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Create a Rip Van Winkle Portfolio With These Four Stocks


Agrium, TJX Companies, Madison Square Garden Company, and Chipotle Mexican Grill are companies to consider.

There is a difference between trading in stocks and investing in them, but too often these get confused as being the same thing. Trading is usually done in a short time period, much like the day traders of the dot-com era, whereas investors are supposed to take a longer term view.

The problem is that too many investors think like traders and get sucked into thinking about stocks in the short term.

Warren Buffett, one of the great long-term investors of all time, once said:

I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years. As far as you are concerned, the stock market does not exist. Ignore it. Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.

Could you buy and hold a stock for five years without checking to see what it is doing? Could you ignore it completely?

Warren Buffett's five-year rule reminds me of the Washington Irving story about Rip Van Winkle. Irving described a man who goes up to the top of a mountain, falls asleep, and awakes 20 years later to find that life has turned upside down.

Rip Van Winkle doesn't recognize anyone. His wife is dead. His small New York town is no longer controlled by the British, but has a new government with George Washington at its helm.

The Rip Van Winkle Strategy

What if you were to pick stocks as if you were Rip Van Winkle? It would be a strategy where an investor buys a company with the belief that he could "wake up" five years later and that investment would still be sound.

I can hear you thinking, "That's impossible to do. Too much can change in those five years."

Sure, Borders is no longer in operation and Best Buy is on the ropes. Neither of those companies would have been good investments in a Rip Van Winkle strategy five years ago.

But there are plenty of other companies that have stood the test of time and are likely to not just survive, but thrive, in the coming years.
No positions in stocks mentioned.
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