MoneySense magazine is profiling four small investors who are beating the market under the rubric “The Genius Next Door“. If you dig a little bit deeper, you realise that their strategies are not for everyone.

Dale Johnson, for instance, invests only in diamond mines and energy trusts. Last I checked, energy trusts have been red-hot investments over the past few years (and not so hot in the past few days). What happens, when these trusts have a bad year or two or many in a row? While concentrated bets like this can pay off spectacularly, they can also crash and burn.

Or take Carl Anderson, who has a reasonable strategy of buying dividend-paying securities and reinvesting those dividends. But then, he “has over 200 individual securities” in his portfolio. Huh? I know mutual funds that have fewer holdings.

The story also profiles Derek Foster, who retired at the ripe age of 34 and wrote a book about it and Jim Chuong, who has assembled a concentrated portfolio of just six stocks. It is fun and sometimes educational to read about other people’s investment strategies, but I am not sure they will work for me.

moneysense.ca, 7/10/05

4 Responses to “Investor Profiles”

  1. Derek Foster says:
    November 24, 2005 at 4:17 pm

    Just curious as to why you think my investing strategy would not work for you? It is what I followed to retire at 34.

    Cheers,
    Derek Foster (author STOP WORKING:Here’s How You Can!)

  2. Canadian Capitalist says:
    November 24, 2005 at 6:11 pm

    Thanks for your comments Derek. Congratulations of retiring at 34! I really believe dividend growth investing is a great way to invest. Let’s say I have a portfolio of $400,000 (as noted in the story). If the current yield is 4%, it is hardly enough for me to retire on.

    BTW, I really liked your book as I noted in my review.

  3. Derek Foster says:
    November 25, 2005 at 9:46 am

    But what if your yield was 6%? This is very achievable with a mix of dividend stocks and income trusts. Although $24,000/year sounds like so little, once you stop working, you don’t have to pay CPP, EI, union dues, transportation expenses, RRSP contributions, ….. I’ve found 24K in retirement is like earning more than 60K while working. Wait patiently – buy quality then it’s cheap. Personally I bough Riocan when it was $9/share – now paying me over 14% on my original investment. Royal Bank I bought at $60 one year ago – now giving me over 4% (and rising).

    It’s not an overnight solution – but it’s a lot easier than trying to sock $1-2 million into your RRSPs and watching the stock market while biting your nails. With my strategy, even a repeat of 1929 would not derail my retirement!

    Cheers,
    Derek

  4. Ron says:
    May 26, 2008 at 12:47 am

    What derek failed to point out is that you completely missed the compounding, which is what accounts for aboutm 50% of the income. Declaring an S&P return is an incredibly over simplified analyses, and hardly relevant.

    Compounding the dividend payments into dollar cost averaging in DRIP is the key. The math works.

    Cheers,

    Ron Davies Cd, MBA, PSP

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