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(Precious) Words of Wisdom : "Wall Street makes its money on ACTIVITY, you make your money on INACTIVITY." ~ Warren Buffett

Equity shares are not for Rip Van Winkle

Rip Van Winkle should not buy stocks.

But before I explain why not, I think I should briefly outline the story of Rip Van Winkle. This would help to get the context right, in case someone has not read (or forgotten) the same.

As the story goes, Rip Van Winkle was a lazy fellow, who was never keen on doing hard work. One fine day, when he had enough of his nagging wife, he walked up to the nearby mountains with his dog. Soon he fell asleep. When he woke up, he found that he had grown
quite old and also had a long beard. Even his dog was not seen around.

When he returned to his village, he was shocked to the core. It was totally different from what he had last seen. Moreover, he did not recognize anyone, nor did anyone else remember him. Even his wife was dead. Rip Van Winkle, it seems, had slept for twenty years.

Well, it may not be a good idea if you too plan to buy stocks and sleep over it for 20 years.

Suppose, as recent as 10 years back, in 2004 you had bought a few bluechip stocks from the Top 30 companies that comprised the BSE Sensex at that time.

Then in 2014 you would have woken up to find eight of these companies missing from this List of Bluechips e.g. Ranbaxy, Grasim, Zee Telefilms, Satyam, Hindustan Petroleum, etc. This works out to a steep 27% change in the top stocks.

So, depending on your luck with your choices, a decade later you could have ended up with either a fortune or a mere pittance. Surely, it makes no sense to play lottery with your money.

If we go back 15 or 20 years, the change would be even more dramatic. 

And, if we talk of the future, I believe that the rate of change is going to assume gigantic proportions. Remember, due to globalization, we are all now interconnected much more closely than in the past. Old products and businesses would disappear faster, new products and businesses would be born every day.

As such, sleeping on your stocks is going to make you a lot more vulnerable to the changes happening around you.

However, if you still prefer to continue with your lethargic approach, I have a perfect solution. I know habits are difficult to change.

Solution: Index Funds.

Normally, I do not advocate index funds. Why? Read my blog 'Do Not Buy Index Funds' for the comprehensive answer.

Nevertheless, for the Rip Van Winkles of this world, Index Funds is a good investment. 

And even those who are generally averse to equity shares (and more than 90% Indians fall in this category), would do themselves a big favour by reading an article on Index Funds that I penned many years back.

I sincerely hope that even the die-hard opponents of equity are able to make some good money for themselves and their families.

An Investment In Knowledge Pays The Best Interest ~ Benjamin Franklin

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