Rip Van Winkle
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Rip Van Winkle
I love a good children’s fairytale story. They have a way of teaching us a message without us feeling like it is learning. We simply get lost in the story and the next thing we know, BOOM message learned. I thought I would take a shot at making a parallel to one of my favorite children’s books with Rip Van Winkle.
Now, I know what you are thinking, and no I don’t love this story because it is about a drunkard who goes hunting to avoid his wife’s nagging only to meet a friendly Dutchman who offers him booze causing him to pass out for 20 years. Funny, as I recap the story it seems odd that this is a children’s book, no?
The Investing Analogy
Rather, I tell clients this story quite often as an analogy to investing. You see much like Rip Van Winkle the world goes on with or without us. Things evolve, economies mature, and markets grow. More pertinently the markets continue to ebb and flow in an upward trajectory.
I’ll often tell people if you look at the stock market every day and dwell over its gyrations you will go insane and trust me, I’ve tried why else do you think I’m writing a blog about Rip Van Winkle? The only thing accomplished by looking at and putting so much emotion in the daily swings of the markets is increased anxiety. What happens when you have increased anxiety, one may ask? Simple, we tend to do something ill-advised or emotionally charged, when the markets just don’t care.
Much like Rip Van Winkle his village grew, his kids had children, and even his nagging wife passed away. These things happened irrespective of the fact Rip was in a drunken stupor for 20 years. Much the same whether you freak out over the stock markets, pay no attention at all, or get your CFA designation the markets simply don’t care. They will continue to ebb and flow with or without your investment. That is why I often give the advice be Rip Van Winkle, you’ll be happier, less stressed, and magically enough to get 100% of the market growth that you very much deserve.
Let’s Go Back In Time
Let me take a moment to drive my point home. If we looked back 20 years ago, yes, a time before iPhones just Blackberrys, and studied the markets we would learn some very important data. The Dow Jones was at approximately 10,315 while the S&P 500 was at around 1,100. Over those 20 years, we have witnessed an insane number of happenings in the world around us and subsequently the stock markets. We saw the Great Recession, the World Pandemic, multiple world wars, Brexit, hyperinflation, and like 50 rounds of Quantitative Easing just to name a few.
Think back on your own lives of what happened during those 20 years, it is quite humbling. Now if we fast forward to the present day we have a Dow Jones at about 40,000 and an S&P at around 5,331. About 4-5 times their values 20 years ago. Astonishing right? Now remember it was far from a straight line. Heck in 2008 these indexes were both below their 2004 values, again causing mass panic to those tuned in. As a matter of fact, I still have new clients come in who are feeling the aftermath of those years refusing to believe in the markets ever again. Which, as you can see is a real shame since if they listened to Mr. Van Winkle they would have multiples of their assets by simply doing nothing.
You see what I just did their folks? You were reading a nice little story about a children’s book and BOOM it happened right in front of your eyes without you noticing. You learned a hugely important investing lesson. I can’t stress enough that trust, faith, and 20 years in a drunken stupor will do wonders for your investment portfolio!
In the words of Rip Van Winkle, stay wealthy, healthy, and happy everyone. Next up, Little Red Riding Hood (j/k).