Over the long run, stocks are supposed to generate positive returns, but it doesn't always work out that way. Several times in stock-market history, there have been times when 10-year stock returns have been negative -- times when a buy-and-hold strategy actually lost money for investors.

Investors who only began putting money into the stock market back in the late 1990s know that truth better than anyone right now, as they're licking their wounds. To them, perhaps, all that "buy-and-hold" talk seems like nothing more than a huge scam in retrospect.

But this grey cloud has a real silver lining, and if you look, you can find reasons for cautious optimism. As fellow Fool Morgan Housel has pointed out, the S&P 500 has never fallen for two decades in a row. The same holds true for the Dow Industrials as well. In fact, during previous occasions, investing immediately after a 10-year drop has proven to be among the best times you could invest.

Looking back at history
The last time we saw the 10-year S&P and Dow returns fall into negative territory was during the early 1980s. It was a terrible time for investors, and the market was a scary place. Stagflation plagued the economy, unemployment was relatively high for the time, and the savings and loan crisis wreaked havoc on the financial sector. Magazine covers proclaimed the death of stocks, and no one wanted to put their money in the market.

Nevertheless, if you had bought an S&P index fund back in August 1982, your investment would have yielded an average annual return of more than 15% in the next decade. That's a 16 percentage-point turnaround from the 1% drop from 1972 to 1982.

Of course, it would have been difficult to pinpoint the exact moment to buy. But after looking at historical returns for each day over the last 50 years, I didn't find a single occurrence -- not one -- of a down 10-year period being followed by another down period over the subsequent decade.

Insert foot directly into mouth
Now, does that mean it could never happen? Of course not -- if you want an example, just look at the Japanese stock market over the past 20 years. There's no such thing as a guaranteed investment -- even if we're talking about Treasuries, there's always some degree of risk involved. That's just how things work.

But if history is any indicator, there's a lot of evidence supporting the notion that buying when stocks have fallen over the past decade will yield above-average returns for the future. You know the old adage: Buy low; sell high.

In early March 2008, investors saw something they'd never seen before. The 10-year trailing returns for the Nasdaq Composite Index fell below zero, where they still remain. In fact, all three major indexes are currently down from where they were 10 years ago. Even though I can't know with certainty, I'm willing to bet that the Nasdaq will be higher 10 years from now.

From top to bottom
For individual companies with long enough histories -- and those that have actually fallen over the span of a decade -- there's even more interesting data.


Return Following Most Recent 10-Year Loss 

Average Return Throughout 40-Year Period (1969 to 2009)

Difference in % Points

Coca-Cola (NYSE:KO)




Walt Disney (NYSE:DIS)








Johnson & Johnson (NYSE:JNJ)




Source: Yahoo! Finance, author calculations. Data used from 1969 to 2009.

In my research since 1969, I found that some companies have apparently never dropped over a 10-year period. Prominent examples include McDonald's (NYSE:MCD), United Technologies (NYSE:UTX), and Hewlett-Packard (NYSE:HPQ). That doesn't mean they've never been good investments, obviously -- it just means that you've never had a drop-dead obvious time to buy.

The problem with applying this strategy to individual stocks is that sometimes, there's a very good reason why a stock has dropped over a 10-year period. GM and Bear Stearns never recovered from their 10-year swoons, and it remains to be seen whether the huge losses that AIG and Fannie Mae have experienced can reverse themselves. Not every cheap stock is a good value play.

With the major indexes, though, I suspect that this strategy will work well. I'll check back in 2019 to see if I was right, but in the meantime, happy hunting.

Walt Disney is a Motley Fool Stock Advisor recommendation. Walt Disney, Coca-Cola, and 3M are Motley Fool Inside Value picks. Johnson & Johnson and Coca-Cola are Motley Fool Income Investor recommendations. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Chris Jones owns no shares of any company mentioned in this article. It's all Scotch and cigars for The Motley Fool's disclosure policy.