Blogs & Comment

Foster’s bombshell

The financial blogosphere in Canada has been abuzz since Derek Foster disclosed he sold most of his stocks in February. The reaction hasnt been favorable, as one would expect when the guru doesnt practice what he preaches in his bestselling, dividend-investing guide Stop Working: Heres How You Can. A caption in John Heinzls columnsummed it thus, Mr. Buy and Hold hits the sell button. Similarly, the title to Ellen Rosemans columnwent: Buy and hold investing guru sells all he has.
Many posters in the Canadian Business Online discussion forumand elsewhere have made references to Fosters original sin of publishing a misleading investment guide. His book purports to show how investors can stop working at an early age — like he did — by building up a portfolio of dividend stocks. However, what the book neglected to mention, as the author later revealed in response to critics, was that he amassed his portfolio with aggressive, leveraged bets on a few stocks. So the real story apparently was as much about betting big on capital gainsin hopes ofearninginvestment returns better than Warren Buffett.
Most people seem to accept this explanation of how he managed to “retire” early. Personally, I am still wrestling with the uncertainty he actually did accumulate such a portfolio, after interviewing him a few years back and coming across a few anomalies (see Sept. 27, 2007and Feb. 28, 2008columns). But its neither here nor there whether or not he did. The main takeaway, in my opinion, is the unfortunate failure to stick with the plan laid out in his book. For example, Chapter 5 says: Lets pray for a market crash! because then we can buy more dividend stocks on the cheap. And, as he wrote, when it comes to dividend stocks you NEVER sell them!
investing is as much about character as it is about analytical capability. Character is about having strength in the face of adversity, of being able to hold onto what you believe in while others around you are losing their moorings, it says in Toughing it out.