The Hindu Business Line : <I>Pooh economics</I>!

Unfortunately, he does not trust portfolio managers. He, therefore, adopts a simple and effective route to managing his money. He invests in systematic investment plan of an index fund benchmarked to the BSE Sensex. He attributes his strategy to Winnie the Pooh, a famous character created by A. A Milne back in the 1920s. What does Winnie the Pooh have to do with stock market investment?

Winnie the Pooh is a bear that lives a simple and uncomplicated life with his friends that include a donkey, a piglet and a tiger among others. Years after A. A Milne created Winnie the Pooh, another talented writer Benjamin Hoff wrote about how the Pooh bear personified Taoism.

This branch of Chinese philosophy is best explained by its master Lao Tse: "The Tao does not do but nothing is not done." This simply means that the Tao (or the way) does not interfere with things but just lets them work in their own way to produce results naturally. Benjamin Hoff goes on to illustrate in "The Tao of the Pooh" how Pooh personifies Taoist principles. But how is Taoism related to the investment strategy that my friend adopts? Managers of index funds do not actively pick stocks. They realise that it is not easy to consistently beat the market. They believe in simple-minded strategies just like the Taoists. These managers, therefore, buy index stocks in such a way that their portfolio moves nearly one-to-one with the index. In short, they engage in passive investment and let things be. Just like Winnie the Pooh, a great Taoist.

(The author is Head, Research, Navia Markets)

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