Monday, October 13, 2008

A Voice From the Past

Here is a video clip of Irving Fisher, a famous Yale economist who urged people to buy stocks.

It took the stock market 25 years to get back to the levels of 1929. But, back then dividends were higher than they are now, so if you bought and held, you would have recovered your investment within 15 years. Still, that is a long time to just get your money back (with no gains!). But we've been down this road since:
The longest it has ever taken since 1945 to recover an original investment in the stock market (including the reinvested dividends) as the five-year, eight-month period from August 2000 through April 2006. (Jeremy Siegel's "Stocks for the Long Run" 4th edition, 2008)
The following is excerpted from the Wikipedia article on Irving Fisher:
The stock market crash of 1929 and the subsequent Great Depression cost Fisher much of his personal wealth and academic reputation. He famously predicted, a few days before the Stock Market Crash of 1929, "Stock prices have reached what looks like a permanently high plateau." Irving Fisher stated on October 21st that the market was "only shaking out of the lunatic fringe" and went on to explain why he felt the prices still had not caught up with their real value and should go much higher. On Wednesday, October 23rd, he announced in a banker’s meeting “security values in most instances were not inflated.” For months after the Crash, he continued to assure investors that a recovery was just around the corner. Once the Great Depression was in full force, he did warn that the ongoing drastic deflation was the cause of the disastrous cascading insolvencies then plaguing the American economy because deflation increased the real value of debts fixed in dollar terms. Fisher was so discredited by his 1929 pronouncements and by the failure of a firm he had started that few people took notice of his "debt-deflation" analysis of the Depression. People instead eagerly turned to the ideas of Keynes. Fisher's debt-deflation scenario has made something of a comeback since 1980 or so.

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