By: Larry MacDonald

The financial blogosphere in Canada has been abuzz since Derek Foster disclosed he sold most of his stocks in February. The reaction hasn’t been favorable, as one would expect when the guru doesn’t practice what he preaches in his bestselling, dividend-investing guide “Stop Working: Here’s How You Can.” A caption in John Heinzl’s column summed it thus, “Mr. Buy and Hold hits the sell button.” Similarly, the title to Ellen Roseman’s column went: “Buy and hold investing guru sells all he has.”

Many posters in the Canadian Business Online discussion forum and elsewhere have made references to Foster’s “original sin” of publishing a misleading investment guide. His book purports to show how investors can stop working at an early age — like he did — by building up a portfolio of dividend stocks. However, what the book neglected to mention, as the author later revealed in response to critics, was that he amassed his portfolio with aggressive, leveraged bets on a few stocks. So the real story apparently was as much about betting big on capital gains in hopes of earning investment returns better than Warren Buffett.

Most people seem to accept this explanation of how he managed to “retire” early. Personally, I am still wrestling with the uncertainty he actually did accumulate such a portfolio, after interviewing him a few years back and coming across a few anomalies (see Sept. 27, 2007 and Feb. 28, 2008 columns). But it’s neither here nor there whether or not he did. The main takeaway, in my opinion, is the unfortunate failure to stick with the plan laid out in his book. For example, Chapter 5 says: “Let’s pray for a market crash!” because then we can buy more dividend stocks on the cheap. And, as he wrote, when it comes to dividend stocks “… you NEVER sell them!”

“… investing is as much about character as it is about analytical capability. Character is about having strength in the face of adversity, of being able to hold onto what you believe in while others around you are losing their moorings,” it says in Toughing it out.