Unprecedented investment opportunity!

I met with my financial advisor yesterday for the first time in about three months. He looked tired, as he'd probably been dealing every client asking him the same question I did: "Tell me why I shouldn't take all my investments out and hide it in my mattress before it loses another 35% of its value..."

He did a reasonable job of explaining that the current value of the shares is not what is important if you're planning on using the money for retirement in 25 years, that buying cheap and continuing to buy cheap should in the long run pay off as those shares regain their value at some point in the future. That getting out now and then trying to get back in when things appear to get better would also directly translate into a significant loss, worse than staying in and not messing with them.

All well and good. "Think of it as an unprecendented investment opportunity." he said. "When are you ever going to be able to buy shares this cheaply?" I certainly appreciated the valiant attempt at optimism, even if I didn't quite feel it myself.

"The market is going to come back, eventually... The only way it won't increase beyond its former levels is if you think the World's already achieved maximum productivity and maximum growth." A decent enough point, although I immediately thought "Oh oh. Peak Oil. Global Climate Change."

So how long is it going to take? The wall of his conference room had a log-linear graph of the return on $1 invested in 1920 in various different ways, stock market, federal bonds, bank savings account (maybe). The Great Depression was visible as an order of magnitude drop in value that took about a decade to recover to its former value (and that only really associated with the economic growth associated with the US's waging of WWII). Paul Krugman had an editorial yesterday (2/19/09) that again argues that demand will ultimately drive recovery, but not before 2011 and maybe in 5 to 10 years.

Rational reasons to believe it will ultimately get better eventually are perhaps all we ask for now.