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

Ken Fisher Interview Part 8
Please note: The original interview took place on Wednesday, October 27, 2010

Stockerblog: What sectors and industries look good to you?

Fisher: I’m still in the exact same place I’ve been in for quite a while. We’re in a period of where, domestically and globally, the economy will do better than people think it will do, when they don’t think it will do well, and therefore in an environment like that, the stock area that will do well are materials, industrials, the more capital intensive parts of technology, consumer durables but not consumer staples, and to a lesser extent, energy.

The parts that do worse tend to be consumer staples, health care, utilities, finance, all the things that aren’t economically sensitive.

Another way of saying it is that things that are rising right now are things that are economically sensitive. Because most people think that the economy is not doing so well. For example, something that’s perfectly observable that nobody wants to write is that nominal GDP in America is already at an all time high. It’s a simple fact, but nobody wants to write that, and if you write it, nobody will believe it. Because the mythology around us in the media is that we’re mired in a slump. ‘It’s a dismal world.’

That’s real GDP that’s at an all-time high, inflation adjusted GDP isn’t quite to its all time highs yet but it will happen in the first quarter. It’s not that far away. It’s been expanding for 14 months now. When the NBER came out and said ‘we’re officially saying the recession is over and it ended in the third quarter of last year’, the media reacted to that with catcalls.

The fact is, the economy on a global basis, with some places better than average and some places worse than average which is normal, the economy’s been expanding globally earlier than that.

Stockerblog: What countries do you think look good right now?

Fisher: Overall, the next step is you want to be overweighted in emerging markets, you want to be lightly overweight to America, and you want to be lightly underweight to the English-speaking world and most of Europe. We continue to have a world where people are skeptical of emerging markets, but emerging markets continue to do better than people think they will, with a couple of exceptions, and one of them is China. China continues to do well economically but there is so much interest in China relative to the rest of the emerging markets that the Chinese markets don’t do well, because there is too much optimism and expectation about them and excitement. Latin America, Brazil, Chile, obviously not Venezuela, the broad spectrum of Hispanic America, the broad spectrum of the rest of Asia, India, and Eastern Europe. America is slightly over-weighted because America is doing better than people think it is.

End of Part 8

The Debunkery book is available at Amazon.

Ken Fisher obviously doesn’t give individual stock recommendations in his interviews, but some stocks he likes that were mentioned in his recent Forbes columns, including high dividend stocks, are available in the form of a free Excel list at WallStreetNewsNetwork.com.

Part 1 of this interview is available HERE.

Part 2 of this interview is available HERE.

Part 3 of this interview is available HERE.

Part 4 of this interview is available HERE.

Part 5 of this interview is available HERE.

Part 6 of this interview is available HERE.

Part 7 of this interview is available HERE.

By Fred Fuld at Stockerblog.com

Disclosure: Interviewer doesn’t own any of the stocks mentioned in this interview series at the time the articles were written.

Copyright 2010-2011. All rights reserved. Reproduction of this interview prohibited without permission. All opinions are those of Ken Fisher, and do not represent the opinions of Stockerblog.com or the interviewer. Neither Stockerblog nor the interviewer nor the interviewee are rendering tax, legal, or investment advice in this interview. If you want tax, legal, or investment advice, contact the appropriate professional.

Last year was the first year I set some personal finance and investing goals in black and white. I posted them on my blog for the world to see and scrutinize. I also posted them on my blog to keep me accountable. In years past, while I set financial goals, they were not written down and consequently not followed up on very well they floated around in my head. In hindsight, I think this blog was a huge enabler for meeting many financial objectives in 2010. I hope this year will be just as successful.

To recap, our goals from last year were:
Goal # 1 – Put down $20,000 on our mortgage.
Goal # 2 – Maximize TFSAs.
Goal # 3 – “Clean-up” RRSP Accounts (ETFs instead of high-MER funds).
Goal # 4 – Frequent contributions to DRIPs.
Goal # 5 – Optimize RRSPs.
Goal # 6 – Save for and take a great trip.

We were fortunate enough to accomplish every one above, 100%, except for #1. That goal was indeed lofty but I think you need to have stretch assignments, at least we like them. In the end we hit 55% of our target for goal #1 and while in grade school 55% means you almost failed, I dont think our efforts were too bad.
Writing about mortgage payments brings me to our first personal finance goal of 2011:

Goal # 1 Increase mortgage payments by $200 per month

With a new place there are lots of expenses. Lots. I dont need to list them because Im sure youve moved enough yourself and you know what they are. The list never seems to end. For us, the initial big ticket items were appliances and window treatments last month. These things werent cheap and neither are the small things when you add them up. Recognizing we can never do it all at once, weve decided to strike a balance in 2011; live for today, make our house a home and take small steps at paying off the mortgage.  If we increase our mortgage payments this year by $200 per month, we figure well save almost $30,000 in interest costs over the life of our mortgage and payoff the house about 4 years earlier – sounds pretty good to us.

Goal # 2 Contribute $5,000 each to TFSAs

Our government has been pretty good to us in recent years, OK, at least in one area with the introduction of the TFSA in January 2009. We figure we better take advantage of this financial tool because who friggin knows when, if or how the rules will change. Governments are famous for that. You already know the deal:

Including this year, you could have contributed up to $15,000 into a TFSA.
The money can be earned or withdrawn completely tax free.
Contribution room can be carried forward indefinitely.
You never lose contribution room when you withdraw money.
More benefits, more benefits

With $10,000 contribution room each, weve got lots of room to manoeuvre in 2011. Wed like to contribute $5,000 each to our TFSAs. We had to withdraw money from our TFSAs in 2010 to purchase those appliances I wrote about. We dont regret this transaction (because we need to eat!) but this purchase left a big hole to fill in our financial plan. 

Goal # 3 Optimize our RRSPs

Thanks to some savvy DIY investors and financial tutors like Canadian Couch Potato, Canadian Capitalist, Michael James on Money, Andrew Hallam, DIY Investor and others, Ive been schooled on the importance of managing our RRSPs efficiently. For many years, my wife and I werent managing our RRSPs, they were managing us. For almost 10 years we held various equity and bond mutual funds in our RRSPs. That changed last year when we accomplished our financial goal called clean-up our RRSP accounts. These knowledgeable DIY investors re-emphasized the drag management fees had on our retirement savings. Armed with this knowledge we made changes last year and now were using a few ETFs in our RRSPs to match returns of the S&P/TSX 60 Index and the DEX Universe Bond Index respectively, instead of equity and bond mutual funds that charged us 2% per year. These changes lowered our management fees by over 80%!

For 2011, we intend to optimize our RRSPs that is contribute only enough needed to avoid paying any more taxes come tax time. This way, we pay ourselves first but we also retain necessary funds for the rest of our financial plan. We figure optimizing our RRSPs in 2011 will cost us a few hundred dollars every month.

Goal # 4 Continue my full Dividend Reinvestment Plan (DRIP) with Bank of Nova Scotia

After making major investments (for us anyhow) into businesses like Bank of Montreal, Sun Life, CIBC and Enbridge some time ago, my focus early in 2010 turned to Bank of Nova Scotia (BNS).  I started investing in BNS for many reasons, one of the main reasons being they behaved (not just survived) very well out of the financial storm of 2008-2009.  They too, are a dividend stalwart:  paying dividends for over 150 years.

Many savvy dividend investors like The Rat, themoneygardener, Passive Income Earner and Echo from Boomer & Echo I recall got their invitations to the BNS dividend party years ago, now Im with them.  Glad to be with you gentlemen!   Last year I managed to contribute at least $50 per month into BNS stock, no commission fees, just the cost of a stamp and an envelope.  Hopefully sometime later this year I’ll be at a point whereby I’ll be earning at least one free Bank of Nova Scotia share via my full DRIP every quarter.   I look forward to seeing that compounding machine running.

Goal # 5 Start my full Dividend Reinvestment Plan (DRIP) with Fortis

Ive been meaning to do this for some time and I think 2011 should be the year, enough procrastinating already. An overview of Fortis:

Fortis Inc. is the largest investor-owned distribution utility in Canada, serving approximately 2,100,000 gas and electricity customers. Its regulated holdings include a natural gas utility in British Columbia and electric utilities in 5 Canadian provinces and 3 Caribbean countries. Fortis owns non-regulated hydroelectric generation assets across Canada and in Belize and upper New York State. It also owns hotels and commercial real estate in Canada.

Fortis (FTS) pays a healthy (and steady) dividend and is considered a Canadian dividend aristocrat, consistently raising its payout to shareholders year after year.  I want to be part of that payout.

Goal # 6 Build up our emergency fund to $10,000

We have some funds set aside for emergencies but not enough to satisfy our comfort level. Everyone has their own level and ours is $10 K. Weve got some work to do and 2011 is the year to do it.

Unlike last year, we wont be taking any grand trips to South America or any distant lands for that matter.  My wife and I have decided that 2011 is a year to get some work done around the house and furnish it the way we want to. Lawn chairs in our living room are not an option! Those efforts will take time and money and so in 2011, any additional savings beyond our emergency fund will be going towards home improvements.  Were still planning some weekends away, together, with friends and family but no big voyages. Although wed like to travel and experience new worlds there are things to do at home, literally. On the flipside, getting some objectives accomplished around the house in 2011 should give us much more freedom in 2012 – something to look forward to for sure.  I guess thats what goals are all about

What do you think of our financial goals for 2011?  What are yours?

I look forward to hearing from you, have a good weekend!
My Own Advisor

Tis the season for stock picking contests…

Mike from Money Smarts Blog is participating with a few other savvy DIY investors in a stock picking contest. You can read about that here.

HUZ Silver ETF
RIM Research in Motion
CVX Chevron
POT Potash

After visiting The Financial Blogger, I decided I would send in my selections for this year. He has encouraged folks to submit their 4 stock selections to compete against his and his peers offering a prize to the winner if you can beat our group of bloggers for the 2011 Best stock pick contest.
Here is what I picked:

Amongst other savvy DIY investors, click here to view Passive Income Earners selections.

Click here to see Beating The Index selections.

Click here to see Million Dollar Journey selections.

Again, go check out The Financial Blogger for your opportunity to speculate in 2011!

What do you think of my selections?
Who would you pick?

Cheers,
My Own Advisor

There are plenty of investment opportunities in French stocks, and according to WallStreetNewsNetwork.com’s recently updated list of stocks based in France, there are ten that pay yields in excess of 1%. .

For example, France Telecom (FTE) is the largest telecom company in France and the third largest in Europe. The stock has a price to earnings ratio of 9.8 and a forward PE of 9.1. The Price Earnings Growth ratio is a reasonable 1.06, and the yield is an incredible 6.1%.

Sanofi-Aventis (SNY) is the Paris based pharmaceutical company which has products that include Plavix, Ambien, Allegra, and Nasacort. The PE is 10.1 with a forward PE of 6.9. The yield is decent 3.3%.

Veolia Environnement S.A. (VE) is a conglomerate involved in four businesses: water and wastewater services, environmental services, energy services, and bus, train, and ferry transportation services. The PE is 14 with a forward PE of 15.7. The PEG is an excellend 0.99 and the yield is a nice 4.1%.

To see a list of the rest of the French stocks that trade in the US, which you can download, sort, and update, go to WallStreetNewsNetwork.com.

Disclosure: Author did not own any of the above at the time the article was written.

By Stockerblog.com

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

Unlike a Larry King interview, I wanted my chat with Derek Foster to be real, not staged.   Sorry Larry.

I’d like to say Derek shared many personal experiences with me over the phone a few weeks back but I’m not that naive.  Derek has shared his investment experiences (and some failures too) in many 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!  AND
• *The Idoit Millionaire (*Latest book, Fall 2010)

However, I think you’ll find a few nuggets from Derek that his books don’t cover by reading Part 2 below.  Even CTV missed some of the goodies I was able to get from Derek.  Now that I’ve got you curious about this TV interview, a link will follow.  Onto Part 2; more from Derek Foster, millionaire dividend investor and early retiree from the rat race…

* * * * * * * * *
My Own Advisor: Thanks again for the interview Derek.  It’s great to finally chat with you.  Ready for the long list of questions?

Derek:   Ready Mark.

My Own Advisor:  We talked before about your investment strategy, you’re still a dividend investor.  I’m curious to know what your portfolio allocation looks like?  I mean, do you have any bond component?

Derek:  Im 100% stocks, both Canadian and U.S. dividend-paying stocks. I have no bond component. Not that I think bonds are bad, simply, Im a forty year old Derek Foster and I dont see why I need bonds right now with my multiple income sources. The empirical evidence is overwhelming about how stocks beat bonds over the long-run, Im talking 20 or 30 years. Im working on growing my dividend portfolio over the next 30-some years so this is why I dont personally follow any conventional bond allocation protocol. Ask the seventy-five year old Derek Foster and hell probably give you a different answer about his bond allocation. Im just not there yet.

My Own Advisor:  Whats your take on index investing?

Derek:  I think index investing is very safe way to go. The problem I have with index investing personally (and maybe you can help me on this since I read your blog, you own some ETFs dont you?) is the cap weighting associated with some index funds or index ETFs. At one time, Nortel and JDS made up something like 30% or more of the TSX, thats major over-representation if you ask me.

My Own Advisor Yes, but you can invest in index funds or an index ETF like XIC whereby each constituent of the fund is capped at 10%, avoiding the overemphasis.

Derek – True, I know about those products but you are still overweighted in the hot sectors. But let me ask you this. Do you think your dividend-payers with your dividends reinvested, compounding over time, dividend increases plus stock price growth, stock splits, etc. will do better in the long-run than those capped index products or worse?

My Own Advisor I think my index ETFs will never hit the proverbial home run but I also know Im always going get market returns, on the equity side of between five to seven percent over time. Thats good. If my dividends get reinvested, dividends increase over time and I hold my dividend-paying stocks long enough I should get at least that. Thats provided I own the right companies though.

Derek – Thats precisely my point. Investors can. Not to discredit index investing, I think its a good strategy. I think its good for those who dont have or want to take any time to analyze stocks, but I like my strategy. Its worked out pretty well for me so far.

My Own Advisor:  Tell me your top three all-time favourite investing or personal finance books.

Derek:  Good question, wow, there are so many. Can I tell you my three favourite authors?

OK, well I love the Peter Lynch ones, his One Up on Wall Street and Beating the Street two of my all-time favourites and he pretty much covers everything in those books.

I also really liked The Future for Investors by Jeremy Siegel (who also wrote Stocks for the Long Run). I mean he says so many great things that just make sense and he backs it up with loads of empirical data. Have you read it?

My Own Advisor Uh, no.

Derek You should. I think its a must.  I guess the last one would be The Warren Buffet Way. What else can I say? Hes the greatest investor of them all.

My Own Advisor:  Have you learned more about investing from your successes or failures and why?

Derek:  Thats a good question.  For me, failures because I think I question myself so much more. As an investor you can take failure as an opportunity to reflect on what didnt work and what could be better next time. I think sometimes many investors are blinded by their success because they fail to recognize the degree that luck was involved with their result. That mindset can have painful consequences.

Guest Article

Overview of bond trading

In the financial and investment market, bonds refer to a type of debt security whereby the issuer of the bond owes the purchaser a debt. Depending on the specific terms of the bond, the issuer is obligated to paying the purchaser interest and/or repays the total principle to the purchaser at a later date. This date is referred to as the maturity day. It is a formal financial contract the borrowed money is repaid with interest included and paid at fixed intervals throughout the life of that contract.

There are numerous types of bonds such as bearer bonds, fixed-rate, and many others. However one of the most common and popular are the municipal bonds which are typically issued by different government agencies such as a city or local governments, state governments, or US territories. The interest that the purchaser of the bond receives is normally exempt from federal and state income taxes.

Overview of stock trading

Even though stock trading is a common terminology, it is actually a misnomer because you really dont trade shares of stock. You purchase them for the purposes of selling them at a profit. In the language of the financial and investment markets, you purchase and sell shares of stock either on the floor of one of the different stock exchanges or online. Additionally, the individual who purchases and sells shares of stocks is referred to as a stock trader.

Advantages and disadvantages bond trading

As with any type of financial and investment instrument, there are certain advantages and disadvantages to trading bonds. Although they tend to be much less aggressive than shares of stocks typically are, they usually provide the investor with a steady income stream. Over the long-term, this means that their performance might be poorer than what you would experience with stocks. Additionally, and like other investments, there are certain risks involved with bond investing.

The two primary advantages are those involving income and ratings. The income advantage is the fact that they are a safer investment than stocks while the rating advantage is a system that enables the investor to gauge a bonds reliability. The key disadvantages involve risk and security. The former is associated with the fact that you cant always trust those systems that rate bonds. The security disadvantage refers to the fact that the bond is only as good as what the borrowers ability to repay the loan is.

Advantages and disadvantages of stock trading

As with trading in the bond market there are certain advantages and disadvantages where stock trading is concerned that you need to be aware of:

The key advantages are:

o better returns on ones investment
o familiarity with the larger companies
o wide range of investment choices

The key disadvantages include:

o cost of shares
o leverage is typically lower than other forms of investments such as the FOREX market
o uptick rules regarding short selling meaning that you have to wait for the price of the stock to increase before you can short sell it

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