Book Review: The Lazy Investor

22 responses so far ↓

• 1 Phil S // Feb 5, 2009 at 12:06 am

  I’ve never been all that impressed with the Derek Foster story. He made a wad of cash on one risky stock bet and so he’s now “retired”, so to speak. Which is not really retired because he’s making money from all of the people who wish they could retire early by publishing books about how to retire early, which he probably couldn’t do if he didn’t earn royalties from books he writes about retiring early.

  That said, the point about the Derek Foster story may not be so much about retiring early, but rather looking for a second career doing something that you absolutely love. Basically turning a hobby into a living. If you can do that, then it feels like you’re retired because you’re loving every single day. Apparently for Derek Foster, that retirement is writing about personal finance.

  I’m personally not there yet. I’m still a wage slave cog in a mega-corporation wheel for the time being, but in the evenings and weekends I’m taking courses and practicing for what I hope can eventually turn into a new career. And that’s what I think we should all be taking from the Derek Foster story.

• 2 Dividend Growth Investor // Feb 5, 2009 at 4:40 am

  I agree that his risky leveraged bet on Altria in 2000 is the cornerstone behind his wealth accumulation. Other than that, his strategy of putting a set amount of funds in stocks is a no brainer, that millions of investors are doing.
  I have read Stop Working and I liked the book. The problem with the book was – it was too optimistic. He tells his readers that he wants a great depression to come so that his stocks will have a higher yield. He didn’t mention however that durign the Great Depression, dividends were also cut ( as they are now in US financial stocks)

• 3 Canadian Capitalist // Feb 5, 2009 at 9:22 am

  Phil: Another problem is that Derek Foster managed to gather a nest egg of more than $350K while earning no more than $30K per year. His net worth was even higher as he had a paid off home. I mean it is no easy feat to be worth 15 times your net worth but I doubt it is practical for most people. Having said that, there are many things I agree with: low-cost investing, low turnover, tax efficiency, importance of thrift and saving money etc.

  DGI: I totally agree with your assessment and I’ve been saying this for a long time — dividends don’t grow to the sky and the robust growth in dividends since 2000 should not be extrapolated far into the future. Over the long-term, the best an investor can hope is that dividends will grow at the same pace as earnings. Earnings have grown over the long term at roughly a 4% real rate and that’s the upper limit for dividend growth (It’s not a guarantee; dividends can grow at a slower pace).

• 4 Million Dollar Journey // Feb 5, 2009 at 9:24 am

  Great review CC and thanks for mentioning mine!

• 5 Four Pillars // Feb 5, 2009 at 9:41 am

  Thanks for the link.

  As mentioned, his investing numbers don’t add up very well however I thought Stop Working is still worth reading more for the lessons on living within your expenses.

• 6 Mintycake // Feb 5, 2009 at 10:13 am

  I agree. How many investors get a lucky strike like DF? I mean, maybe if you inherrited a bundle?
  The other thing he doesn’t talk about is insurance. What happens if he gets sick? when you have young children, a critical illness policy is a good insurance policy to have, as well as a small whole life policy to cover your final expenses. What about health care? He doesn’t have any kind of medical insurance either I think…what if his kids need braces?

• 7 Nurseb911 // Feb 5, 2009 at 10:22 am

  I think Foster got lucky in a number of areas since he began this strategy in a market that was moving upwards. If he had made those large bets between 2007-2009 he would have likely lost his shirt. When you read his new book about options I wonder how he faired with his options on Citigroup, GE, etc. He rode COS.UN all the way to the bottom and as for investor education I believe his books serve better as kindling for a winter fire.

  I admire the guy for retiring and becoming an accomplished writer/marketer, but it stops there. I think his role in the education of new investors is dangerous…..period.

  That’s “The Foster Effect” in a nutshell. Good review CC.

• 8 TEMPLE // Feb 5, 2009 at 12:04 pm

  Phil S., what are you thinking of doing for your new career? I am not going to scoop you or anything, I am just curious. I’d walk out the door of my job right now if I thought I could make a living doing some of my hobbies, but I just can’t figure out how to survive on, well, nothing. My hobbies aren’t very lucrative, unfortunately.

  TEMPLE

• 9 Damir // Feb 5, 2009 at 12:38 pm

  What do you guys thinking about Claymore ETF DRIPs effective February 2009? Is it as good as DRIPs of individual companies? I guess it is only for Canada. Do you think iShares.ca will follow?

  http://www.claymoreinvestments.ca/etf/investment-services/drip

• 10 Canadian Capitalist // Feb 5, 2009 at 1:28 pm

  Damir: I don’t own any Claymore ETFs; so I didn’t pay much attention to this news release. But Larry MacDonald wrote about it here:

  http://blog.canadianbusiness.com/making-etfs-user-friendly/

  I think Claymore’s news is great news. Larry also mentions that Claymore is offering a Pre-authorized Cash Contribution Plan. That is a really welcome move. I do hope iShares will follow suit — I mean what’s the downside here for Barclays?

• 11 Canadian Capitalist // Feb 5, 2009 at 2:17 pm

  Brad: I wouldn’t go as far as calling his books kindling for a winter fire because a cross-section of stocks assembled by investors, on average, is likely to provide market-like returns and would be a much better alternative to buying high-MER mutual funds, which is the way most Canadians invest. Having said that I agree that making stock investing out to be easy peasy when the truth is it requires a lot of research, emotional fortitude, not to mention regular monitoring, might end up hurting small investors.

• 12 Ben // Feb 5, 2009 at 3:16 pm

  I think Derek’s dividend cashflow is about to suffer a pinch as companies struggle to maintain liquidity in what is certain to be a severe recession. Dividends do not come with a guarantee. Today Husky chops its dividend 40%, and Jeff Immelt declines to comment on the possibility of a reduction in GE dividends. (Admittedly, Fortis on the same day announces dividend increase). Tomorrow, who knows – on balance, are his holdings recession-proof? He picked the best time to ride the dividend wave (since 2000), and now that the wave is cresting, we’ll see if he can paddle it in to shore.

  As an aside – the practice of thrift is, and will always be, the cornerstone of my preparations toward financial independence. Nowhere else can I get the same guaranteed returns for so little effort, especially when my funds are not yet large. Young investors need to learn to control their cashflow first, then shift attention to learning how to maximize returns while continuing to maintain household cashflow discipline. Save, learn, invest.

  It is easier to save a dollar than to convince someone to give you a dollar for the privilege of investing your money with them. Unfortunately, it is much more glamorous to claim that you made 15% return on your stocks than to mention you found ways to save money on household expenses.

• 13 Jon202 // Feb 5, 2009 at 4:26 pm

  DF, as he’s known on dripinvesting.org, is often called the “Drip Fairy” as he has encouraged hundreds if not thousands to look into DRIP investing.

  I look at this way, sure, when scratching below the surface his story is one of chance and some good moves, but his methods are those that not many should follow. BUT, his message of simplicity has inspired others to look into direct share ownership, and DRIPs+SPPs as a way of saving for the future. He later talks about financial literacy, and how Canada is a lemmings store for mutual funds. I think some of his basic premises are valid, and the fact that many more Canadians are interested in self-control of investing is commendable.

  As I wrote a year ago for CC, DRIPs aren’t for everyone, but anyone can DRIP. With a little work, initiative and education, the average Canadian can invest as little as $50-$100 monthly or quarterly in Canadian companies such as Scotiabank, Telus, BMO, TransCanada Corp and others for only the cost of a stamp.

• 14 Phil S // Feb 5, 2009 at 8:16 pm

  Temple. I have a number of hobbies, any one of which I would love to turn into a career. But as far as what I am taking classes and learning right now is in the entertainment (music) industry. It is the most competitive industry on the planet with countless thousands of talented starving artists trying to make it “big”. My goal is a lot less aggressive and I’m hoping to find myself a little niche that won’t be the big time, but hopefully it can pay the bills… Hey, if you have the finances to back you up to help you pursue a dream – we only live once and we may as well go for it…

• 15 Phil G // Feb 5, 2009 at 9:41 pm

  All,

  Assuming I want to pursue building a dividend paying portfolio. Why wouldn’t I just do what I do for growth/capital gains? Buy a Bond index fund or ETF, REIT ETF, Canadian Dividend ETF, US Dividend ETF and an Income Trust ETF?

• 16 Dividend Growth Investor // Feb 6, 2009 at 12:12 pm

  Here’s what I think about ETF ownership ( sorry for the external link and shameless self promotion)

  http://www.dividendgrowthinvestor.com/2008/01/are-dividend-etfs-for-you.html

• 17 Lior // Feb 10, 2009 at 12:48 am

  I remember the Toronto Star did an article about him a few months ago. In the article it is revealed that his annual income from all the dividends is about $40,000. I’ve never bought any of his books but $40,000 is not that much at all these days. Even with a fully paid house it will be tight.

• 18 bob // Feb 10, 2009 at 11:46 am

  he has now come with another book …
  “Money for nothing”…a crap again..
  i lost all interest in his books now…

• 19 Andrew // Feb 10, 2009 at 11:02 pm

  If you read the details of DF’s profile, he and his family live in a low cost community north of Toronto, keep their income low to qualify for various government income subsidies, etc.

  So I would have to quick my current job, give up all my benefits, take a low paying job (that I would hate) in order to quality for most of the government programs that would fall short of the benefits from my current job.

• 20 PR // Feb 11, 2009 at 10:42 pm

  I heard DF speak in Ottawa recently (“bigging” up his book) and he was wholly unimpressive – to me at least – but it became quickly evident that the level of knowledge among the handful of people in the audience was low. He lives in an Ottawa suburb, pursuing what he described as a typical middle-class lifestyle. But I, too, question, the quality of life for 6 people on annual income of $40K. Needless to say, I didn’t buy the book.

• 21 Joe // Dec 20, 2009 at 1:12 am

  $ 40k is not too bad considering I am a full time firefighter in the largest city in Canada and I work a 42 hr week and bring home around $48k per year! sounds like there is a lot of people who are angry that they don’t have DF’s life!? he is ‘retired’ no? and besides, most of the stocks he speaks of are stocks that have been researched by people who invest for a living and these stocks would typically be in most Canadians portfolio’s anyway. So why not get these stocks for ‘free’ instead of paying some other person to get them for you? seems pretty lazy to me? (no pun intended).

• 22 D Kent // Dec 26, 2009 at 6:25 pm

  I just finished reading this book and it fills me with hope. At last someone explains investing a a way that is easy to understand and makes me realise that I can do this. Not having to put thousands of dollars out to start gives so many of us the freedom to join in the ownership of businesses and start down the path of being financially free.

  Not everybody needs to have $100,000.00 per year to be successful and able to do what they want in their life. How many of you that are dissing his strategy are still going to work, paying someone else to raise your children and not able to choose what you want to do when you want to do it?

  By the way Andrew, living in Ottawa “a low cost community north of Toronto”, is more expensive to live in than Toronto. And bringing $40,000.00 a year in after tax income is approximately equal to $80,000.00/year pre-tax. Not a bad income for being able to do what you want when you what to do it.

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