It is a sad fact of financial life, and one welldocumented, that investors often chase performance. They give up ondisappointing asset classes, selling out only after takingsubstantial losses, in order to buy into more recent winners, toooften only after those winners have made a good part of theirultimate gains. It is this well-established historical pattern thatpoints to a coming enthusiasm about equities.

For quite some time now, investors have turned away from stocks.Despite periods of strength, two powerful bear markets, one in theopening years of this century and the other between 2007 and 2009,marred the long-term average performance figures of U.S. equities.Since so many investors draw their perceptions of futurepossibilities from historical performance calculations, thedisappointing returns have raised many doubts about the role ofequities in fundamental asset allocations.

The statistical record is striking. After the fabulous gains ofthe 1990s, when the benchmark S&P 500 equity index averagedreturns of over 18% a year, the market crash between 2000 and 2002dominated the averages calculated for the century's opening decade.By 2010, the average annual 10-year rate of return registered aloss of almost 1%, which was actually worse than the market'srecord during the Great Depression. Though the decade of the 1930sshowed an average annual loss of slightly over 1% percent, thecountry was experiencing a general deflation at the time. On thatbasis, even the nominal loss amounted to a gain in real purchasingpower of about 0.5% a year. But prices climbed during thefirst 10 years of this century, modestly to be sure but enough toenlarge the nominal average loss in the real purchasing power ofequity investors to 3% to 3½% a year.