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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Richard Thaler and Rip Van Winkle

Posted by Muthu on January 5, 2016

I was browsing and reading about Richard Thaler today.

This quote of Thaler grabbed my attention:

Rip Van Winkle would be the ideal stock market investor: Rip could invest in the market before his nap and when he woke up 20 years later, he’d be happy. He would have been asleep through all the ups and downs in between. But few investors resemble Mr. Van Winkle. The more often an investor counts his money – or looks at the value of his mutual funds in the newspaper – the lower his risk tolerance.

I then remembered writing you something similar in 2014 and want to reproduce the same below:

Technology has enabled us to know the value of our financial assets on a daily basis, wherever we are. We don’t do it for the house we live in or even for other real estate investments. We don’t even know as to what is the value of the provident fund accumulated so far. When it comes to equity, we want to know the daily value.

Liquidity and transparency (every day NAV and real time share price) is the boon of equity. We make it a curse by checking the value frequently and reacting emotionally to the same.

Extend the habit of not checking the daily value of house, land etc. to equity investments as well. Would we not consider somebody insane if he wants to know the value of his house daily or even monthly? Somehow this insanity is an accepted way of life in equity market. People who check daily or frequently do not stay in the market for long.

Rip Van Winkles have higher success rate in the market. Sleep on your investments for next 20 years.

We do once a year review and advice you to stay the course, which is asking you to sleep well:-) This would be our advice for next 20 years:-)

Course correction, change in asset allocation etc; if and when necessary can be done. Most of the time it would be doing nothing.

People like me have occupational need (hazard) to know about markets and related news on a regular basis.

For investors like you, there are better ways of spending time instead of getting hooked to these gyrations.

I’ve shared a piece earlier citing how people who have fared well in their investments are those who forget about them.

You’ve invested right. You entrusted us to monitor the same.

So sleep well.

Be Rip Van Winkles.

One Response to “Richard Thaler and Rip Van Winkle”

  1. Aditya Karnik said

    Have you recommended this article to Dr. Narendra Nathan of ET and direct plan obsessed but half knowledgeable investors.Brilliant stuff. Not looking at your investments for 20 long years. OMG, this takes a lot.   Regards,Aditya Karnik

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