Book Review: Stop Working, Here's How You Can!

“Stop Working, Here’s How You Can!” is a book by Canadian Derek Foster that claims to show the average person how to retire very early (Derek retired at age 34). Is his experience replicable? Does his advice make sense? Is it something the average person would be willing to do? Let’s take a look at it, chapter by chapter. Since it’s 21 chapters long and I’m not the most succinct person in the world, I’m going to look at 7 chapters each day and then finish up with what I thought of it.

1. If It’s Broke, Fix It!
Derek opens with a couple of questions:
1. Have you ever asked your financial advisor why he is not already retired if he’s so knowledgeable about investing?
2. Are your investments working well for you?

His point is that you have to be the one who plans your retirement because no one else really cares and these advisors aren’t really financial geniuses or they’d be retired themselves.

Derek says he can offer a different strategy and that the rest of the book will deal with investing, simplifying spending, paying off your mortgage, eliminating debt and reducing taxes, along with an evaluation of the pros and cons of RRSPs.

He started this plan in 1994 and retired 12 years later. For him, this is the proof that his strategy works.

2. The Ultimate Perk? 52 Weeks Annual Vacation!
This short chapter consists of his story about riding a wild horse in Australia and selections from his list of things to do before he dies. His point is that if you retire young you’ll be able to do more of the things that would make your own personal list than if you work until 65 or beyond.

3. Money Isn’t Everything, But…
Derek touches briefly on compound interest and the Rule of 72, then goes on to give his opinion on various types of investment vehicles.
Bank Accounts
A good place to put your money temporarily, very liquid, protected by CDIC insurance up to $60,000 [although I’ve recently read elsewhere that it’s now $100,000]. The downside is the miserable interest rates.
Gold
Important historically, but Derek feels it’s not a good investment because it doesn’t increase in value quickly over the long term and you may cash out at the wrong time and lose part of your investment. He prefers “black gold” i.e. oil and foreshadows how he will cover it as an investment later.
Rare Coins and Collectibles
He doesn’t recommend it because it’s a lot of work with no guarantee that the items will increase in value and many possible negatives such as the risk of damage.
Real Estate
Derek rates real estate as one of the best investments although the downside of being a landlord (such as repairs and dealing with tenants) causes him to recommend indirect ownership (another area he’ll expand on later).
Bonds
He doesn’t like bonds for a long-term investment for 3 reasons. First, bond interest is taxed at your highest rate. Second, they’ve historically provided a lower rate of return than stocks. Third, bonds don’t provide as much inflation protection as stocks.
Mutual Funds and the Stock Market
Here’s where Derek’s eyes light up. He says that stocks are what allowed him to retire early and that his investment strategy makes his retirement plans “impervious to market crashes”. The strategy itself is spelled out in later chapters.

4. Getting Answers from “The Three Wise Men”
Derek’s Three Wise Men are David Chilton, Peter Lynch and Warren Buffet for reasons described throughout the chapter.

Derek opens the chapter by saying how much he loves stocks, but then goes on to tell the story of how he invested $5,000 in Intertan (the former Radio Shack, which is now known as The Source) and lost about half his money. Ouch. That experience taught him to research investments thoroughly before handing over any money. A few years later his supervisor at work gave him David Chilton’s book “The Wealthy Barber”. From there, he picked up the idea of paying yourself first and started investing $200 per month in mutual funds.

Eventually Derek decided to get away from funds because of the management fees, figuring that if he could eliminate a 2% fee he could save as much as $626,000 ($50,000 invested over 30 years, with a return of 12% as opposed to 10%). Still, he recommends mutual funds as a starter program while you have under $20,000 invested.

Looking for a way to duplicate the results of mutual fund managers on his own led Derek to Peter Lynch and his books “One up on Wall Street” and “Beating the Street”. One method Peter mentioned briefly for choosing stocks actually became one of Derek’s cornerstones. It was the idea of selecting stocks from “Mergent’s List of High Dividend Achievers”. He also picked up the idea of only investing in companies that a child could understand.

Derek also started reading everything by Warren Buffet and picked up certain ideas from him. Only invest in what you know and understand and ignore short term swings in the market because it’s like a manic depressive person.

5. Let’s Pray For A Stock Market Crash!
He lists 9 tenets that form the basis of his investment philosophy and then expands on each one.

1. Only invest in companies you understand
2. Only invest in companies that pay a dividend (preferably a rising dividend)
3. Look for companies that are selling cheaply
4. Invest in companies that are “recession proof”
5. Don’t focus on foreign companies
6. Only invest in companies that are dominant in their industry (or that cannot be seriously hurt by a larger competitor)
7. Only invest in companies that have displayed a long history of strong performance
8. Only invest in companies that have a strong brand loyalty among its customers
9. Once you’ve bought the perfect company, never sell it!

6. “Show me the Money!” Investing
Derek’s main focus is #2, above. He isn’t interested in buying low and selling high. He wants to buy stocks of stable companies that will return ever-increasing dividends (or distributions in the case of investment trusts). He uses the analogy of planting trees on your land, cutting them down to sell the wood, then replanting as opposed to planting an orchard and harvesting the fruit from then onward.

7. What Should You Buy?
Derek is not big on index funds (recommended by pretty much everybody else I’ve ever read) because he says that 90% of businesses aren’t worth buying at any price. He says to buy mostly Canadian stocks because it makes sense to keep most of your assets in the country where you live and will retire. Canadian dividend income (the cornerstone of his strategy) is also taxed more favourably than foreign dividends. He goes on to suggest the following stocks or areas.
· Big Canadian banks
· Big Insurance companies
· George Weston Limited
· Corby Distilleries
· Rothmans Inc.
· Mutual Fund Companies

It should be noted that in his subsequent book “The Lazy Investor” (which I will also review) he says his Weston stock has been somewhat disappointing and that he eventually sold his shares of Rothmans. He closes the chapter by saying if you want increased diversification you could look at American multinationals like Johnson and Johnson.

Tomorrow we’ll look at Chapters 8 through 14 including his story of how he got to where he is today.