Beating the Stock Market, Retiring at 34 With Derek Foster

Happy summer to all you Wealth Hackers out there, shout out to all those finding deals better than the deals available six months ago.

Even though I wasn’t very good at the social sciences, I find market behaviours interesting. E.g. Duplexes east and west of the Greater Toronto Area where we service cash flow better today with higher interest rates than we did five, six months ago when duplexes would receive 5-15 offers to purchase.  

Today they’re still selling, but it takes a week or two, and a conditional offer often wins.

 
 
 
 
 
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How can cash flow be better when interest rates have doubled?

Well, prices have fallen so much that mortgage payments and cash return on investment have improved.

In the stock world, one of my favourite companies, Costco, where Cherry and I reliably spend hundreds each week, the stock is down considerably over the same period. 

Why? 

Profits are expected to decline because they, like many companies like Walmart and Target, purchased too much inventory and/or the inventory arrived late. 

The timing, of course, is perfect as I ordered my patio furniture two months ago and paid full price.  Then this past weekend, while ordering our weekly hundreds of dollars of sacrifice to the Costco masters, I noticed Costo was offering huge rebates on patio furniture. In mid-June… peak patio furniture buying season.  

Strange days we live in!

My point is the pendulum is swinging in the buyers’ and consumers’ favour.  Who will take action as an amateur social scientist will be fascinating to observe. Cherry and I personally are raising capital, and I’ve left cash on the sidelines to stick into the stock market after we’ve bottomed.  Hopefully, in a few months.

Beating the Stock Market, Retiring at 34 With Derek Foster

On to this week’s show! 

We have my friend Derek Foster who successfully retired a long time ago. 2004 was the last time he had a job, and Derek is retired, retired, enjoying his time off, chilling and raising his eight, that’s right, eight kids, so it’s not like he has nothing to do.

As a Wealth Hacker, I have a natural interest in studying how the rich get rich in lazy ways…

Derek has done that for almost two decades and has written six best-selling books on the subject, and recently he’s been navigating the crash in the stock market quite masterfully as at the time of the recording, the stock market was down 15% year to date, Derek is only down 5% hence he’s completely outperforming the market and likely outperforming pretty much every professional money manager out there.  

Is there any wonder Derek helps us teach at Stock Hacker Academy?

On our recent visit to our nation’s capital of Ottawa, we invited Derek and his wife to lunch and recorded this podcast episode in our Airbnb. 

It’s great to catch up with Derek and learn how he’s investing in stocks these days so you, the listener, and I may learn and hopefully create another passive income stream.

This episode is brought to you by me! We don’t have sponsors for this show, I only share with you services owned by my wife Cherry and I.  Real estate investing is a staple in my life and allowed me to build wealth and more importantly, achieve financial peace about the future knowing our retirement is taken care of and my kids will be able to afford a home when they grow up.  If you too are interested in my systematic strategy to implement the #1 investment strategy, the same one pretty much all my guests are doing themselves, then go visit www.infinitywealth.ca/events and register for our next FREE Online Training Class.  We will be back in person once legally allowed to do so but for now we are 100% virtual.

No need for you to reinvent the wheel, we have our system down pat. Again that’s  www.infinitywealth.ca/events and register for the FREE Online Training Class.

This episode is also brought to you www.stockhackeracademy.ca where everyday real estate investors learn the best practices in stock investing to earn cash flow in about 15-30 mins per day from their mobile phones. After real estate, Stock Hacking is the next best hustle as you’ve heard from many past guests on this show. Among our students last year, 31 trades were shared with them. 30 were profitable for an over 96% success rate and 12% return on capital. I will be giving free demonstrations online, very similar to the one I gave my kid cousin, a full time musician and he just made 50% return in 2021.  Past of course does not predict the future but if you’d like a free demonstration go to www.stockhackeracademy.ca in the top right, click FREE Demo.  At the demonstration I’ll have special bonuses. We do not advertise publicly for all my favourite listeners and I only have two more demos to give in the next few weeks.

Don’t delay www.stockhackeracademy.ca, what I consider the future of side hustles with real estate so unaffordable for many.

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Just a friendly reminder that we are hiring more investment Realtors who want a full-time challenge to help our clients, regular everyday people, mostly from the GTA, invest in the top investment towns west of the GTA. 

This is for driven folks who want to multiply their current incomes.

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To Listen:

Audio Transcript

Erwin  

Hello my fellow wealth hackers, happy summer to you all. And shout out to all those who are finding better deals out there today it was better than the deals that were available five six months ago. Even though I wasn’t very good social sciences I do find the market behaviours interesting. For example, duplexes east and west of the Greater Toronto Area where we service investor clients, the cash flow better today, even though interest rates are way higher. But anyways, our cash flow still better today than it is five six months ago, when duplexes would receive five to 15 offers sometimes 20. Today, they’re still selling, but it takes a week or two, and often a conditional offer will win. So how’s that possible? How can cashflow be better when interest rates have doubled, prices have fallen so much that mortgage payments and in turn cash on cash investments, cash on cash return has improved? So again, because the price has fallen so much your mortgage payments so much smaller? And yeah, you can cash flow a couple 100 bucks more today than you could live six months ago. Crazy. In the stock world. One of my favourite companies Costco or cheering I reliably spend hundreds of dollars each week. The stock is down considerably over the same period. Why? Profits are expected to decline because they like many other companies in their space like Walmart and Target. They purchased too much inventory and or some of that inventory have arrived late. For example, I tend to just perfectly I’m being sarcastic. But I wonder patio furniture two months ago, paid full price, nothing was on sale, even bought something off the showroom floor. They wouldn’t discount it one bit because it’s all they had. This past weekend, while I was reliably ordering our weekly hundreds of dollars of sacrifice to the Costco masters. I noticed Costco was offering huge rebates on patio furniture, patio furniture in mid June, which is peak patio furniture buying season is The Strange Days we live in. My point is that the pendulum is swinging in the Investor Buyers and consumers favour these days. Consumer favourite things really early gas prices have calmed down a bit already. I still think it’ll be elevated. But all the things that aren’t affected by Russia and Ukraine, while other stuff is getting cheaper. So again, as an amateur social scientists, it will be fascinating for myself to observe chain I personally raising capital, I’ve been mentioned that for quite some time, we’re still waiting for our refinance stuff to come through the bank made some errors on our paperwork. So the bank, notice that they actually valued our property, one of our properties and double double the appraised value. So that mistakes no good, so that’d be rectified. So we’re waiting for our correct paperwork to unlock some of our capital and our rental properties. I also had deliberately left cash on the sidelines and both my RRSP and TFSA accounts with the intention to stick it in the stock market after we’ve bought them hopefully in the next few months. 

Erwin  

And honestly, if you show while we’re talking about stock market bottoms, we have my stock my friend Derek Foster, who is successfully retired, and he retired a long time ago. 2004 was the last time you worked a job. And Derek is retired, tired. As in he’s enjoying his time off chilling, raising his eight. That’s right, eight kids. So it’s not like he has nothing to do. But my point is that he’s not pursuing any business ventures or creating any new trading programmes or anything like that. He’s chilling out. He’s truly the classic definition retired. myself as a wealth hacker, I have a natural interest in studying those who got rich, preferably in lazy ways, like Derek has done for almost two decades. He also has written about time six best selling books on the subject. Recently, he’s been navigating the stock crash quite masterfully, as at the time of recording, which was about two weeks ago, which doesn’t really help you. Anyways, the stock market was down at the time of recording 15% while their own portfolio was down overall portfolio was down 5%. Hence, he’s completely outperforming the market and likely outperforming pretty much every professional money manager out there. Is there any wonder why we hired Derek to help us teach stock hacker Academy? I think on a recent visit to the nation’s capital model while we’ve been invited Derek and his wife to lunch, and to record this podcast at our Airbnb, it’s great to catch up with Derek and more importantly learn how he’s investing in stocks these days. So that you listener and I may learn and hopefully create another passive income stream hopefully a really successful one. Just like Derek please enjoy the show. 

Erwin  

Hi Derek. What’s keeping you busy these days?

Derek  

Oh, the kids I guess I don’t know. You know nothing else basically.

Erwin  

How many kids? 

Derek  

Eight. 

Erwin  

Is it expensive to have eight kids. 

Derek  

Yeah

Erwin  

I have two. It’s pretty expensive. You have Four times as many as I do. 

Derek  

I mean, it can be expensive. And is the car expensive? It depends if you drive a BMW versus if you drive a Hyundai or whatever kind of thing. Yeah, I mean, of course it costs money to have kids and stuff. My kids do some activities. I guess there’s a bit of a cost like they we chose to send them to a private school so we spent a little bit of money there, but they’re not going to competitive hockey or anything crazy like that. So yeah, so it costs money I guess.

Erwin  

Hockey costs more than private school?

Derek  

I guess it depends on how much the hockey costs. Yeah, this is not a posh fancy private school. This is just Yeah. Okay. Yeah. So easy, really affordable, I guess.

Erwin  

Can I ask why private school over public? 

Derek  

We thought that the education will be better their peer group would be better? That kind of thing.

Erwin  

Yeah. Yeah. My wife and I talked about it. There’s none that are that close to us in our public schools only formula hawk. 

Derek  

Yeah, that’s actually we’re sorry, I’ll cut it in half. But we’re, we live in our neighbourhood. There’s a there’s an elementary school within 10 minute walk or whatever. And there’s a high school within a 10 minute walk the opposite direction. So it’s really well situated for that. But yeah, we just felt that the education was better. their peer group was better. They were getting more attention, whatever. So it was it was a hard hurdle to jump. But that’s what we did. Yeah.

Erwin  

And you just teach them how to be rich?

Derek  

Yeah, but what about everything else? Right. There’s so many things. I don’t.

Erwin  

 What else is important?

Derek  

I don’t know. Let’s let’s I don’t know. Yeah.

Erwin  

You’re off the rails already. Oh, how much Korean Can you speak? How much? Because he caught me off guard when we were eating dinner that one time.

Derek  

I was just trying to impress you because you don’t know Korean. Right. So I say a few words. I could be saying random words that would impress you. I guess I would say I guess I can speak enough Korean to get into trouble and not enough Korean to get out of trouble. Is that fair?

Erwin  

So that you’re comfortable? completely comfortable at a restaurant then?

Derek  

Restaurant? Yeah, because it’s fairly limited. I can’t carry on a conversation. I mean, my wife’s Korean. So I can speak to my stepdad because he understands my Korean, which nobody else really understands. Yeah, I mean, if there’s like a Korean drama on, I’ll understand 10 or 20% of what they’re going. And because you get context to get pictures, whatever, that kind of thing. I would not call myself anywhere close to being fluent. But yeah, I can converse with my wife’s parents, especially her dad, but no, not not that good. No.

Erwin  

And then when did you start getting serious on investing?

Derek  

Ah, that’s a good question. I think in my teenage years, oh, sorry, serious. I mean, I started investing, I didn’t do it. Well, when I was 18, or 19, against what I do, I bought, okay, so I was working at RadioShack. At the time, it’s now called the source probably a dying business. But by this is going back to the early 90s. So we’re really going back in time here.

Erwin  

Does RadioShack even have physical locations anymore in the states, companies?

Derek  

They are separate companies. So RadioShack in the States was called Tandy, and then RadioShack in Canada was part of inter 10, which then stood for international Tandy Corporation. They were separate companies, I don’t know the history of when they split off or that kind of thing. But it was they started working there. They had a share purchase plan for employees, I started buying some shares. And, you know, this is what I was, like 18 or 19, I thought, Oh, this is a good company, I mean, seems to be busy. I didn’t know anything about investing. So I bought but my life savings at the time, I think I’d saved up $5,000. And I bought 200 shares of inner 10 or RadioShack stock here in Canada. And it was 25 $24 a share. And the year before it started working, it was $60 a share. So I figured I was getting a good deal. So that was my basically first stock investment.

Erwin  

So looking back, what kind of diligence would you have done instead? Compared to what you did at the time? 

Derek  

Well, I didn’t do any diligence. So I think doing some is better than none. I was just working there. And I thought, Oh, they make money. You know, I mean, I see customers coming in and stuff. So I just bought shares, but I had no idea of what they were doing. I mean, by the way, I bought for $24. About a year later, they went down to 12. And so I bought more and then they went down to six at which time I sold them. So that was my first foray into the stock market. But yeah, doing some research and stuff, having an idea of the company you’re dealing with is much more beneficial than not having a clue what you’re doing. So at that time, it didn’t have a clue,

Erwin  

Right! And then for for listeners benefit your six time best selling author, you have what I would think most of our listeners are looking for all 17 listeners is you have a whole bunch of freedom in your life.

Derek  

Yeah, I mean, the kids curtail that to a degree but yes, generally speaking, yeah.

Erwin  

You could argue that’s a choice. 

Derek  

Yeah, sure. Yeah. 

Erwin  

You haven’t had a boss for over 20 years. 

Derek  

As long as my wife doesn’t count then Yeah, we’re good. But yeah, I guess the last time I worked a regular job would have been 2004. I was teaching at a university in Korea.

Erwin  

But you loved that job. Didn’t you?

Derek  

Loved it. Yeah, I liked the job. Yeah, I was teaching English. I can speak English so I can teach it right. So yeah. Yeah. No, that was a good job. That was that was a lot of fun. That was good for that time in my life. It’s quite exciting. Actually. It was high octane kind of lifestyle. I would go out with my students. And yeah, it was it was a lot of fun. But yeah, that was that was my last real job. I guess.

Erwin  

Wish I knew you back then. Actually, when was the first year did you come up with your first book?

Derek  

  1. After I left Korea, we came back to Canada. And which one was that? Stop working? Here’s how you can love this book. Yeah, there you go. Yeah, that was my first book back in 2004. dog eared it up. Here we go. Hey, you read it. But yeah, that was that was my first book. And it was just basically talking about how I was able to retire at the age of 34.

Erwin  

This is a phenomenal book. Thank you. I can’t think of someone coming into high school who shouldn’t read this. Like I think this is

Derek  

A basic foundational book. Yeah, it’s very, very simple. Um, I remember when I was when I was writing it, you know, some people get like professional business editor to check the book or something. And I at the time, I asked my mom, I said, Hey, I’m writing this book. Can you read it? So it might work for you to get and she’s like, what’s the dividend? ended like, wow. And then no. But then suddenly I realised like, hey, and that’s the key because prior to that book, a book came out by the name of The Wealthy Barber, I’m not sure if you’ve heard that I’m going way back in time. But he made it very simple. And when my mom asked, What’s a dividend that kind of clicked in my mind, it’s like, okay, I want to, I want to really simplify this. So I went back and rewrote a lot of it and made it much simpler and stuff. And I think I think that was the key because it reads very easily. I don’t think there’s a lot of jargon or that kind of thing.

Erwin  

And we’re jumping all over the place. But you mentioned dividend, what’s a dividend? Why is it important that you invest in companies that pay dividends?

Derek  

Yeah, no, that’s a fair question. With investing in the stock market a lot. There’s, there’s all these little phrases, people say like buy low, sell high, and that kind of thing. And the whole premise was basically, I mean, the analogy I give, I think, in the book is, you know, you have you have some money saved up, let’s call it the seeds. And the typical investor, the way they think, is they want to plant the seeds, and they want to grow a tree. But as soon as the tree grows, they want to chop it down and sell it off for firewood, make a quick gain and get out. Whereas dividend Based Investing, yeah, you’re still planting the seeds, you’re growing a tree, but you’re not cutting it down, what you’re doing is you’re coming along, and you’re harvesting the fruit, because then you can come next year and harvest the fruit again, and again and again. So a dividend is basically when you have a company, the ultimate goal of a company is to make a profit. And if they do make a profit, the management has to determine what they’re going to do with that profit. Now, some companies will take that and reinvest it to grow. And that’s, that’s reasonable. Some companies will take a portion to grow and return a portion to shareholders in the form of dividends. In other words, they mail you a check, they send you a check, and that’s it. 

Erwin  

You basically built a career. Is that is that the right term? You built the career collecting dividends?

Derek  

Yeah, like I mean, I started investing. As I said, that first foray, I’ll go back here, because you’re jumping around, I’ll jump around, too. So so after investing in RadioShack, I think I bought a junior mining stock where I lost 90% of my money or something. And then I said, Okay, I’m never investing in stocks, again, stocks are simply absolutely too risky. So again, this is the early 90s. So ETFs weren’t really common, or I didn’t even know they existed, but it was they probably existed, but they were in their infancy. So I looked at a mutual fund, there was this mutual fund that a that I was interested in, called the Templeton Growth Fund. And it started in 1954, their advertising material, they had this big chart, they said, had you invested $10,000, you know, in this fund in 1954, it would now be worth and this is going back to the early 90s, something like $2 million, or two and a half million, whatever it was at the time. So I thought, well, that that makes sense. I don’t know about investing, but I’m going to invest in these mutual funds. So I started buying that I bought mutual funds for a few years. And then I was still interested stocks, I read a few a number of books about stocks, I guess. But one thing book by Peter Lynch really grabbed my attention. And most of it was too hard for me to follow, because he talks about finding the next hot stock and the next, you know, up and coming thing, but I’m dealing with a small intellectual horsepower engine type thing, I don’t have the ability to determine what the future is going to hold. But one line in that book really drove it home for me. And he said you could do a heck of a lot worse than simply investing in the stocks and the Moody’s Handbook of high dividend achievers. And so again, this back in the 90s, but there was actually a book that they published every year called The Moody’s Handbook of high demand Cheevers. And I went to my, well, my local library didn’t have it, I had to go to the downtown library. But I was flipping through the book. And it was a list of companies that have managed to increase their dividends for 10 consecutive years. So you know, they started at this amount, and every year, you got a pay raise. And the light bulb just went off. I said, this is what I want to do, you know, I started buying these companies. And, you know, if I bought 100 shares of ABC Company and paid $1 a share, I’d make $100 a year, and then it raised its dividend to $1.10. You know, I’d make $110 and 120 130. And it just kept going up. So that’s basically what I did. I started investing in that.

Erwin  

And do you still hold a lot of these things? 

Derek  

Yeah, I did for a long time.

Erwin  

We’re recording we’re joking around, because in your book, you detail a lot of the interviews in newspapers and podcasts and just speaking to you and reading your books. Yeah. You mentioned a lot about just buying and holding forever.

Derek  

Yes, yes. Yes, you sold. That’s fair. Let’s let’s back up the truck a bit here, though. So when you’re looking for these companies, you’re looking for something that’s simple enough for a six year old, illustrate with a crayon, you want to keep it very, very simple. So the example I think I gave my book, I think I dedicate a whole chapter to it would have been Colgate Colgate toothpaste. I mean, you know, we all brush our teeth, we hope every day, right? It doesn’t take a brain surgeon to figure out what Colgate does. And brush your teeth. It prevents you from getting cavities that might freshen your breath, whatever. And the interesting thing for me and I’m guessing are boring guys, you know, if I if I go to my local supermarket or Walmart or whatever, and I look at the toothpaste style, you know, there’s two major dominant brands and it’s Colgate and crest. And when I was a kid, it was Colgate and crest my dad was a kid it was Colgate and crest it’s been around for over 100 years. Right? And it’s simple. It doesn’t change. It’s just you you wake up in the morning, you brush your teeth, whatever, you know, if the economy goes bad if something else happens, people keep brushing their teeth, and that’s a very reliable, you know, dividend paying company. So for many years yeah, all I did was was buy these companies when there was a some sort of short term issue and it could be anything I mean, I’m thinking back to the if I’m going way back in time here but back in the late 80s. Coca Cola developed new coke because they were losing market share to Pepsi and that was that was an absolute fiasco and you know, Coke shares went down but it was a good opportunity to buy Shares cheaply, you know, whatever. So I bought these kinds of very, very idiot proof, simple stocks, and I, you know, bought them over time and my dividend income kept going up. And then at a certain point in time, I was able to retire at the age of 34. So I did that. But yeah, right now, so I’ve sold that I had a lot of those stocks well over a decade, I don’t know years and years and years and just sit there and collected evidence do nothing else. Very, very, it’s very simple to do. But in the last couple of years, COVID has sort of walked out the system a little bit, too. But stock valuations are incredibly high. In my opinion, there’s a lot of speculation in the market. So yeah, so I’ve taken profits on a lot of them. Now, part of this was the Canadian political system, too, because like we had balanced budgets, five, six years ago, and then the Liberal government has increased the deficit. And then during COVID went up, huge amount. I mean, I think the total national debt has doubled in the last few years. So the economy has been mismanaged, or that public finances have been mismanaged, whatever my feeling, rightly or wrongly, was that at some point in time, and I still feel this way that taxes would have to go up. And now we’re getting into complicated taxation issues. But basically, capital gains are taxed at a 50% inclusion rate, they call it in other words, half of your gains are taxed. But back in the day back in the 90s, there was taxed at 75%, my feeling is at some point in time, the taxes will have to come up. And that’s a nice juicy target for the governments because you’re taxing the rich, you know, making everybody pay their fair share. So I thought I’d beat them to the punch and sell take profits now at a lower tax rate when I feel it’s going to go up in the future. That’s one point. And number two, stock market values were kind of at nosebleed levels. I mean, it was, you know, looking at a variety of metrics, whether it’s a cape Shiller metric, or whether it’s the total market capitalization of GDP, whatever valuations are very, very high. So will it be a crash or not? Who knows? But if you hold them for the next decade, your total returns are going to be relatively low? Because you’re starting at a very high valuation level. So yes, so I took some profits to answer your question. Yes.

Erwin  

And then you’ve been pretty public about it that you’re you’re very heavily cash these days. 

Derek  

Yeah, I have a lot of cash. I guess I was a little bit early on that. So here we are, what we’re June of 2022. I started selling a lot of shares back in February of 2021. So a little over a year ago. I bought some stocks too, by the way, but yes, I rotate your rotated some to more defensive stocks. Yes. Triggering the capital gains paying my taxes. Hopefully. Well, I don’t know if I hope so. But lower rate if I think taxes are gonna go up, but yeah, I have carried a fair amount of cash. And I mean, it’s certainly well this year because the markets have been a little bit rocky, you know, since since January, I guess of this year. You know, they I don’t I don’t follow it that closely. But I think the NASDAQ’s down whatever, 20 25%, nearly 30% something and the s&p is down. 20%. And, you know, so

Erwin  

That’s something on Twitter that basically the retail investors money is out of the market now that.

Derek  

Okay, I don’t I don’t know about that. I show it to you later. I shouldn’t trust you. But anyways, yeah. So the markets have been down. So having a lot of cash is good. I mean, my my portfolio if it was an index, it’s off about 5%. From the highs. So it served me well. But yeah, valuations seem high. And there also seems to be this. And

Erwin  

I tell this to people all the time, like you call yourself the investor, you’re way brighter. And I always tell people do not discount Eric Foster. Fresh off the fact that you’re only down 10% When the overall market is down. So not not TSX? Because you’re more you have much more international exposure. Yeah. But the point I’m trying to get to is s&p is off at least 15% right now.

Derek  

Yeah, I think it’s in that Yeah, cuz it’s come up a little I don’t know the exact amounts or whatever. But I’m not completely in cash. No, you’re down

Erwin  

5% in view, including your cash. Yeah, that’s the whole portfolios. Yeah. So obviously, you are significantly better than market share.

Derek  

That’s not a big deal. Yeah, buffers it somewhat whatever. And, you know, the holdings are more defensive in nature and stuff. But we’ll see. I mean, I could be dead wrong. Who knows? Right. But valuations seems stretched. And yeah, that’s what

Erwin  

I know. You say you could be dead wrong. When you said you mentioned decently a while back who you’re saying how to you it wasn’t the potential for the upside. And the amount of upside was not worth the amount of downside risk that you felt was coming? Yeah. Back in December?

Derek  

I don’t remember that specific quote. But yeah. You know, yeah, I mean, it’s just right now valuations are high. So how do you get the additional growth? You know, what I mean? How do you, you could buy a company and its future is very bright, and it ends up, you know, incorporated in that price, the projecting that earnings grow 40% a year over the next decade, which would be phenomenal, and you buy the shares, and earnings only grow at 25% a year. And let me be clear, 25% of your earnings growth is absolutely off the charts phenomenal because it fell short of expectations, you as an investor could actually lose money on that investment, even though the underlying company has done quite well. And so the market seen price for perfection. And the other thing I was gonna say is interwoven in that there’s this element of craziness. I feel what I mean is, I mean, Tesla, earlier this year had a market cap over 1 trillion with a T dollars. That doesn’t make sense in my mind. I mean, Tesla’s are cool and all that but I don’t know if it’s where worth a trillion dollars? Maybe I’m wrong. That coin I think it’s a little bit crazy. I could be wrong. Nf T’s are absolutely off the wall crazy. You know, you look at companies

Erwin  

That can’t sell your body and you show you how cool they are. Finding one for 60 grand.

Derek  

Oh, there we go. Good deal. No, I was gonna say like Gamestop is a company and dying company and that, you know, GameStop and AMC. And what else? I mean, hertz I think was already bankrupt and the price spiked up. Anyways, the point is, there’s also and that’s facts, like the special purpose acquisition company. I mean, all of these things out in the market is just frothy. It’s an element of craziness and stuff. And it just, I’d rather be defensive right now. I’d rather turtle I guess.

Erwin  

 It’s kind of like a sign of the End of Times. 

Derek  

Well, I don’t know, end of times, but it’s it’s, it’s definitely I mean, Buffett Buffett says it well, and everybody requotes it but you know, it’s be fearful when others are greedy, greedy when others are fearful. And, you know, when I look at the markets, I think there’s more greed and fear right now, I still do. You know, valuations are high. So so, you know, I could be wrong. I’m not a market prognosticator or anything, but I’m quite content to have a healthy dose of cash and then a lot of defensive holdings.

Erwin  

As an exercise to see how much fear there is in the market. I go check like the CVC or CTV see if there’s any talk in the first page or two of the stock market? Sure. Still nothing? Yeah, no, I don’t know. I don’t think so. Like more great way more great in the real estate market.

Derek  

Yeah, I mean, the thing is to Irwin, like I’ve lived through the 2008 2009 financial crisis that was that was quite drastic. And then in the 2000, stock market crash as well, but I wasn’t really in tech stocks. So that wasn’t as painful as 2008 2009. I’ve seen it before, goes through progression. But but you know, I could be wrong. I don’t know. I’m just happy to be defensive right now.

Erwin  

So defensive and tech stocks, those words go together.

Derek  

Yeah, I’m not smart enough to understand tech stocks. I’ve been looking though, because some of that some stocks are really quite beaten up. And don’t you look and I mean.

Erwin  

Okay, just for the listeners benefit. Again, don’t listen to Derek is being modest. I because when we talked, we’ve talked about tech stocks, often when we’re not recording, and we keep breaking this even conversation today, we keep bringing it up. Do they have a moat? Do they vote? Yeah. Like, I’ll take an example like a company. Everybody knows zoom. Yeah. All right. Does zoom do anything actually unique? Like, for example, Microsoft Teams, I have all these friends who use Microsoft Teams like sounds very similar. Okay. Like, I can use FaceTime on my phone. Yeah. Google has its own built in video chat feature. Yeah. On the desktop. A seasonal all these technology companies don’t have modes. Yeah. So you’re dealing there’s no, there’s no way for them to defend their business. 

Derek  

Yeah, yeah. So I’m the wrong guy to talk to and probably, you know, probably go on the street at people that have 100 know more than me about about tech stocks. To be fair, you know, I don’t I don’t even own a cell phone. Right. So I’m pretty 1980s. As far as that you have that level of freedom. It’s kind of doesn’t matter. Yeah. So so yeah. So I don’t know about that. I mean, I guess some of them have first mover advantage, like, if you’re the first one to do zoom, or whatever, you know, then we’re in RvB. You know, it’s your first mover here. Sure. But then again, I’m going to date myself, but there was a company called Netscape that had first mover advantage. And Microsoft ate their lunch. So I don’t know, you know, I just don’t know. So I’ve been, I’ve been looking at the tech space, because there’s a lot of interesting stocks, and some of them like Netflix. I don’t think Netflix has a moat. I think Netflix is an online blockbuster. And I know that’s a crummy thing to say, but they don’t own a lot of their content. Right. And with so many other streaming companies coming online with their own content, they’re not gonna licence it to Netflix anymore, and the offerings and Netflix that seems to have shrunk over the last few years like what you were able to get, you know, has reduced.

Erwin  

There’s not as many blockbuster movies on Netflix.

Derek  

I don’t think so. But it was their stock is down. What is it? 80% 70% I don’t know exactly. It’s done a lot. But I don’t think there’s a moat there. So I’m not interested in buying it pals down a lot. That’s an interesting one. But again, I’m not sure that there’s a month Shopify Shopify is down 80% Do they have a moat and they’re really cool company in their auto base too. But maybe they have a moat I just don’t know. I wish I was smarter. I don’t know I can’t you know, so I’ll err on the side of caution with most of those Amazon looks intriguing. And I think they have a moat because of fulfilment to replicate that model would be very, very hard. I’m sure there’s ones that are there. I’m just not smart enough. I don’t know but it’s beginning to get interesting in the tech space. But yeah.

Erwin  

As a real estate show and speaking to real estate investors, I find generally they’re extremely defensive investors. Okay, for some reason I find there’s a whole bunch of people who go into stocks and this whole vert like a whole other category investing that’s not real estate and this ticket enormous amounts of risk and I saw myself too I have a bit of weeds dog I have some Chinese stocks I have some tech stocks is so so far from my real estate philosophy and investing okay all right, jump to the casino. It almost is it’s it’s definitely in between falls in between that say for sure. Nothing’s gotten to zero yet. Anyways, my point was that I don’t think I’ve mentioned this on the podcast is I mentioned to you at lunch and told us to couple people and we’re talking about tech stocks and zoom or Pay Pal like square. And then I asked the question, okay named three tech stocks you think have a chance of ruling the world. And those names usually are Apple, Google, Amazon, Microsoft. Yeah, I’m like, Okay, why don’t you start? They’re trying to pick one of these crazy ones. 

Derek  

Yeah, yeah. I guess people are looking for 100 bag or something. And sometimes it works. But I think the difference to Irwin is so your real estate investing is more of your core like your family eats based on your how your real estate does what you’re

Erwin  

eating. holdings.

Derek  

Yeah, so the only real estate I own is I own the house I live in, right. So I think I have to sign that treat my portfolio like an 80 year old widow, I’m going to be very defensive. I don’t want to lose what I have. Because that’s the only thing I can come up with. Does that does that make sense? Right? Yeah.

Erwin  

And then you mentioned like the movies, the movies book of growing dividend.

Derek  

That was back in the day. Now there’s a thing if you can go online, Google dividend aristocrats it’ll actually it’s a good list of companies that have increased their dividend for 25 consecutive years or more. But yeah, same same. Going back before internet days. But yeah. 

Erwin  

You currently hold any of those dividend aristocrats? That’s a really good question. Because I’m sure the point of this podcast is to learn Yeah, learn what you did. Yeah. What you got? Yeah. And now how do we repeat it today? 

Derek  

Yeah. So about a year ago, as I mentioned, so I shifted out of some of the valuations were getting really, really high. I mean, I think the example I gave at one of our talks a while ago, I just brought up Coca Cola, okay, Coca Cola back in the 90s. And late 90s, had a halo around it, because Warren Buffett was a big shareholder. And every thought, okay, Warren Buffett smart he is, you know, so Coca Cola is a great company and whatnot, but it traded at some ridiculous P E ratio of like, 50, or something, oh, or whatever, I’m just pulling from my mind, it was very, very high. And the thing is, I mean, Cokes, a great business, and it’ll continue to be a great business. And so there’s not a lot of growth there. I mean, there’s some and they’ll grow in Asia, and they’ll grow in some emerging markets and whatnot, and that I get all that, but they’re not going to grow at 20% a year, they’re gonna grow at six or 8%. You know, they’re gonna plod along, you know, a little bit of volume growth, a little bit of pricing growth, whatever, there’s no way they’re worth the price earnings ratio of 50. Sony was had you bought it in 1998, you know, at the P E ratio of 50. And you held it until now, your total like it’s gone up like, I don’t know, 20% in 20 years or something like you would have gained 1% a year. And the dividend was abysmally low at that time, because evaluation was so high. So had you bought it then and held it till today, your average return would have been something like 2.3%. Here, I’m just pulling out I don’t remember this. I don’t have the numbers in front of you. But something like that, like you would have made 2% a year you would have been better off putting it in a savings account and you know, at the time, right? So the price you paid does matter. So the dividend aristocrats in general, the prices have crept up because people want that and whatnot. So when I was selling some buy, like I sold some dividends, I sold Johnson and Johnson, I sold PepsiCo, I sold, you know, Colgate I sold Procter and Gamble, because at the time, I felt valuations were too high. And I was looking for similar type valuations. And I found some, interestingly enough in the UK market, and there was a couple of interesting things about that. Okay, so first of all, the UK market when I was buying about a year ago, the price of the general market was roughly similar to the price that had been in 1999. In other words, the market hadn’t really gone up now it had gone up, but then it come back down, and it had come back down mostly because of Brexit. And everybody’s worried about Brexit in the UK, you know, splitting off from, you know, from from the European Union. But there’s some interesting companies in the UK. Now the UK as far as global, the GDP ranking, they’re probably I don’t know, fifth or sixth biggest economy in the world. They’re not super large. And even within Europe, like Germany’s economy is much bigger than the UK. But the UK has this unique position where they ruled the world for 100 or 150 years. And so they have some interesting global companies. And so you combine world leading companies with cheap valuations. And the other kicker was because the UK has become a financial centre, there’s no dividend withholding tax. So if you buy US stocks, there’s usually a 30% dividend withholding tax, and there’s a wh then form you can fill out like if you have a brokerage account, they will automatically do it for you. So there’s still a 15% withholding tax, but UK stocks have zero withholding tax if nothing, so it’s also tax advantaged. So you get like three check marks in a row. And so it was a it was a good ground to look. And so for example, I bought some shares in Unilever. Unilever is very similar to Colgate or Procter and Gamble or whatever, you know, it’s a global in nature. It’s you know, a lot of the brands use from Unilever, if you’ve ever used a Q tip, if you ever use Vaseline if you’ve ever used x body deodorant, whatever, they have all sorts of brands, you know, Ben and Jerry’s ice cream male in that and Bryce is on bike lock. So but yeah,

Erwin  

Sorry. 

Derek  

That’s okay. Yeah, 

Erwin  

That’s a Dove soap? 

Derek  

Yeah, Dove soap, whatever, anyways, you get the idea. They haven’t, you know, they’re a global behemoth, reasonably valued, you know. So that would be there’ll be a 4% dividend, whatever that would be an example things that are more disagreeable that people like I bought a lot of shares in British American Tobacco. Why? Because it was so cheap. It was cheap because everybody knows smoking rates are going down every year. They declined two to 3% a year which is great. Great for breast health. In addition to that, a few years ago, British American Tobacco bought Reynolds America, Reynolds America on some brands, the United States, one of the big ones being Newport. Newport is the large in fact, Newport is gaining market share every year, but it’s some it’s the largest menthol cigarette in the US. And when Joe Biden won the presidency, they were talking about banning menthol cigarettes now, will that happen? I don’t know. Maybe, maybe not. But the price went down quite a bit. So you could pick those shares up at a price earnings ratio of I don’t remember eight, maybe, and a dividend yield of 8%. That’s pretty lucrative. Now you got to say, okay, are they about to go bankrupt? No, I don’t think so. They’re not going to outlaw smoking. And they’re even moving to the lower risk categories, like the non combustible tobacco products, whatever. Very interesting company. Now, the other interesting thing about that space in the US and some other markets is they’ve banned advertising, you are not allowed to advertise a product. So what does that do? Well, that does two things. First of all, it solidifies your position in the market, no one can come take your market away, because they’re prohibited from advertising as well. That’s number one. And number two, there’s no, you know, if one company advertised, the other company has to advertise to in order to keep the market share. But if the government passed a law saying none of you are allowed to advertise, well, suddenly, all that extra money falls to the bottom line. It’s an incredibly profitable business. And the interesting thing is volume declines, you know, two to 3% a year, but prices increase, you know, eight to 10% a year.

Erwin  

Sorry, their revenue volume or strong stock volume. 

Derek  

Sorry, I’m talking about actual number of products sold, sorry, the physical product, right, the number of cigarettes consumed or tobacco products consumed every year revenues are the revenues go up because they’re able to jack up their prices, you see, because prices are rise every year with them. So you got to think this through, okay, so there’s no competition. Well, there’s only there’s an oligopoly, right? There’s a few new, there’s no new entrants, no new entrants, everybody’s rational in their pricing. And think about it, too. There’s no capital costs, because if your volume is declining, you don’t have to build new factories, whatever, right? Like in a growth, like a Tesla type company, if they’re going to grow, they’re going to have to build more factories and stuff. So capital expenditure is going to suck up a lot of the money with a tobacco company, they’re not building any new factories, so all of it falls to the bottom line is very profitable. So I’m not saying go buy bridge, but I bought it, you know, I bought it as a year ago, whatever, 3940 bucks a share, and it’s plotted along, I think it’s at 4344 $45. So, you know, it’s not gonna make you rich, but it’s a nice liquid of 8% dividend, which is pretty good these days, you know, and then what is the savings account paid? 1%? Half one, I don’t know, whatever it you know.

Erwin  

Well, I’ll compare a percent to for example, I know a lot people private lend. Okay. All right. The private and I’ve said for years, I don’t think it’s the market to be private lending. Okay. Just me personally, because I’ve worried about days like today. Okay. Yeah. When the markets come down. Okay. So 8% Yeah, it doesn’t make you rich. But that’s pretty nice. Cash flow.

Derek  

As long as you can rely on it. Yeah. And it should grow over time, too. I mean, that was the interesting thing is I had shares. I’m going from memory here, but in Pepsi, right. And the projected growth of Pepsi and their earnings was between six and 8% a year they expect their earnings to grow over time, which kind of makes sense. British American Tobacco same 68% here, but Pepsi’s P E ratio was like 2829, British American Tobacco was eight. So you know, 70%, cheaper, you know, with with dividend, that’s three times as much. Now there’s an element of risk there. But good value. Anyways, you only bought it a year ago, but the stocks actually appreciated for a little bit. It’s appreciated a little bit 10% or 8%, or whatever. Yeah, I don’t care about that. The dividends pretty good.

Erwin  

And then I remember I remember when we started talking about sorry, you came in. You were a guest speaker at one of our events. Zoom was new to everybody. So I don’t remember the camera working. 

Derek  

That’s probably me. I’m an idiot. But anyway,

Erwin  

For the time was perfect. And you handed us a whole bunch of great stock tips. And I was I was writing them off to so I don’t leave people hanging. You talked about you’ve mentioned Disney. You mentioned southern core. Okay. Yeah. In Berkshire. You mentioned GE, who was crushed hard. Anyways, all 10 picks you gave give you five American five Canadian. They did phenomenally.

Derek  

Yeah, that in fairness, the market did well in that time period. So I know it takes off too. Yeah. I mean, Suncor is interesting. I mean, I sold Suncor and I bought BP in England. And also shell I bought those two just because they’re more global in nature.

Erwin  

Actually. Um, but there’s there too. They change your name, beyond petroleum.

Derek  

or whatever. But anyways, yeah, marketing thing.

Erwin  

We’re borrowing probably on petroleum. 

Derek  

It’s kind of but yeah, there was a risk in the oil sands here with I think the current government in Canada is kind of against oil in general. And so I just thought that there was a certain risk element to that. So I bought again, BP and Shell, which is kind of interesting, because there’s two British companies BP and Shell shell was a joint venture between England and the Netherlands, but now it’s based only in England. But anyhow, that’s an interesting thing, because the or the UK is only like the fifth or sixth, I don’t know, biggest economy in the world, and that they have to have the super majors. And why is that because 100 years ago, Britain was very impressed. And so that’s where they are. But they’re but they’re global in nature. They’re not necessarily British companies.

Erwin  

But you’re seeing the stock still get whacked just because of Brexit, even though there.

Derek  

Oh those stocks are whack because oil was trading negative for a day back in 2020. Right. So oil…

Erwin  

 That’s when you’re picking it up? 

Derek  

No, I didn’t pick it up that cheap. I’m not that smart. But But even still, the price was relatively cheap. So yeah, I’ve sold those now. But I mean, I bought them. These are fairly big companies. And I mean, so you’re able to buy them. And then within a year, I mean, I think shell went up about 40% and plus a dividend. And BP was last because it got hit a bit, but maybe 20 25%, whatever. So good, good returns. Everybody’s all gone home oil now. So it’s time for me to move on. As far as that goes. Yeah.

Erwin  

You just sold news to convert into cash and rotate. 

Derek  

Those ones did I know I think I’ve raised my cash position a little bit. Yeah, I think two is Disney. Sorry. I’m just gonna go You mentioned Disney. And the reason Disney I bought in the shadow of COVID. And because their theme parks were closed, they were losing money. It was all crickets right. I thought the market overreacted. I didn’t figure COVID was going to be forever. And they have really cool brands. So I bought it. And I was just lucky because Disney plus came out around that time and it just exploded. So the stock went up like 100% and the year whatever it was, but then I’m like, Okay, now there’s too much optimism built in. So I sold it. I was lucky with that, because it’s the price has come off a little bit the last few months, but

Erwin  

109 Now okay, I don’t remember what it was. But anyways, yeah. And there is something that this is something that impresses me about she was you’ve done quite well in your profit taking.

Derek  

And that’s not normal. For me. That’s recent. To be fair, no.

Erwin  

You mentioned that the news was overwhelmingly positive news on Disney. Like, how did you gauge that?

Derek  

Just everybody was oh, Disney plus is growing so fast. Like the market gets euphoric about things. And it’s time to at least take some of your chips off the table. The valuations get high. I don’t know. Like with oil.

Erwin  

Because Disney got to like 180.

Derek  

I think yeah, I think it was somewhere around there. Yeah, I don’t remember I’d have to go back. I thought I bought the 90 somewhere. I don’t think I sold as high as 180. But maybe once is I don’t remember exactly. Now. But yeah. Yeah, that was that was lucky. I don’t know. It’s just when the markets in general get euphoric. Or everybody’s all gung ho about something. It’s time to move on, or at least partially move on. Take some chips off the table, right.

Erwin  

Yeah, sure. So low lows.

Derek  

But that hasn’t started. But that hasn’t been me for years and years. I just buy bought and hold. It’s just because markets are crazy right now. It seems to me, I could be wrong. But it seems valuations are high. Everybody’s euphoric. Everybody in their dog has made money in the markets. And it’s the place to be and it’s, you know, there’s the old story. I think it was one of the Kennedy clan or something, you know, he said all like this back in the 1920s. He said, Oh, I sold all my stocks when the shoeshine boys started giving stock tips. The point is, is a trickle down, and everybody was doing it. And it was time for him to get out. And he saved. I’m not saying we’re gonna have a 1929. But I just rather be defensive right now.

Erwin  

It’s funny, because everyone talks about real estate for I don’t know how long last decade?

Derek  

Yes, yes, yes, yes. Yeah, maybe? Yeah. Maybe.

Erwin  

We mentioned you mentioned over lunch. Do you think we might be into a recession in a year or two?

Derek  

I don’t know. But I think so. I mean, usually When oil gets over, what is it? $118 a barrel or whatever the price is now? 215? At the pumps? Yeah, it’s expensive at the pumps, right? 

Erwin  

So we Fx was the cheaper here is when you know what it is here?

Derek  

I don’t know where it is where you are. I know what it is here because I bought it. I don’t really think of it. That is where you guys are. But that cuts into people’s spending. Like okay, so some people Yeah, I can, I can weather it. I grumble about it. And I guess, you know, but but I can weather it. But there’s some people that are, you know, living kind of on the edge on the margin. That’s expensive. So suddenly, what happens? Well, they have to cut back on their spending. Right? That’s huge. I think. So you know, you have the increased price of fuel and just inflation in general, I think is causing, I think it’s going to cause people to sort of retrench on their spending. You have the government fiscal like, you know what I mean? Like, there was the syrup and all these, you know, financial instead Well, those are all ending those are fading away. Right. So yeah, they’re still going. What’s that? I don’t know. Anyway, so I could be dead wrong, but I don’t think it’s going to be all gangbusters and roses. And plus, the demographic profile for Canada in the States is not that good either. We’re an ageing society and stuff. Like I mean, there’s a big worker short, like there’s a shortage of workers right now. Why I think we were talking about that over lunch. I think a lot of the baby boomers maybe have walked away or something or you know what I mean, they’re like, they’re a couple years out from retirement. They’re like, Okay, I’m done. That’s good enough. For what? I don’t know. It’s crazy. 

Erwin  

And then yeah, no one really knows. Who knows, right? Yeah. First off, we don’t know what the central banks gonna do. So if they’re gonna keep increasing rates in the next year, I’ll bet we’re into recession. 

Derek  

Well, I think they’ll they’ll keep well, that’s the other thing too, is a big thing is central banks are increasing interest rates. And I think they’ll keep doing it until they bring inflation under control. And the way to bring inflation under control is to have an economic contraction, right. So but who knows?

Erwin  

So what are you looking for in order to start deploying some cash again?

Derek  

That’s a really good question. I’m looking for really good values out there. Like I would put more into British American Tobacco, but I won’t because I have this little soft rule with myself that I don’t like to put more than 5% in any one holding, because I’ve made mistakes in the past. And if I do make a mistake, I don’t want it to be too too painful. We talked about that too. Let’s talk about some of the mistakes here. So about a year ago, I bought shares in Alibaba, that’s a Chinese tech company, kind of like the Chinese equivalent of Amazon sort of you. They’re a big, big company. And they do like everything. So So Jack Ma, the founder had a little bit of falling out with the Communist Party in China, and they sort of wrapped his knuckles, and he disappeared, you know, and well, I sort of figured, okay, that’s the Chinese government doesn’t want to kill Alibaba, because, you know, it’s sort of a crown jewel for the country. So the stock price had declined, so I bought shares. And now they’ve declined, like, 60 70%, I don’t know, 60%, from where I bought it, or whatever. So that’s huge. That’s a huge loss, right. But the thing is, I think, originally, I put 3% of my portfolio, and I don’t remember exactly, let’s call it 3%. So it’s down 60%. It’s affected my portfolio 1.8%, or whatever, you know, you know what I mean? So it’s not catastrophic. So by limiting the room, I think my plan was to buy more, but now I’m too scared, rightly or wrongly. So those mistakes will happen. But if you minimise how much you put into any one thing, you know, you can limit the downside. So you want to diversify. But so with British American Tobacco, I would buy more, because it is still very cheap. But I don’t want to I’m bumping up. In fact, I’m slightly over 5%, because the price has gone up. So I don’t want to buy any more of that just in case tobacco is outlawed. Like who knows? Right? So you don’t wanna put all your eggs in one basket? Or at least I don’t. So if that makes sense.

Erwin  

I think it’s brilliant. I found a lot of speaking to a lot of newer investors that they would have over 10% in a single stock.

Derek  

Yeah, I mean, it depends on what else they have. Like, if if they’re 90% Real Estate and 10% of stocks. Maybe that’s not a problem. That’s just that’s the way I do things for me. Yeah. 

Erwin  

And it’s worked out pretty well, hasn’t it? It’s worked out. Okay. Yes. Any idea when you think the market will be a time for you to get back in?

Derek  

Who knows? I have no idea. I just haven’t seen power on the table buys right now. I’m looking, some things are interesting. It could be individual stocks, it could be the market. I mean, I am I am buying things to six, six months ago or around that timeframe. There was an interesting thing, at&t, everybody has a TN T It’s like the Telus of the United States, right? There’s only they have a similar market to actually there’s three main players in the US. There’s three main players in Canada, right. Like there’s in Canada, there’s BCE, TELUS, and Rogers, right. I mean, there’s also shot as a fourth player, but they’re being taken out in the US. There’s 18, T, Verizon, and T Mobile, I think, or something. Anyway, so there’s three. Right? So that’s called an oligopoly. Usually when there’s a small number of players, they don’t do kamikaze pricing. Okay, they want everybody to sort of make some money. But ATMs are banks. Yeah. Banks. Very talented at making money. Yeah, absolutely. Right. So I don’t think anybody’s gonna go off the rails and the pricing, maybe I’m wrong. But AT and T they were they had this plan, like maybe a decade ago, they were gonna buy all these media companies and whatnot and consolidate. You know, if you subscribe to the at&t holding, then maybe they give you HBO for free or whatever. Anyways, it didn’t work. They squandered a lot of money on their acquisitions. And they, you know, so a new CEO is taken over, and they’ve spun off Direct TV, which is a dying business and they’ve spun off Warner Brothers discovery like they merged it with Discovery spun it off. So anyway, so six months ago, the price was so beaten up everybody’s so pessimistic that I bought some shares.

Erwin  

And then you wait for extreme pessimism to get in

Derek  

 I like extreme pessimism. This the price is that prices that afford. But yeah.

Erwin  

I have some property for your north in Hamilton. The smokestack? 

Derek  

Yeah, maybe? Who knows. But yeah, so So anyways, yeah. So so so they did that. And then, you know, a month or two ago, they spun off Warner Brothers discovery. So So now, you know, for any at&t shareholders, they also the Warner Brothers discovery shares. So I sold off the Warner Brothers discovery shares, which lowered my cost of 18 T. And I’m content to hold like it. So my point is very long winded Lee, is there will be opportunities from time to time, and you have to just look for them. Right? Like so. So could be stock specific, or it could be market specific. And I have no idea. I’m like an 80 year old widow. I’m very scared of losing what I have. So I want to be very conservative. I guess.

Erwin  

Again, I something I think that was missing from a lot of investors I’ve spoken to is that they’re they are just way too aggressive with their with what they’re investing in.

Derek  

Yeah, yeah, I guess I’ve made mistakes enough to know how painful it is like once you touch a stove element, once you tend not to do it again, same kind of thing.

Erwin  

Oh, you detailed in the book quite a bit on specifically start working about paying yourself?

Derek  

Yes, that’s to accumulate the money. That’s a different phase of my life. Right? But yes.

Erwin  

And what I’m trying to get to is for someone who’s like new to investing new to stocks, whatever, in any guidelines on how much to pay yourself,

Derek  

The more you pay yourself, the faster you get there, right? 

Erwin  

We’re talking about over lunch. And my argument was, I don’t think a lot of people get with their money. I think that’s an our listeners are excluded from most of the conversation. Statistically, anything close to two thirds of Canadians who do not have a pension will never retire. Doubt that’s our listener or 17 listeners. So paying yourself is basically you know, build a savings account. And then once you have an emergency savings, then start investing, right? Sure. Any guidelines on how much to pay yourself?

Derek  

Yeah, the financial community always says Pay yourself like 10%, or whatever. And I guess that’s a good starting point. Think, first of all, pay yourself something. I mean, I don’t know, I want to feel like I’m making progress or whatever. So So you know, again, this is for early stages starting out. But in order to be able to buy stocks or buy investments of any sort, you have to have some money, some capital, right? In order to accumulate that capital, you have to set some aside. But the faster or the greater amount that you set aside, the faster you’ll get to wherever it is, you want to go, right. I guess I’m fortunate, like, I’m not attracted to trinkets or, you know, landfill crap, basically, you know what I mean? Like, it doesn’t, it doesn’t thrill me, like, you know, it doesn’t excite me in the least. And I think that’s what a lot of people like, that’s not the way I want, I think people should invest. But if you look at the lotto 649 commercials, they don’t picture a guy, you know, getting into a Lamborghini and driving up to a mansion and stuff. No, they always say imagine the freedom and they just have a guideline on a hammock at the beach. And I think that’s what people want, I think that’s what they’re migrating towards, is just, you know, the freedom not to be inconvenienced by an alarm clock or a boss or a commute or, or whatever it is, you know, whatever it is they you know, so the faster you want to get there, the more you save, it’s as simple as that, with investing or let me broaden that with financial freedom. I think at the early stage, the more important factor is being frugal spending your money wisely saving a high percentage of your income, once you reach that stage, then not losing what you’ve saved or invested. And also doing it well getting a reasonable return, it becomes more important factor. Does that make sense?

Erwin  

I actually a friend of the show Anderson, he actually drives Uber. Okay. And like skip the dishes. Sure, sure. And then all that income from that. That’s a side hustle. Yeah, all that income goes into his savings.

Derek  

Okay, so he’s made a plan for himself, right? Again, because I’m wired this way. And maybe it’s a Scottish ancestry. I don’t spend money easily. I never had to make a budget because I just you know what, I mean, I just automatically save I don’t know, I just not really like I don’t drink coffee. I don’t smoke. I have an occasional beer, but like, I don’t really have any expensive hobbies, whatever. Obviously, don’t spend a lot on wardrobe as you can see, so there’s nothing really that sucking about, you know what the kids maybe I don’t know, but you know what I mean? So it’s like, okay, the feed Yeah, there we go. Right. But no, but I don’t know if I want something I get and I just don’t want a lot. Does that make sense?

Erwin  

 It also makes sense like to share to the first people I met who are financially free who I consider financially free in real estate one she lived she on two triplexes. No car, no kids had a dog. Okay. And she lived in one of the triplex one of the units. Okay. And she had no job. That was enough. That was enough to meet her needs. Yep. Right. And then another friend, he drove like a beat up Mr. Mazda on six student rentals in St. Catharines, Brock University students, and he resigned from his really nice government job. Right. But my point is that they’re both frugal. Yeah, yeah, they didn’t have much flashy. 

Derek  

Alright, frugal roads, greets people the wrong way. It rubs people the wrong way. It isn’t self denial. It’s just spending wisely. You know, it’s sort of like I think in my book, I talk about life enhancing a non life enhancing expenses. So, you know, if you like coffee, and you like going to Starbucks every day, let’s say, by the way, I won’t share. So go ahead. But yeah, go treat yourself. Absolutely. 100%. Right. But if you’re doing that, maybe you can’t do something else that you know, but for example, minimising your taxes would be you know, if you pay more taxes, it’s not like you’re gonna get more services. So, you know, that would be a non life enhancing expense. You want to be very vigilant about reducing that that kind of thing.

Erwin  

I sold puts on Starbucks after you said you bought it. 

Derek  

Oh, there we go. That’s my guy.

Erwin  

Actually, wish I had more. Yeah, like you said, makes me sound terrible. I don’t have a budget either. I focus more on making money. Okay, fair enough. Yeah. Yeah, I couldn’t possibly consume as much as my portfolio makes. Yeah. And even still, I’m just frugal person. I don’t like spending money into like, lavish things. Just immigrant upgrading. Yeah, there we go. Right. Yeah. Yeah. Cool. So while we covered a lot, any other tips that we can pass on to the listener?

Derek  

Keep it simple? Like, I mean, I know a lot of people you don’t get rewarded with more money if you come up with a complex idea, you know? So again, I find the best though. Well, yeah, people that invest the money and that is exciting, right? It’s exciting. But you know, I mean, I’m not saying golden bytes Colgate today, but that you wrap your head around that you can understand that you know what I mean? Coke, you can understand it people get thirsty every day, you know, and, you know, there’s Coke or Pepsi or whatever, and there’s only a couple other players and you know, a new new drinks company. I think Blackwall came out like that’s what is it? National beverage I think is a company that makes it look while the flavoured water drink anyways, that came out today. These companies have moats that well, that’s that’s my that’s my point. They came out with it. They attacked a part of the market that was under service right? And it took a couple of years but Coke and Pepsi reacted. And so Pepsi bought brought out bubbly or bubbly or whatever you want to call it and cold More recently brought out, aha. Now the interesting thing is, you know, five years from now or 10 years from now who’s going to be the market leader in that category? And I’d put my money on either the Coke or Pepsi brand, because they already have the infrastructure, right? Anytime, if you go work out at a rec centre, and you go and grab a drink afterwards, there’s a vending machine there. Well, it’s, it’s controlled by Coke or Pepsi, so you’re gonna get their rent, you’re not gonna get the other brand. And as far as shelf space and placement in the stores and stuff, where, you know, if Pepsi comes along and says, Hey, we want that space store is gonna cater more to them than this new upstart because, you know, you know what I mean? So I think they kind of have a brand now, one thing,

Erwin  

What in business sense is required to be to be a stock investor?

Derek  

I don’t know. I mean, you’re a shopper. You go around the store, look at what’s what people are buying. Yeah, one area where Coke and Pepsi was really flat footed, in were energy drinks. And because they don’t, I don’t think they taste like I don’t drink energy drinks, either. But you know, Red Bull came out whatever. And then horrible. They taste terrible, right? But Red Bull came out and then monster came out. And then what’s the other one Rockstar, whatever, right? And then there’s other ones now too. And so they were flat footed, they missed it entirely, you know, and the markets dominated. So what happened? Well, Coke has a distribution agreement with Monster so they get some of the money. And I think they bought 17 or 20% a month, just they own part of it, too. They might take it out totally someday, who knows? And Pepsi bought it rock star. So they have the Marketing Muscle now behind that, right? So they never really totally lose out. So my point is, I guess keep it simple. You know, don’t get into the complicated. I mean, by all means invest in some emerging technology, if you understand it, I don’t. So I play in a really small sandbox, and that’s fine. That works. Okay. That’s the tip I would give.

Erwin  

Right! Because we were talking about Ark, for example. Yeah. And how often a lot of them will disappear. Time on arches typically. Yeah, 10 other companies.

Derek  

I pulled a random number. Yeah, who knows, right? That’s not my style. That’s the thing about investing too. And maybe that talks or points to the point that you brought up, whereas some of the real estate investors seem to be like, pretty, you know, Intrepid, and just, hey, I’m gonna buy this, buy that and see what happens. Like, I’ll take a risk on this and take a flyer on that, whatever. But I think there’s different kinds of investors, some people are what’s called growth investors. So they’re looking for, you know, which company is going to grow, and I’ll pay, I’m not all that sensitive about the price I pay, because it’ll grow anyhow. And that can be very lucrative, like, I mean, people that bought Amazon, you know, 20 years ago, I’ve done phenomenally well, or Google or whatever, I’m not really that kind of investor, because I’ll end up buying something like a Nortel or dizzy or Alibaba or something like that. And then there’s the other time where there’s a deep value investor, you know, so they’re looking for some beaten up company as trading really cheap. I mean, for years and years, for example, Hudson Bay, which sounds crazy, but who shops at Hudson Bay, nobody does anymore. But because they had been in business for hundreds of years, they owned all this real estate. And so, you know, people would look at it and say, Oh, the value of the real estate is, you know, $10 a share, but the stocks are only trading at $7 a share. So this is a great deal, you know, and so that’s deep value, I don’t do that either. Because oftentimes, they they kind of go into business and they’re bankrupt. It’s right in the middle, like a growth at a reasonable price with a little bit of a value bent, you know, so, you know, you’re looking for companies that are growing, maybe not quickly, but they’re growing the tortoise type stocks, they’re mature companies, they’re paying dividends, and you’re looking for some sort of short term pessimism that allows you to buy them more cheaply. I mean, that’s, that’s basically what it is.

Erwin  

What sources are using to research these companies? Because for example, are you just googling?

Derek  

Yeah, that’s a good point. Sometimes they just notice things or come across things or hear things in the business media or whatever, like, you know, I look at the Globe and Mail National Post, and just sometimes things you know, sometimes things just just tweak my interest Value Line is a thing I use quite a bit value line assesses the companies and gives a basic snapshot and it gives a history of how their earnings have done and their dividends have done. I you know, that’s if I’m intentionally looking, yeah, but But you just hear things you hear, you know, like, I wish I could think about business headline off the top of my head a couple of years ago, oh, Chipotle had some salmonella in some of their restaurants, the stock price was beaten down, that would be an example. Remember that? You know, that would be an example. And so it’s like, oh, okay, that’s interesting. How much is the stock beaten up? Okay, is this a permanent issue or a temporary issue? So you’re looking for temporary issues, you’re looking for a short term problem that’s temporary in nature. So you know, okay, they had whatever it was a salmonella outbreak, is that always going to happen? Or they’re going to take steps to address that, you know, what I mean? And these sort of temporary things happen from time to time with various companies, and it’s a good opportunity to buy remember back in 2000. Again, I date myself, but I was looking at McDonald’s, okay. And McDonald’s was so beaten up the dialogue at the time was, oh, McDonald’s is, you know, their kid focused and demographics don’t support it anywhere. And they brought out the arch Deluxe, like a special hamburger targeted to adults, and they’re gonna lose their market share and stuff. And I remember looking, I’m like, nah, this is McDonald’s. I mean, they got it, you know, and did some research and stuff and again, McDonald’s is one of the biggest real estate owners like they own a tonne. There’s a real estate the United States It was so cheap. So I bought some shares. But long story short, I sold a couple years later, like a 10% profit now it’s up 10 fold or whatever, you know what I mean. So you’re looking for that pessimism, whatever that pessimism is you don’t know. And it’s temporary in nature. Does that? Does that make sense? 

Erwin  

Like the smokestacks in hamilton are temporary. 

Derek  

So so it’s not it’s not something like going oh, Kodak is not developing as much film because some people are using digital film. So now it’s time to buy Well no, because codecs basically, you know that business is gone, right. So that’s not temporary, that’s a permanent shift. Right. But if it’s a temporary problem, and that’s what you’re looking for some sort of, you know, as I say, like the chipotle having a outbreak and the restaurants or, you know, cold bringing out new coke or, or whatever the case is.

Erwin  

We mentioned Brexit earlier. I don’t know that much about it. 

Derek  

I don’t know that much about it either. But the UK basically was part of the European Union. They voted to separate and so they’re separating, right.

Erwin  

Does it really affect any business? Does it affect Shell’s ability to…

Derek  

It affects a lot of UK based businesses for sure. Right. 100% Does it affect Unilever? Maybe, maybe there’s I don’t know, I haven’t done that deal yet. Maybe there’s some extra tariffs that you know, Germany implements because of it. I don’t know. But I don’t think so. I don’t think it’s going to be catastrophic, if that makes sense. You know, it just didn’t what Unilever by the way, just throwing it out there is like I had Procter and Gamble. I switched over to Unilever. They have a lot of they compete in a lot of categories, right? Like, like, you know, Unilever will have their deodorant and Procter and Gamble as they’re doing that, whatever. But Unilever is more tilted towards emerging markets. So they’re more their growth is gonna come from, you know, some peasant in India buying their first bar of deodorant or their first Dove soap or whatever, like they they’re climbing the socio economic ladder and moving and so that’s Unilever’s growth path Colgate and Procter and Gamble, their growth, like Colgate is more exposed to emerging markets, let’s say Procter and Gamble, their growth in earnings is going to come from premiumization. So what they’re going to do is they’re going to say like you buy Crest toothpaste at $1 or two. But look at this. This gives you whiter teeth and a brighter smile. But it’s $3 a tube and can we convince you to move from the dollar tube to $3 or two? You know, that’s how they’re gonna grow. Does that make sense?

Erwin  

Fascinating. And Derek, I think, you know, we recently announced you as one of our wealth hacker conference speakers. Okay. He excited? Yeah, November? Well, of course, of course. You’re not nervous about public speaking, right. Last time, we had 1500 people this time, we’re hoping for 2000.

Derek  

I hope we get 2500. Let’s, let’s see what happens. 

Erwin  

It’s kind of crazy. Because have you done a big talk since because I know you’ve done other big talks. To me, it’s just a little bit wild. You know, we’ve been two years of social distancing. And

Derek  

for years and years, I was going to Toronto Metro Convention Centre world money show. And there was some other ones that I’ve done on everything just sort of shut down. And we were all talking online and stuff for a couple of years. So it’d be nice to be back and chatting with you. I mean, it’s just it’s a different dynamic. Right? 

Erwin  

And I mean, how was the online experience for you? 

Derek  

It was okay

Erwin  

Because it’s probably a couple 100 people for sure. 

Derek  

I don’t know, how do I know how I mean, you can’t sit without a computer. So but the thing is, like, in person you talk, you know, and then somebody’s listening in the audience. And they said, I want more information on that. And you know, you go have a break after that. There’s always breaks in between the talks, and people seek you out and they come and say, Hey, you mentioned this, how about this? And, you know, it’s more interactive? It’s, do you follow up saying, like, you can go back and forth, it’s more communicative? Like I can be going on a tangent because they hang on, hang on to that and then we switch directions online. It’s just not the same. I don’t know. Yeah, that’s my take. 

Erwin  

Yeah, no, I found online these days. Especially if it’s local. It’s gonna be local. It’s gonna be for most people is gonna be local. Toronto Congress Centre. Okay, the airport. So lots of free parking. 

Derek  

Awesome. That’s important. Yeah. 

Erwin  

You know what your talk is gonna be there yet? Well, it’s gonna be about investing in stocks. I’m sure. Right? Because it works for you. 

Derek  

Yeah, it worked. 

Erwin  

Oh, and then someone smarter than me just said the other day is funny. You laugh. I was talking to a cryptocurrency person. I was saying about my comfort level of cryptocurrency. Because, for example, if you’re in the crypto, you’re in the Bitcoin community, for example, if you’re wealthy, they have a rule of thumb, that you should have one bitcoin per family member. Right? That’s about $30,000 us each, right. So that’s one rule of thumb again, if you’re wealthy so if you have a big family, then you’re screwed. And I said, that number sounds so big to me. Versus if there’s a million dollar duplex triplex can’t write the check today. Yeah, and he said, That’s so funny. You say that I feel completely the opposite. Yeah. Stick a million bucks into bitcoin done by piece of investment, real estate. Does that work? Am I gonna lose my money?

Derek  

Yeah, people have to be…

Erwin  

And really sorry. My point is that you’re extremely comfortable in this area. You don’t always talk. But you’ve made a lot of money.

Derek  

Yeah, it’s done. Okay. Yeah. Yeah, it’s interesting, actually, because my dad had a business and for a period of time, he made a fair bit of money, and he bought real estate back in the late 80s and early 90s. Interest rates climb ended up in the NDP government in Ontario and there was rent controls and tenants wouldn’t pay him. But anyways, he basically lost everything. So I think I’m gun shy with real estate, but there’s not a logical reason. It’s more emotional, really, because so many people have made money with real estate if you know what you’re doing, and you do it correctly, but I guess back at that time, when I’m looking for my success formula, I just veered off into stocks. And I guess it’s hard to change something that’s working. So I just continue along with that, if that makes sense.

Erwin  

You know, you asked me at lunch. Why am I so interested in stocks? It’s just I enjoy making money. And again, I’m looking for yield. Yeah, you know, at lunch, we’re talking about like TV and tell us Sure, whatever. Yeah, yeah. Nice fat dividends and no tenants to talk back

Derek  

Yeah, I mean, I’m a little bit to that my my first book, actually, but if the dividends are recurring and stuff, you you don’t really do anything, the money just appears in your account. So it’s kind of nice, like, sorry, it’s lazy way to do it, I guess. But you don’t have to do anything. You just wake up and Okay, good. Somebody was deposit my account today.

Erwin  

I will write covered calls this because I, I’m on a type. So I need to you need to do so.

Derek  

There we go. Yeah. Yeah, I don’t I don’t really do much of that. either. I just collect dividends. And sorry, it’s very boring. I know. But it’s falling.

Erwin  

Boring. But you haven’t worked in? How many years? I guess it’ll be 18 years this year? Yeah. Yeah. Imagine that listener 18 years map having a job in the last 18 years? Yeah, so it’s been okay. And anyone can do this? I mean, we can repeat your steps. 

Derek  

Yeah. I mean, I absolutely 100%. I mean, again, it formula is pretty easy. You spend less than you earn and save the difference and start buying stocks and look for quality dividend paying stocks, I mean, this nine criteria in the book, but like you’re looking for recession, proof companies, right, companies are not gonna go to business like, again, the Colgate toothpaste, you look for something that is not gonna be changed by technology, something has a long operating history, something that’s has a history of growing their dividends, and you start there. I mean, and again, too, sometimes people are looking all or nothing, but think about it, think you’re starting out, right? So you’re just starting out, you know, you start saving a little bit of money to buy stocks, okay? It’s not like, Okay, tomorrow, I’m going to be able to retire. But think about it. Like, let’s say you buy some oil shares, and they pay you a dividend. And let’s say they pay you enough dividends to pay your gas. Okay, for the rest of my life, I never have to pay for my gas, this the company shares when I go, you know, to fill my car up at, let’s say, Petro Canada and they own some quarter shares. Well, the dividends have paid for my gas, so I never have to pay for gas again. So that’s one expense. That’s totally done. And then you buy some more shares, let’s say in Banbridge, or something, and that’s your natural gas. And it’s like, okay, great. I never have to pay to heat my home for the rest of my life. Again, you know that that bill is covered for that’s my life. And then you buy a food stock and great and never have to pay for groceries again. And eventually all your bills are paid. And then you don’t have to work right, and then you’re free, then you’re free. Yeah, you know, so you can see the steps. 

Erwin  

Derek, I have one final question. Because I think we’re way over time. I’ll be sorry. Do you have like a house? Most of my that’s entirely my fault. Do you ever have like a like you have too good to be true. Like spidey sense. For example, in your old older books, you talked about income trust, for example. Yes. It seems like I just see, let’s look back in history, there’s been examples of like, damn, this is really good. And then either the business fails, or the government takes it away. Do you ever have that anymore?

Derek  

Yeah, that’s, that’s exactly right. Like it’s like, you know, and it was it was just so beaten up and then then rocketed up so high, and everybody’s all euphoric and stuff. And it’s just like, this seems too good to be true. 100% 100% within them trust. That’s an interesting one, because I started buying income trusts in the late 1990s. And it’s hard to believe like you could buy like Pembina pipeline or whatever they were paying like 12 and 13% yields. That’s insane. Because it was those those are best profits from business right as the payout well, okay, let’s go with REO can at that time, I bought REO can. It was $9 a share? And I think it was paying like 90 Some cents a year. So it was like 11% yield. Right. And it was phenomenal. Okay. And why is that because everybody was focused focused on Nortel and JDS and other high tech companies, whatever. And so we wrote that pony for a while. But then the government changed the rules and you know, within a day, you know, got a big hair cut prices went down, so I guess he went some you lose some but yes, yes. To answer your question. Yes. Sometimes I do feel that way. Yes.

Erwin  

Anytime I see like double digit returns. I’m okay. My my spidey senses are tingling.

Derek  

Yeah, especially that’s a good point to kind of I know we’re over time but with stocks be very, very careful if the yields too high know why the yield is too high. Because oftentimes, that means either dividends about to get cut, or there’s some impending doom, you know, down the down the pipe. So I’m sort of talking about sides of my mouth because with British American Tobacco, I know what the risks are. And I feel they’re overstated. So I’m comfortable with that. But just be very, very careful. If the if the dividend gets too high there, there might be dividend cut coming coming down the pipe.

Erwin  

I’m seeing on these, these ETFs that have not very long histories that does pay huge yields. So I’m still looking into that I believe some of them still can recall some of them are a bit leveraged. And then some of them I think this sell stocks to pay people were sounds sounds almost Ponzi. So again, like listener, like certain advice, but yeah, be careful.

Derek  

Be careful. I mean Erwin you could give me certain amount of money and I could leverage it up to the hilt and buy the highest yielding payers and then sell covered calls on them or whatever, but it’ll work until it doesn’t I’d be very sceptical, I guess and do your due diligence because oftentimes that is too good to be true. So…

Erwin  

And I know people who are investing money in these things, I don’t know how much if it’s significant to them, but they’re investing money based on off of an influencer SEC talking about on YouTube.

Derek  

You gotta remember the guys on Wall Street and Bay Street and stuff. They’re packaging products to sell to people. I mean, a mortgage backed securities back in 2008 2009, herbage, those blew up in people’s faces. And I mean, sad because some retirees lost their their pension, like lost their retirement savings and all that kind of stuff. So you got to be very careful, but they’ll package whatever people will buy, right? So just Caveat emptor. Like, you know, the buyer beware be very cognizant and careful of those kinds of things there. 

Erwin  

Thanks so much in November 12, and you’ll be one of our keynote speakers can I personally can’t wait.

Derek  

November 12. And if, if any of your listeners have any questions, you can go to my website at stopworking.ca and fire me an email I do answer them, you know, so. Yeah, otherwise, I’ll see you on November the 12th.

Erwin  

Yeah. And of course, Derek. Thanks again for being a supportive stock hacker Academy and being part of it. 

Derek  

Okay, thank you. 

Erwin  

It’s been I think the course has been improved so much since you joined it. 

Derek  

Oh, thank you very much. Appreciate that. 

Erwin  

Thanks Derek 

Derek  

Okay. 

Erwin  

Before you go if you’re interested in learning more about an alternative means of cash flowing by hundreds of other real estate investors have already then sign up for my newsletter and you’ll learn of the next free demonstration webinar I’ll be delivering on the subject of stock hacking. It’s much improved demonstration over the one that I gave to my cousin chubby at Thanksgiving dinner in 2019. He now averages 1% cash flow per week, and he’s a musician by trade. As a real estate investor myself, I got into real estate for the cash flow. But with the rising costs to operate a rental business, it’s just not the same as it was five to 10 years ago when I started there. Forget the cash flow reduces your risk. The more you have, the more lumps you can absorb. And if you have none, or limited cash flow, you’re going to be paying out your pocket like I did on a recent basement flood at my student rental in St. Catharines. Ontario. If you’re interested in learning more, but it’s true for free for my newsletter at www dot truth about real estate investing.ca. Enter your name and email address on the right side. We’ll include in the newsletter when we announce our next free stock hacker demonstration. Find out for yourself what so many real estate investors are doing to diversify and increase our cash flow. And if you can’t tell I love teaching and sharing this stuff.

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