My full interview with Derek Foster; The Idiot Millionaire originally appeared in my national bestselling book, Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca.
Derek Foster is an “idiot.” He saved, then invested, and then quit the rate race at age 34. He spent his twenties backpacking across Europe, Australia, and New Zealand, and lived a number of years in Asia. Who does that? He should be broke, living paycheque to paycheque, and working a dead-end job until he’s 65. Instead, he’s independently wealthy, having amassed around a million dollars in investable assets.
While Derek has branded himself as the “Idiot Millionaire,” he’s anything but — Derek is very, very smart. He uses the “idiot” angle to inspire the average Joe or Jane Canadian to achieve their own financial independence. And he sells a lot of books in the process. Stop Working: Here’s How You Can! propelled Derek into Canadian financial folklore. I was enthralled by Derek’s path to financial freedom, and have read most of his six books. Today, he touts buying strong dividend-paying companies. But dividends alone won’t propel you to the million-dollar mark. There’s more to it, and it’s all revealed in my conversation with Derek.
The truth is that Derek Foster was a prudent saver who made some great calls in the market, from leveraging up on a cigarette company, piling into income trusts, taking advantage of the Canadian/U.S. dollar parity, and selling puts. He made these great calls by taking what the market gave. My favourite line from our interview comes when Derek describes his advantage in the market: “It’s not foresight. I’m opportunistic. The opportunity was there and I took it while I could.” One can glean Derek’s investment mantra in his words — he isn’t a value investor or a growth investor or a macro investor. Derek is a market “taker.” Derek himself would tell you that anyone can use his “simple investment strategy that any six-year-old can follow.” But as you’ll soon learn, there’s a higher learning curve to beating the market. Here’s how a sophisticated investor amassed around a million dollars in the market by 34.
Derek Foster’s 16 Investing Lessons:
1) “With the exception of tech, the market leader usually stays the market
leader for many years.”
2) “Even though the cigarette industry’s volume is going down 1 to 2% a year, it doesn’t matter because the prices increase 5 to 6% a year, so they’re actually making more money.”
3) “I was a very avid saver. I saved a high percentage of my income throughout my life. Probably about 70% of my paycheque.”
4) “You have to take what the market gives you.”
5) “I look for quality. I look for a company that I feel has a sustainable competitive
advantage . . . And then after that I look for a good price . . . Once I find that stock, ideally I want to hold that stock forever.”
6) “I don’t think my portfolio’s ever gotten above 25 stocks. Usually that’s where it tops out.”
7) “Most companies increase their dividends over time, so in actuality my standard of living increases slightly every year in perpetuity.”
8) “I have sold put options on companies I want to buy. Also, I have sold a couple of covered calls on companies that I’m thinking of dumping.”
9) “I look for a moat: a reason that the company can continue to make obscene profits for years into the future. Unfortunately, there’s not many of those companies out there. In the world, there’s probably a hundred or even less than that.”
10) “Stocks are almost like wine — they get better with age. Oftentimes, you’re looking for businesses that have been in business for decades or ideally even over a century.”
11) “It’s not foresight. I’m opportunistic. The opportunity was there [buying U.S. stocks with the CAD at parity] and I took it while I could.”
12) “The advantage that young people today do have, and I’m a huge advocate of, are the Tax-Free Savings Accounts (TFSA), which weren’t around when I was young.”
13) “Baby boomers’ kids have left the house and they’ll dig a little deeper in their pockets for higher quality.”
14) “I stick to my circle of confidence. Because I’m not that bright, my circle’s fairly small, but that’s okay as long as I stick within that circle.”
15) “That’s the secret to why the rich get richer — the second million, and then the third million, and then the fourth million all get easier and easier and easier.”
16) “Only a fool, somebody who’s really stupid, would not change when the circumstances change.”
Robin Speziale is the national bestselling author of Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca. He lives in Toronto, Ontario. Learn more about Market Masters.