Derek Foster Interview On The Idiot Millionaire

by Mike Holman

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I recently had the pleasure of talking with Derek Foster who is busy promoting his new book – The Idiot Millionaire.  I really enjoyed our conversation – Derek is a super nice guy.

I’m well aware of the controversy around the numbers in his first book and the fact that he sold all his equities at the bottom of the market.  I liked his first book and still think it stands up today – especially the frugal living section.  I don’t think that there is anything wrong with someone writing a book and then changing their methods later on.  Mr. Cheap came to visit last weekend and he told me a quote which I thought was funny and appropriate:

Consistency is the hobgoblin of little minds – Ralph Waldo Emerson

My opinion of dividend investing

I’m not doing any dividend investing at the moment, but I think it’s a reasonable method of investing.  It doesn’t matter which kind of investing you favour – if you believe in what you are doing, that belief will help motivate you to:

  • Save more – This is key factor in investing.
  • Hold the course – When the markets crash and dividends get cut – your beliefs will help you stay strong and stick to the investing method you have chosen.

Adopting a reasonable investing method and sticking to it, is good enough.  You can’t necessarily predict which investing method will be the best over the next 20 years – just like you can’t predict the best mutual funds over time.

On with the interview

This interview is not transcribed exactly – we talked for about an hour and my kids were running around a bit, and Derek was looking after his five kids – needless to say there was the occasional interruption.   I took notes as best I could – I hope I don’t misrepresent anything Derek said.

Where is it available for purchase?

The book is available at stopworking.ca or at any Chapters/Indigo store.

What is the Idiot Millionaire about?

This book is mainly about dividend investing.  His original plan was to have higher dividend securities in order to live off the income.  His books were more successful than expected, so he has changed his focus to lower yielding dividends which will grow over the long term.

Here are some of the new items in the book:

  • Approved list of stocks.
  • A few new stock selection criteria.
  • Moats are important – Companies like Visa and Coke have amazing brand names.
  • More focus on investors who are accumulating during a high income period (ie they are working).

What’s with the book title?

The point of the title is that you can be an idiot investor and still do pretty well.  Investors can save a lot of money doing it themselves, kind of like a do-it-yourself renovation.  Even if they aren’t perfect, they are generally pretty far ahead financially by doing it themselves.

Why did you choose this topic?

Wanted to update the investing method outlined in previous book.  As time goes on, I learned more and have new approaches to investing.

What is different about this book compared to your other books ie if someone who has already read your other books or at least the first one – what would they gain from reading this one?

The main differences are:

  • Portfolio selection has less income for tax reasons.
  • Stock selection method uses more stringent criteria.

Have you changed your US$/Cdn$ split?

Yes, bulk of portfolio was Canadian, now it’s greater than 50% American.  The US companies are international – so they aren’t just American – they do a lot of trade outside the US.

In terms of investment strategy/lifestyle choices/earnings – how important is the investment style to success?  In your case you’ve done well with dividend investing and to a lesser extent – writing options etc.  Is it critical to invest in dividend stocks for early retirement or would other options (ie couch potato) also suffice?

The most important factors for investing success are:

  1. Savings rate is the most important thing.
  2. Investing in quality companies is next.
  3. Low investing costs – Buying individual stocks is very low cost.

You’ve been retired for over 5 years now – is retirement anything like you thought it would be?

I’m not sure if “retired” is the right word.  I really just started doing something else (writing books).  Getting some financial independence allowed me to do what I want.  Writing books is hard work – but no commute and no bosses.

 

 

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{ 2 comments… read them below or add one }

1 My Own Advisor

Nice interview!

“No commute and no bosses”. Ah, wouldn’t that be nice. That’s retirement :)

2 My University Money

I read the first few Derek Foster books and thought they were written and user-friendly. I understood his option strategy and how it wasn’t quite as negative as people wanted to paint it, but the move still seemed desperate to me. The principle of it seemed to counter his early investment strategies. That being said, it doesn’t nullify his earlier good work. To use a sports analogy, if a GM makes one bad trade after several good ones and still has a great team isn’t he still a good-to-great GM. Even more relevant is the view that regardless of what you think of the GM overall couldn’t other GM’s learn something from studying all of his good trades? Best of luck to Derek.

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