we learned or re-learned about travelling; when youre over 6,000 miles from home, every day is literally an adventure and sometimes you can’t be careful enough. There are always things you can do to protect yourself and beyond that, make your trip most enjoyable. Stay tuned for those tips and learnings, hopefully they can help you in your next adventure.

Anyone have a trip they were especially fond of?
Anyone have a trip planned?

Cheers,
Financial Cents

I kept hearing about this author named Stieg Larsson, and was wondering what all the fuss was about. I’m a big fan of mysteries, and I knew he was an author of mysteries, but I prefer the Los Angeles and New York City basic venues; would I like something set in Sweden? So I decided to give the first of his trilogy a try, a book called The Girl with the Dragon Tattoo. The book is about a journalist, who after losing a lawsuit, ends up getting a job trying to find out what happened to a girl who disappeared forty years ago. He engages the help of a researcher/investigator, ‘the girl with the dragon tattoo,’ who looks anorexic but isn’t, who appears dull but is actually extremely intelligent, who seems weak but is strong. Together, they navigate and attempt to unscramble a very complex mystery involving many characters. The plot revolves around a corrupt businessman, sex (it is based in Sweden after all), greedy heirs to a substantial fortune, a magazine business struggling to survive, racism, violence, and computer hacking. I really enjoyed reading The Girl with the Dragon Tattoo and am looking forward to reading the next two in the series.

* * *

Adrian Monk, an obsessive compulsive San Francisco detective has invested money with a popular money manager, who it turns out was running a multi-billion dollar Ponzi scheme, losing money for thousands of investors. (Sound familiar?) The government’s key witness is murdered, and Monk has to find and prove who did it. Based on the television series, the book Mr. Monk is Cleaned Out is Lee Goldberg’s best in my opinion, with Mr. Monk in Trouble, which takes place in the Gold Country of California, running a close second. If you like the Monk TV series, you will like Mr. Monk is Cleaned Out.

* * *

Now for a book that has nothing to do with business or finance whatsoever. The book Trouble is written by Jesse Kellerman, son of Jonathan Kellerman, one of my favorite authors who writes great psychological mysteries. I think Jesse is as good as, if not better than, his father. The book is about a young medical student working at a hospital in New York City, who during a break, comes across a woman being stabbed by a man in an alley. He jumps in, and ends up killing the man. After the event, he becomes a temporary hero and gets involved with the woman. I don’t want to give any of the plot away but the book involves a very disturbing character, the kind of character who you hope you would never want to run into in real life, or for that matter, you hope this type of person would never run into one of your friends or relatives. As a matter of fact, you would hope this type of person would never really exist in real life, but apparently they do. The book has a few very, very disturbing scenes. If this type of thing bothers you, then don’t read; if not, then you will enjoy the book. It may not sound like it from what I’ve written so far, but this is a true page-turner, a can’t-put-it-down book, the kind of book that you would stay up all night to finish, once you are halfway through, even though you know it will give you nightmares for the next couple weeks. I know, because I just finished the book, reading it all day long. Now I’m looking forward to two weeks of nightmares; it will be worth it. If you think you can handle it, read Trouble.

The Obelisk, Buenos Aires’ famed monument is on the widest street in the world, the Avenida 9 de Julio, where among the frantic traffic, you’ll get great photos, particularly at night if you’re visiting restaurants and nightclubs in the area.>

Earlier this summer, our vacation seemed so far away. REALLY FAR away…

Other than the statutory holidays, my wife and I havent taken any vacation from work to speak of since February. Not fun. But thats going to change very soon. In a few short days, were off to Argentina!

Ever been?

Us neither.

To say the least, were looking forward to our first trip to South America.

Why Argentina you might ask?

1.Buenos Aires is considered by many travellers to be the Paris of the south. Ive been to Paris years ago and loved it. Im looking forward to seeing its twin sister.
2.Diverse culture.
3.We get to practice our Spanish.
4.Price. The Canadian dollar buys a bunch of Argentine pesos, almost 4 for 1. Thats purchasing power and value for money.
5.Wine. Mendoza wines are very tasty (we love Malbec) and were looking forward to visiting the bodegas (wineries) who make this great, spicy wine first hand. Nothing like sampling wine from 9:00 a.m. onwards…
6.Food. If you love beef, this is the country to visit.
7.Rainforests. We plan to visit Iguazu Falls considered by many like Niagara Falls on Viagra!

8. Tango. My wife loves to dance and try new things. I guess that means Im going to dance and try new things
9. History. Beyond the recoleta cemetery where some of the most important Argentines rest, this country is full of history and attractions.
10. Shopping. In Buenos Aires, there is a famed shopping district around Calle Florida that offers some of the best shopping in the world, surrounded by mansions nonetheless. It will be perfect for my window shopping although my wife might have other ideas.
11. We love visiting places weve never been before. Its a big world out there! Sure, we want to retire early like everyone else, but we feel life is a balancing act. No time like the present to take advantage of our youth and health to travel and enjoy life.

There you have it, just a few of our reasons to get away and enjoy Argentina this fall. Although I will miss blogging over the next few weeks, Im looking forward to sharing our experiences and memories of this great land with you.

Planning for tomorrow is always fun, as long as you don’t lose sight about the value of today…

Take good care and see you in a few weeks!

Cheers!
Financial Cents