Derek Foster is an “idiot.” He saved, then invested, and then quit the rat 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.
Bottom: the point at which a stock or the stock market has reached a low but then turns back up.
Income Trust: Canadian companies that paid out earnings to unit holders before taxes. Up until 2006, when the taxation structure changed for income trusts, investors could buy income trusts on a securities exchange and benefit from high yields.
Leaders: those stocks that are in the top quartile of their market, industry, or peer group whether in reality or only in investors’ perceptions.
Leverage: when an investor uses margin (i.e., loan) to increase his/her bet on an investment in order to potentially amplify returns. Can also refer to companies that use considerable debt for expansion, acquisition, or any other forms of investment.
Long: when an investor buys a stock in the anticipation that its value will rise.
Metric: a figure or standard that investors use as a basis for a decision.