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Rip Van Winkle's investment story



If you're looking for guidance about how to invest for your financial future ask around---families and folk lore have some good stories to tell.

My father, for one, has never been a fan of the stock market. He remembers the Great Depression and how everyone thought that "it was going to go on forever." Those childhood memories left a lasting impression on him as he's always been more of a saver than an equity investor.

Eunice Stutzman Gupta was four years old when the Crash of 1929 happened. " I remember my parents saying that the people who lived four houses away lost all of their money and I heard about people jumping out of windows. We were so poor, it didn't matter. Then after that, " recounts this Oshkosh, WI, native, "My father couldn't get work."She's a penchant toward saving, too.

John Severson, an estate planning lawyer in Tequesta, Fl, sees some of his older clients having trouble gifting to their heirs even though they have plenty of money. Why? Because they feel that one day market conditions might force them to need that money.

The loss of money and jobs during the Great Depression made a big dent in people's lives with regard to how they viewed saving or investing for the long-term. And while there has never been any one-right-and-only-way to build a nest egg, if what happened to stock prices after the crash of 1929-1932 is any guide for what might happen to stock prices once this current bear market ends, those with time on their side--- who like the equity markets--- could be pleasantly surprised.

Here's a story that makes that point titled "Honor for Rip Van Winkle; His sale of 10 shares of Atchison in 1929 would today buy 900 shares in 90 companies," that I ran across a booklet titled, " The Stock Market Crash of 1929" by James Crane Kellogg, 111, and William E. Downey, written in the early 1950s. The story goes like this:

"The 18th century Rip Van Winkle had few worries. The stock market was the least of his troubles. Before his 20 year's nap his chief cares were powder and bullets for his flintlock, and a comfortable seat in the sun. In the summer of 1929, his great, great, grand-son, Rip Van Winkle V, likewise was free from care. To be sure he held 10 shares of Atchison, but his stock had climbed steadily from 200. People told him it would reach 500. A comfortable nest egg and no cause to worry, thought Rip.

One morning in early September, 1929, Rip in his ancestral Catskill village, head a low rumble in the mountains. Here was no clatter of tumbling nine-pins. Rather there was a dull, staccato thumping. Rip listened closely:

"Sell, sell, sell!" came the steady beat from the mountains. Faintness seized him. Desperately he clutched at a telephone and called his broker. "Sell my Atchison, " he gasped, and crumpled into a coma. Rip's ten shares of Atchison sold for $2,986.25.

On May 28, 1932, his paralyzed nerves recovered from their "break-down." He bought back his ten shares of Atchison. These cost just $255, exclusive of interest. Rip, then had a balance of $2, 731.25. With this balance his broker went to work in an orgy of 10 share lot purchases. With the balance of $2,731.25 he bought the following 900 shares in 90 companies listed on the New York Stock Exchange and New York Curb Exchange: (The list is too long to include in its entirety but here are the prices of some stocks in this hypothetical story: Northern Pacific selling at 6 1/4; Goodrich at 2 1/4; Marshall Field, 3 3/4; Montgomery Ward, at 4; National Cash Register, then selling at 7 3/8; and Archer Daniels, at 7.)

As Rip Van Winkle V was accustomed to taking periodic naps, he immediately lapsed into one, after purchasing the 900 shares of stocks in 90 corporations, and did not awaken until twenty-two years later, September 2, 1954, when he had the pleasurable surprise of finding his 900 shares of stock in 90 different corporations worth the sum of $23,572.50. "

Fans of long-term investing buy-and-hold strategies are sure to love that story as here's how the stocks mentioned in the piece grew after Rip's wake-up: Northern Pacific went from 6 1/4 to 55 1/8; Goodrich from 2 1/4 to 99; Marshall Field, from 3 3/4 to 28 5/8; Montgomery Ward from 4 to 73 1/4; National Cash Register from 7 3/8 to 85 1/4; and Archer Daniels from 7 to 38 7/8.

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Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.


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