Friday, July 18, 2008

Book Review: Stop Working

After finding the book “Stop Working : Here's How You Can!: Using the Strategy of Canada's Youngest Retiree” from Derek Foster on Amazon, I feverishly read it from cover to cover in about 3 - 4 hours. To those of you who haven’t heard anything about the book before, it’s written by Derek Foster, who is touted to be Canada’s youngest retiree.


Apparently the author of this book was able to “punch out” of the workforce at the tender age of 34. He was able to do this by investing a fixed amount of money every month for a period of about 12 years. Initially he bought only mutual funds, and later focused exclusively on dividend paying stocks.

Personally I thought that the book was very inspirational, because it shows the reader that they might not need as much as their financial advisors tell them to save for retirement. It also tells in a way the story of a dividend investor, gives a couple of dividend stock picks, and explains how dividend income is a better source of income compared to earnings from one’s job. The book strongly focuses on cash flow, in particular cash flow from stable dividend companies with long history of dividend increases. I also how he compared taxable income from wages to taxable income from dividends. If you check out his “sample portfolio”, you will notice that it was yielding about 6% in 2004/5, which is not unachievable. He did mention however, that you need to buy the stocks when they are trading at bargain prices. He also mentioned that had you bought the stocks in his sample portfolio at their bargain prices you would have paid about $100,000 for them, rather than $300,000 in 2004/5. And thus your yield on cost would have been 18%, rather than 6%.

The misleading part about this book is the fact that the author mentions how he saved $200/month plus his tax refunds in the stock market for 12 years. At the time of his retirement however, Derek Foster had a portfolio worth about $300,000 - $400,000, a fully paid house as well as a rental property. The numbers simply don’t add up for me. I have read in other sources that he made large leveraged directional bets in Altria in early 2000, which paid off well. Without this “gamble” I do not know whether he would have made it or not. One cautionary thing to add is that he wrote the book right after he retired at 34. I would want to see how he has adapted to changing market conditions (elimination of the income trust structure in Canada in several years) in 2015, 2025, 2035. I hope he will still be able to be retired even when he is in his 60’s. Another cautionary thing to add is that this strategy worked in Canada, where healthcare is practically free. If you lived in the US, however, you would need to save more simply for the rising healthcare costs.

Overall I considered the book to be very inspirational dividend book. If you keep saving a fixed amount of funds from your paycheck every month and you invest your money in quality companies which have a strong history of increasing dividends, you will be able to retire earlier that you thought possible.

What is your opinion on this book?

You could purchase Stop Working : Here's How You Can!: Using the Strategy of Canada's Youngest Retiree from Amazon.com.

This article originally appeared on The Div-Net one week ago.

4 comments:

  1. thanks for your review, I for one am very grateful to have found this book, I'm still young and didn't really have any financial goals, well all thats changed now, and im happy to have found div net, what a great place!

    also I found this review of the same book interesting http://nurseb911.blogspot.com/2008/04/foster-effect.html

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  2. I have not read the book but no plan on it after your review. Thanks for the tip.

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  3. I read his book a while back. He has a new book out, The Lazy Investor where he talks about DRIPs. He's probably earning more money from publishing than from his dividends.

    I met him about 2 years ago at the Toronto Financial Forum (he was there to promote his first book). I complained to him that all the stocks and income trusts he recommended in his book were too expensive. He agreed and did not offer me any solution.

    My biggest beef with him is that he tells people not to sell the stock once they own it and yet he does it himself. For example, I bought Rothman stock based on what he said in the book and in his second book, he disclosed that he sold it. So much for holding on to them forever. You'll have to do your own research and not blindly follow what he says.

    Overall, the book exposes people to alternative investment style. Not everyone will have the patience to follow it. I just wish someone would challenge him on being the youngest retiree.

    BTW, being a Canadian, I can say that healthcare is NOT is practically free in Canada eh? We pay for it in bloody high taxes! :-)

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  4. Dbass,

    Thanks for stopping by. I will check out your review of the book.

    Passive Family Income,

    If you are interested in reading about dividend investing, Derek's books is a good start.

    Mike,

    I also think that he doesn't tell it all in his books. I have found later that he purchased MO with all his money and on margin when he thought it was "undervalued" in 2000. Thus, had he not done this "lucky" transaction he wouldn't have been able to achieve the $300K-$400K portfolio of dividend paying stocks.

    As for the Canadian healthcare you do pay a lot of taxes, but when you go to the doctor you don't pay more do you? Here in US you pay taxes, insurance premiums and then also pay the doctor. :-(

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