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Case Study: How Charles Fournier Reached Financial Freedom


Published September 27th, 2017

This is a guest contribution from Charles Fournier who runs the Financial Freedom is a Journey blog.

Charles retired in his mid 50s in May 2016 from a career in Canadian banking. He relies exclusively on income from rental properties and a dividend income stream from a portfolio he amassed over several years. A portion of his typically relaxing week is used to share his knowledge with others through his website. Charles is clearly aware he learns from other investors, and therefore, welcomes feedback.

I would be remiss if the first thing I did not do was to thank Ben and Nick for giving me the opportunity to share my story and thoughts. I have religiously read Sure Dividend for the last couple of years and am truly impressed with the level of due diligence and research that goes into the material they present.

Who am I?

I am just a “normal” every day guy who is truly grateful for all the opportunities and experiences amassed over the course of his life.

I graduated with an undergrad degree in Economics in 1980 at the ripe old age of 20 with nary a clue of what I wanted to do with the rest of my life.

When my parents casually informed me that I should be looking for a place to live because living at home was not really an option, I applied for an entry-level management position with a major Canadian financial institution.

Surprisingly, I was hired and promptly relocated to Calgary, Alberta where I worked for the next 4 years. I truly enjoyed life there as my proximity to the Rockies allowed me to enjoy my passion (alpine skiing). I would typically spend every weekend skiing from late November until mid-June. All my vacation time was also used for skiing. You can see where my focus was.

After working 4 years I received a phone call from my parents informing me that the “deal” was that I would work 4 years and then return to school to pursue an MBA. At some stage during those 4 years I must have completely forgotten that we had struck any “deal”. Reluctantly, I packed up my stuff and drove back East where I resumed my studies at a university in Ontario.

While I may sound to have been somewhat immature for someone in his early 20s, the wheels in my mind were truly turning while I was enjoying life. Almost from the first day I started full-time employment I had this revelation that working until the typical age of 65 was truly not my thing. I really, really had a find a way to shorten my working career.

So what was this revelation?

After graduating (again) I relocated to Toronto. I had desperately wanted to move back to Calgary to resume my outdoor lifestyle but economic conditions in Calgary were always subject to the vagaries of the oil and gas sector. As a result, I chose the path of least resistance and I accepted an employment offer from one of the major Canadian financial institutions in their Commercial Banking division.

Life was good but I realized that all my income rested solely on my ability and willingness to work. If anything happened to me from a health perspective where I was no longer able to work or even something less drastic were to occur, such a being downsized, then my income would experience a dramatic hit. The expenses, however, would still be there. This alarmed me and I knew I had to change this.

What were some of the key things I did?

First and foremost, my wife and I decided that the least we should do is to have a roof over our head where mortgage payments would not be required in perpetuity. We made it a point to buy our house in 1990 when the real estate market in Toronto tanked. We then proceeded to make accelerated mortgage payments and became mortgage free within 9 years.

While we focused on repaying our mortgage quickly we also knew that we needed to set aside money. We decided that investing in good solid “blue chip” companies was the route for us. Our thought process was that many of these companies had been around for eons, had weathered various economic conditions, and were likely run by individuals far smarter than us.

How I Got Started As A Self-Directed Investor

I can’t remember exactly but I suspect it was not long after we started investing in mutual funds in 1987. I became totally disenchanted with the mutual fund industry pretty quickly.

Very few mutual funds consistently outperformed their benchmark yet they still extracted their pound of flesh in the form of fees. I figured that I could underperform the benchmark and likely still be further ahead than if I chose to continue to invest our money through mutual funds.

I also recollect speaking with multiple mutual funds “sales people”. In the vast majority of the cases, these people (excuse me for being so blunt) were really stupid people. I am not joking! In most cases our financial situation was far, far better than that of the people who were trying to sell us funds. I often thought to myself “If I listen to this person, I’ll end up like them.”

Not long after online self-directed accounts became available through my employer, I started investing on my own. I can’t remember exactly when that was but I strongly suspect it was in the late 1990s.

What I Did During The dot.com Craze

I never really got caught up in the high-tech craze. I really didn’t understand how these companies made money and in hindsight it became clearly evident that most of these companies didn’t have a clue either.

I distinctly remember one of my friends who worked for Nortel suggesting that I should invest in Nortel, Sun Microsystems, JDS Uniphase, and other names I cannot recall off the top of my head. This guy was a former MBA classmate and I was puzzled as to why he was thinking this way.

As you might surmise, things did not work out too well for him. I, however, stuck with old stodgy companies and made it through the dot.com blow up relatively unscathed.

Why I Buy Individual Stocks

I abhor mutual funds. I have dealt with mutual fund companies (they were clients) when I was employed in the banking sector. These fund companies have overhead which must be covered. Where do you think they get the money to cover this overhead? From investors in their mutual funds. Think that impacts your investment returns? You bet it does. They have overhead that has to be covered regardless of how their funds perform.

I know the ETF sector has grown dramatically over the last couple of decades but I invest less than 0.25% of our money via ETFs. Why? ETFs still incur expenses. Secondly, if I look at many ETFs I probably wouldn’t invest in most of the companies within the ETFs.

I recognize there are countless ETFs out there. Many I would not touch with a 10 foot pole. If I want international exposure I will invest in one of the global operators and I will pick the sector I want. I really don’t want to invest in companies headquartered in “lesser developed countries”.

My Worst Investment Mistakes

Worst investment mistakes? You’re implying I’ve made mistakes and more than one? I’m perfect. I never make mistakes. JUST JOKING!

If you feel bad about having made some investment mistakes here’s a post I wrote on my blog that should cheer you up. You won’t feel bad after having read it.

Look, not everything in life is going to pan out the way you have planned. Just learn from your mistakes and don’t repeat them!

In a nutshell….I am here to give you HOPE! If I can succeed at this investing gig there is absolutely no reason you can’t! Honest!

My Best Investments

Whoa! Now that’s a question I like. I’ve made so many I just look at myself in the mirror when I’m shaving in the morning and say “Damn, you’re amazing!” Once again, I’m JUST JOKING!

While I review financial statements and look at industry trends prior to making investment decisions, many of my investment successes have been made on the basis of common sense.

I invested in VISA (NYSE: V) and MasterCard (NYSE: MA) shortly after they became public. A few things I liked about these two companies were:

Our V and MA investments have panned out pretty well.

Church & Dwight (NYSE: CHD) is another one of my better investments. I was familiar with the Arm & Hammer brand name and decided to invest in this company in 2005.

I conducted an informal poll amongst several family members and friends to see if they had a box of Arm & Hammer in their fridge or somewhere in their kitchen. Just about everyone indicated they did.

I started to dig a bit more and realized that Trojan was another of their brands. I wasn’t about to start polling people about their use of birth control but whenever I thought of condoms, the Trojan name came to mind.

Not long after my CHD purchase, we happened to be at a friend’s home to celebrate New Year’s Eve. While we were waiting for the ball to drop in Times’ Square, countless commercials would appear on TV. It just seemed as if CHD had bought up all the advertising time slots. It was aggressively promoting one of its feminine stimulators. I knew right then and there that I had hit a home run.

How has CHD done since our initial purchase in 2005? Check this out.

Another wonderful investment has been Automatic Data Processing (NYSE: ADP).

We invested in ADP several years ago and have benefitted from the spin-offs of Broadridge and CDK.

Check out the ADP, BR, and CDK stock charts.

My Investment Strategy

To paraphrase the legendary Warren Buffett, my #1 investment strategy is not to lose money. My #2 investment strategy is not to forget strategy #1.

Some people use stock screeners to identify potential investment opportunities. I prefer to approach investment opportunities from the standpoint of where is the world headed and what will industries and consumers need. Once I figure this out I’ll drill down into the financials.

It is on a very, very rare occasion that I will venture beyond large caps or mid caps at the upper end of the mid cap range.

The companies I focus on have so much going for them including international exposure that I really don’t need to go down market or to look for investment opportunities in other parts of the world.

I have spread our investments over the 5 main economic sectors: Finance, Utilities, Manufacturing, Resources and Consumer although I am more heavily weighted in some than others.

My wife retired in 2015 and I retired in May 2016. Since I knew we would one day rely on rental income and dividend income, I focused on investing in companies with a track record of annual dividend increases.

Having said this I will not rule out a company if it has no dividend track record. Had I done this then we would not own V, MA, BR, and CDK. I will invest in a non-dividend paying company if management has communicated its intent to establish a dividend payment policy.

Some investors will automatically eliminate a stock from their investment portfolio if there is a dividend freeze or dividend cut. I do not do that. I assess freezes or cuts on a case by case basis. Had I had a hard and fast rule to eliminate “freezers and cutters” I would have eliminated our investment in the 5 major Canadian banks (NYSE: RY) (NYSE: TD) (NYSE: BNS) (NYSE: CM) (NYSE: BMO) and Bank New York Mellon (NYSE: BK) at the height of the Financial Crisis. That would have been a HUGE mistake! You need to ascertain whether the dividend freeze or cut is because the company’s financial performance has dramatically and permanently deteriorated or whether the freeze or cut is due to extenuating circumstances.

As part of my investment strategy I focus on after-tax returns. If you want to reduce your tax exposure then start investing in tax-advantaged accounts. Once you max out these accounts then branch out into non-tax-advantaged accounts.

In our case, we hold a significant proportion of our US holdings in Registered Retirement Savings Plan Accounts (RRSPs). Canada and the US have a tax treaty where there is no withholding tax on dividends if the US listed shares are held in RRSPs .

We have maxed out our RRSP contributions and since we no longer have employment income we cannot make RRSP contributions. We still want to invest in US companies so we hold US listed securities in non-registered accounts. We get hit with a 15% withholding tax on all dividends but we knew this in advance and are prepared to live with the tax hit.

My Advice For Readers

Stuff is going to happen in life. No if’s, and’s, or but’s. Be prepared and by that I mean have your financial house in order. It will be one less stress you’ll have to worry about.

Take an interest in your financial future. Nobody has more of a vested interest in this area than you.

You can’t soar with the eagles if the pigeons are pooping on your head so rid yourself of debt as quickly as possible. It will lessen your stress level!

I don’t know your mindset but you must set aside money for debt reduction or investing BEFORE all other expenses. Don’t get in the trap of using “whatever is left over” for debt reduction or investing.

A low-cost broad based ETF (eg. S&P 500 index) is probably the way to start investing until you hit the $100,000 mark. This is not a hard and fast rule but when you have less than this amount it is very difficult to properly diversify.

Don’t chase yield. Don’t chase yield. Don’t chase yield. Don’t chase yield. Got it?

Ask yourself whether your lifestyle is entirely dependent on your personal ability to generate income. If the answer is “yes” then perhaps your “plan” needs some tweaking.

You can speculate all you want. I just don’t recommend you speculate with your money. Sure, you can speculate and hit a “home run” but odds are stacked against you. You can score a LOT of runs if you just bunch the singles and doubles together.

Practice patience and think like a business owner. Invest in a good solid company and give it a chance to blossom.

Don’t ask your friends for investment advice. Why? Because they’re your friends. I know that might come across as a little harsh but chances are your friends know even less than you when it comes to investing and/or they may be in worse financial shape than you. If that’s the case, and it probably is, why would you ask them for advice?

Stop obsessing with how your investments are doing every day. You should have enough conviction that the management teams of the companies in which you have invested can run the business and can strategically plan for the future. If something goes off the rails you also need to have the confidence that management knows how to make the appropriate changes to rectify the situation.

You may not want to be an expert when it comes to analyzing financial statements but at least have some understanding of how to read financial statements and quarterly and annual reports.

I don’t care how young or how old you are. If you don’t know how to read financial statements then now is the time to learn. In this regard, Sure Dividend is working on something for you. I can’t disclose much information other than to say I am beta testing this initiative and am providing feedback. I am receiving no compensation for doing so I stand to gain nothing by highly recommending it. Stay tuned for communication from Sure Dividend on this initiative.

As an FYI, Sure Dividend has been gracious enough to grant my daughter, who is attending a business program at a local college, access to the beta site. I know it will help her with her accounting course.

Note from Sure Dividend:  We are in the process of creating a detailed online course for analyzing financial statements.  We expect the course to be completed in October.

Final Thoughts

There is a difference between investing and gambling. If you don’t know the difference, chances are you’re gambling.

Investing can be enjoyable especially if you see that you are experiencing success. Set yourself up for success! Learn, learn, and learn. Once you think you’ve learned enough about investing…learn some more. That’s why Sure Dividend is here. Take advantage of their services.

If you made it this far then I suspect you like what you have read. If such is the case, I invite you to follow me at Financial Freedom is a Journey.

I wish you considerable success on your journey to financial freedom!

Thanks for reading this article. Please send any feedback, corrections, or questions to [email protected]


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