It is a sad fact of financial life, and one well documented, that investors often chase performance. They give up on disappointing asset classes, selling out only after taking substantial losses, in order to buy into more recent winners, too often only after those winners have made a good part of their ultimate gains. It is this well-established historical pattern that points 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 the opening 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 future possibilities from historical performance calculations, the disappointing returns have raised many doubts about the role of equities in fundamental asset allocations.

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