Unlike a Larry King interview, I wanted my chat with Derek Foster to be real, not staged. Sorry Larry.
I had a bunch of questions lined up for Derek a few weeks back but as you may have read from Part 1 of my interview
with “Canada’s Youngest Retiree
” the interview was much more conversational. Thanks again Derek for taking time to chat, being so carefree and sharing your perspectives and opinions about what is definitely your livelihood and a growing passion for me and many others; dividend investing.
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: I’m 100% stocks, both Canadian and U.S. dividend-paying stocks. I have no bond component. Not that I think bonds are bad, simply, I’m a forty year old Derek Foster and I don’t 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, I’m talking 20 or 30 years. I’m working on growing my dividend portfolio over the next 30-some years so this is why I don’t personally follow any conventional bond allocation protocol. Ask the seventy-five year old Derek Foster and he’ll probably give you a different answer about his bond allocation. I’m just not there yet.
My Own Advisor: What’s 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 don’t 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, that’s 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 I’m always going get market returns, on the equity side of between five to seven percent over time. That’s 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. That’s provided I own the right companies though.
Derek – That’s precisely my point. Investors can. Not to discredit index investing, I think it’s a good strategy. I think it’s good for those who don’t have or want to take any time to analyze stocks, but I like my strategy. It’s 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 it’s a must. I guess the last one would be “The Warren Buffet Way”. What else can I say? He’s the greatest investor of them all.
My Own Advisor: Have you learned more about investing from your successes or failures and why?
Derek: That’s 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 didn’t 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.
If I gave an investor a piece of paper and asked them to write down every person they knew who had never make an investing mistake, I bet I’ll get back a blank piece of paper.
I remember buying RadioShack when I was a teenager and at the time I didn’t have a clue why I was buying it other than the fact I worked there and thought it was making a lot of sales. I also remember buying a junior mining company when I was 19 or 20 that was supposed to strike gold. That never panned out. I’ve made some mistakes and I know I’ll make more – that’s the nature of investing.
My Own Advisor: What are your stock market predictions for 2011?
Derek: Ha, I have no idea. I mean, I could say this and that but I’m probably going to be wrong. I really have no idea. What about you?
My Own Advisor: I don’t know either. I’ve never been good at predications.
Derek: Maybe we’ll see our dollar go to $1.50? That’s NOT a prediction, but I mean who knows? If our dollar goes that high I know I’ll be buying more U.S. dividend-paying stocks. This past year has made some companies like Johnson & Johnson a great buy.
My Own Advisor: Final question and thanks for hanging in Derek. Will the Ottawa Senators make the playoffs this year?
Derek: To be honest I don’t watch much hockey. I’m really an Oilers fan. I thought it was kind of cool when a few years back, both the Oilers and Ottawa made their respective runs back to back and it got interesting but for the most part I don’t follow it until the playoffs start. I guess you could say I’m a fair weather fan.
My Own Advisor: Thanks for the interview Derek. I hope we can do this again sometime?
Derek: No problem Mark.
Again, whether you’re a fan or a critic of dividend investing, Derek’s experiences and financial journey are in my opinion inspirational one and something that can be learned from. He’s had success but he’s also had his share of failures and mistakes. Not everything has been rosy and Derek has made some sacrifices to get to where he is today. His journey and approach is not to everyone’s liking, which is fine because everyone is entitled to their own opinion; not to mention investing style, risk tolerance and comfort level. In the end, what I respect from Derek is this – kudos for working hard to see your dream(s) come through – leave the rat race on your terms and then some. Investment timing, luck, skill or a combination of these has made Derek Foster a household name in Canada and good on him. He’s a fortunate guy, he knows it and he’s not afraid to say so.
I give Derek many thanks for taking some time to chat with me about dividend investing and answering my questions. I hope we can converse again in 2011.
Learning is like rowing upstream: not to advance is to drop back. ~ Chinese Proverb
I hope you enjoyed my interview with Derek Foster. Click here to see how the professionals at CTV did their interview with him just before Christmas.
As always, I welcome your feedback and your comments!
To all my readers, followers and friends – Happy Holidays!
Thanks for reading and sharing this article.