You have likely been hearing financial commentators making the statement that we recently exited the “Lost Decade.” Sure, this makes for a great headline, but how much does it reflect reality in terms of true economic, financial, fundamental progress that was made over the last 10 years? More importantly, how do such headlines impact investors making decisions about how to allocate money for the next decade? Let’s draw an analogy for some insights.

When Lance Armstrong retired from cycling five years ago he is said to have looked in the mirror and said, “Well, this is the best shape I will be in for the rest of my life.” To be sure, he was at a peak in terms of fitness, and any time he engaged in physical activity after that moment his athletic ability and aesthetics would pale in comparison. Fast forward three years later and indeed, by all objective measures he had ‘lost’ fitness. While he placed an incredible third in the 2009 Tour de France, by his own admission he was not in the same form as when he topped the podium. Yet compared to the average weekend warrior Lance was still a world class athlete. And I am confident that five years from now he will make the typical forty-something male seem out of shape. Compared to that moment in July of 2005, however, his fitness has been lost.

The lesson here is that our reference points matter, both statistically as well as emotionally. How much better did 9,000 on the DOW feel on the way up from 6,700 in 2009 versus on the way down from 14,000 the prior year? The starting point for the “Oh” decade was an extreme juncture — an aberration of valuation rarely seen in the market. The typical investor only ‘lost’ over that ten year period if they bought the S&P 500 at the peak in early 2000 and never reinvested dividends (as in, never bought another share). But to how many investors does this scenario actually apply? What if you bought stocks at the nadir in 2003 before a 4 year rally? Or what if you bought stocks in the spring of 2009? You could very well have ended the decade up nearly 60% or 70%. What if you owned not just U.S. stocks but foreign stocks that saw great gains over the last ten years? Or how would your account look if you did as most savers/investors did, which was to add money to their portfolios regularly? Then you would clearly have purchased shares at quotes other than inflated end-of-the-internet-bubble prices, and your account value would reflect the power of dollar cost averaging. Or perhaps you rebalanced your portfolio regularly, selling off recent winners in favor of adding to asset classes that had underperformed. What if you engaged in some active trading rather than just buying and hoping?

The point is that it is highly misrepresentative to take one arbitrary statistic and apply this to an entire asset class. Investors around the country, young and old, are making decisions about whether or not to buy stocks as a means to achieve future financial objectives, and headlines that scream “LOST DECADE – STOCKS GO NOWHERE!” cause many people to make allocations that are bad for their financial health.

The reality is that after great 10-year periods for the stock market – think the '90s — then the probability that the next 10-year period offers superior returns is reduced. Why? Because the starting point, the price for stocks, was very high at over 40x earnings in 1999/2000. Of course most financial commentators in January 2000 were noting, if not gloating, about how great the previous 10 years were. The average investor then looked in the proverbial mirror and extrapolated into the future – and ended up disappointed accordingly. Today investors are possibly making the opposite mistake. They see the last 10 years of performance and think this is how it will be going forward. Conversely, when I look at a chart that shows the last 10 years as having been down from point A to point B, it puts a smile on my face as this means that future stock returns are likely to be strong.

Most importantly, how do we apply lessons from the past to future actions? Here are the important take aways, or investing principals, that apply as much today as they have for the last two centuries. First, diversify. There were plenty of markets around the world that did just fine during the ohs. Participate in the global economy. The U.S. is not the only place to invest. It might not even be the best place in the coming years. Next, don’t be afraid to take profits from time to time, or at a minimum rebalance your portfolio which is just another way of selling high and buying low (what a concept). As always, don’t overpay for stocks. Even within the S&P 500, an index that indeed did lose money from 1/1/2000 to 12/31/2009, there were plenty of companies whose stock prices rose nicely during the decade. These were the ones that were trading at reasonable rather than sky high valuations. Lastly, do what the smart investors do – add to your portfolio when the market drops rather than sell. Even if the S&P 500 is at the same level in January 2020 as it is today – an unlikely outcome – there will certainly be periods when the market drops materially, allowing for opportunities to scoop up shares at lower prices and leading to profits even if the overall market is going nowhere.

Don’t let headlines fool you or cause you to take actions that you will regret 10 years from now. Investing in the stock market always has been and always will be one of the greatest ways to create wealth over time. Be smart, and you will find your way.