The U.S. stock market today will close out its best year since 2003, an amazing comeback from what felt like Armageddon to many investors just nine months ago.
Yet today also ends by far the worst decade for stocks overall since World War II. At 10,548 on Wednesday, the Dow Jones industrial average was up 20% for the year -- but still 8% below its level at the end of 1999.
The last time the Dow failed to make any net progress in a decade was in the 1930s, when it sank 39% during the Great Depression.
Not surprisingly, Wall Street optimists see the market's last 10 years, and the gloom this "lost decade" has generated, as a better excuse to buy stocks than to sell.
Although acknowledging that the economy faces daunting challenges in the aftermath of the financial crisis, Jeremy Siegel, the Wharton School finance professor whose now-famous book, "Stocks for the Long Run," was published in 1994, says he remains a long-term bull.
"As Warren Buffett says, you should be fearful when everyone else is buying, and buying when everyone else is fearful," Siegel said.
Still, for many Americans who rode the market boom of the 1980s and 1990s -- and who came to trust the mantra of "buy and hold" -- going 10 years with no capital gain to show for it is hard to swallow.
The list of stocks still sharply below their levels at the end of 1999 includes some of the nation's most respected and widely owned companies. Shares of General Electric Co., for example, are at $15.35, down from $51.58 at the start of the decade. Wal-Mart Stores Inc. has fallen to $54.30 from $69.13 in the same period, while Microsoft Corp. has dived to $30.96 from $52.53.
Eric Nicol, an aerospace engineer from San Pedro, says he has come to regard buy-and-hold advice as "absolutely stupid."
After losing half his 401(k) account nest egg in the 2000-02 bear market fueled by the dot-com crash, Nicol said he swore off the idea that he could simply sit still with stocks and hope for the best. Now his strategy is to try to time major market swings, by pulling out when he believes share prices are in danger of plummeting.
Although financial advisors typically try to warn individual investors away from jumping in and out of the market, "I learned a lesson by staying put," Nicol said. At age 52, holding on through market crashes "is not an option for someone in my age bracket," he said.
For some investors, the one-two punch of the financial-system meltdown of 2008 and the severe damage it did to the stock market -- the Dow lost a stunning 54% from its all-time high in 2007 to its low in March -- has far exceeded the shock of the dot-com era losses.
"There's been a paradigm shift. People are wondering, 'How could this happen?' " said Sunil Gupta, a software developer and trainer in Simi Valley.
Although he has held on to the stock mutual funds in his retirement accounts, Gupta, 46, said he now is plowing savings into condos that he plans to rent, instead of looking for more opportunities in equities.
The market, he says, is no longer something he enjoys watching. He also believes real estate offers better long-term growth potential than stocks.
"I think this is a once-in-a-lifetime opportunity" in housing, Gupta said.
Many investors have forsaken stocks for another option this year: They're pouring cash into government, corporate and municipal bonds, securities that pay fixed rates of interest.
Although it's possible to lose money in bonds, the risks are much lower compared with stocks. But bonds also lack the growth potential of stocks.
Through November, Americans' net new purchases of bond mutual funds reached an unprecedented $348 billion for the year, industry data show. By contrast, investors have pulled a net $30 billion from U.S. stock mutual funds in 2009.
Stock market bulls see the sudden rush for the relative safety of bonds as a "contrarian" signal: They note that the most wildly popular investment strategy of the moment often turns out to be wrongheaded.
Investors "always are conditioned most by whatever we just lived through," said Bob Doll, vice chairman at money management giant BlackRock Inc. in New York. In this case, he said, people understandably are fearful that the market could crumble anew, even though the economy has begun to grow again and the financial system has at least stabilized.
Paula Olivares, a 62-year-old retiree in Santa Clarita, has kept about half of her investment portfolio in bonds, which helped cushion the blow of the stock market's plunge.
But at this point, she says, she believes it would make no sense to sell stocks and buy more bonds.
"Now that we're starting to see a recovery [in the economy], I'm getting more excited" about the stock market, Olivares said. "I'm much more optimistic now than a year ago."
Fueled by expectations for a sustained economic upturn, the Dow has surged 61% from the 12-year low it hit March 9. Broader market indexes have scored even bigger gains.
Even though some big-name U.S. stocks remain far below their 1999 peaks, investors whose portfolios were well-diversified may not think of the decade as lost. The 2000s produced inflation-beating returns in many smaller-company stocks and in shares of firms in emerging economies, as well as in commodity investments such as gold.
Mutual funds that buy small-company stocks believed to be undervalued, for example, gained an average of 8.3% a year in the decade, while the Standard & Poor's 500 index's return was a negative 1.2% a year, even including dividends earned, according to fund industry data.
Emerging-market mutual funds -- increasingly popular in recent years as more Americans sought to invest in fast-growing economies abroad -- rose 9.3% a year, on average, in the 10 years.
Wharton's Siegel notes that the dismal performance of U.S. blue-chip stocks and tech issues measured from the end of 1999 reflects that those shares "began the decade at the top, in the biggest bubble in history."
The S&P 500 index, inflated by tech stocks at the time, peaked in March 2000.
One classic way to judge a stock's risk is to look at the price relative to the company's per-share earnings. In March 2000, the average S&P 500 stock's price-to-earnings ratio was an extraordinarily high 27 based on estimated 2000 operating earnings.
That ratio now, based on earnings estimates for 2010, is 15, according to S&P.
"This was the 'correction' decade from the excesses of the '90s," Siegel said.
Robert Shiller, a Yale University economics professor whose book "Irrational Exuberance" in 2000 warned that the stock market was severely overheated, said he agreed with Siegel that "the market now is more reasonably priced.
"That would seem to portend against another lost decade" for stocks, Shiller said.
Still, like many experts, he said he worries that the financial-system crisis has hurt the economy's long-term prospects in ways we may not yet fully appreciate.
In the short term, one crucial issue is whether the economy can stand on its own once the government and the Federal Reserve begin to withdraw the massive financial support they've provided.
Longer term, as millions of Americans save more and spend less to repair their finances and pay down a mountain of debt, the risk is that the economy could experience weak growth for years to come.
That scenario could translate into relatively feeble corporate earnings, undercutting stocks' appeal.
One theme popularized by Newport Beach-based bond fund giant Pimco is that the U.S. economy has entered a "new normal," which will be characterized by slow growth and intensive regulation of the financial system.
"A simple way to look at it is that private market capitalism simply went too far over the last 10 to 20 years, and now we're in the process of pulling back," says Pimco founder Bill Gross.
He believes that will mean much lower-than-normal stock market returns in the years ahead. Still, even Gross hasn't gone so far as to suggest that another lost decade looms.
An investor for 40 years, Olivares says she figures the odds favor that history won't repeat.
She still has faith, she said, that "over the long term, stocks are the way to go."