The past decade has many investors ready to give up on stocks almost entirely. Stoked by the misguided talk of some pundits, they look at the equity market's red ink over the past 10 years and think that investing has drastically changed. In some cases they're even convinced that the next decade will look a lot like the last.

There is so much wrong with this that I almost don't even know where to begin.

The smoking gun
The claim that returns have been abysmal over the past 10 years is hardly exaggerated. Between the start of 2000 and the beginning of this year, the S&P 500 index dropped 23%. Many individual stocks fared even worse.

Company

Stock Return

Corning (NYSE: GLW) (55.1%)
Cisco Systems (Nasdaq: CSCO) (55.3%)
Merck (NYSE: MRK) (45.6%)
Comcast (47.2%)
Home Depot (NYSE: HD) (57.9%)

Source: Capital IQ, a division of Standard & Poor's. Stock returns are Jan. 1, 2000, to Jan. 1, 2010.

Obviously, something went very wrong over the last decade because above we've got a group of high-quality companies from a variety of industries and each and every one would have put a major dent in your portfolio.

Here's what happened
Now you can focus on the awful returns shown above -- as some pundits are -- or you can look a bit closer to find much more interesting data. Same companies, much different picture.

Company

Earnings-Per-Share Growth

2000 Trailing Price-to-Earnings Ratio

2010 Trailing Price-to-Earnings Ratio

Corning 97.2% 66.2 15.1
Cisco 207.7% 158.5 23
Merck 130.6% 27.4 6.5
Comcast 99.4% 50.5 13.4
Home Depot 55.3% 68.9 18.7

Source: Capital IQ.

To look at the earnings growth for these companies, it sure doesn't look like it was a lost decade. So what happened? Investors were paying way too much 10 years ago.

Has good investing changed a lick? No! Paying astronomical prices for even good companies is, has been, and always will be a bad idea.

The terrible decade ahead
So what happens if we really do end up with another decade like the one we just endured? In the first scenario below, earnings growth is in line with analysts' expectations over the next five years, and then 3% for the following five. In the second scenario, growth is simply 3% for the entire 10 years. In both, the stock prices fall just as they did over the past decade.

Company

Scenario 1: 2020 Trailing Price-to-Earnings Ratio

Scenario 2: 2020 Trailing Price-to-Earnings Ratio

Corning 3.1 5.1
Cisco 4.8 7.7
Merck 1.6 2.6
Comcast 3.3 5.3
Home Depot 3.6 5.9

Source: Capital IQ.

Could it happen? Sure. Rationality isn't always the stock market's strong suit. And while the first scenario is a pretty big stretch, some investors are actively betting that we will see something like the second scenario because valuations have fallen to similar levels in the past.

And to be sure, it's a tempting thought -- I'd love to be buying stocks at valuations like those. But if the hoped-for decline doesn't come, or it doesn't hit some magic "buy now" level, then investors waiting around for these rock-bottom prices will be left out in the cold.

Buy now, buy more later
I think it's much more likely that the stocks above will never even sniff those bargain-basement valuations and that the much-feared "U.S. Lost Decade for Equities: Part II" won't materialize.

However, there's a simple solution for getting the best of both worlds -- it's not assuming that you have to do all of your buying at one time. There's nothing to say that you can't do some buying today -- to benefit from companies' earnings growth in years ahead -- and keep some money on the side in case better buying opportunities arise. Better still, if you're truly Foolish then you're adding to your portfolio every month with new savings, so you've constantly got new money that can be put to work on the best opportunities.

And what do the current best opportunities look like? They look a lot like this.

Company

Trailing Price-to-Earnings Ratio

Dividend Yield

Return on Equity

ExxonMobil (NYSE: XOM) 12.8 2.7% 15.3%
Johnson & Johnson (NYSE: JNJ) 13.1 3.4% 16.4%
Altria (NYSE: MO) 14.0 6.1% 24.5%

Source: Capital IQ.

These are all established, solid businesses -- Exxon is the global energy powerhouse, J&J is a diversified leader in the pharmaceutical industry, and Altria is the sinful company behind the dominant Marlboro cigarette brand -- whose mettle is proven through healthy returns on capital. The stocks all carry very reasonable valuations and get their earnings back to their shareholders through quarterly dividend payouts.

While these screening criteria may seem pretty obvious, if you go back and look at past data (I have), you won't see all that many companies that are as high caliber as Exxon, J&J, and Altria that fit the bill. But because Mr. Market is eschewing blue chips right now, we can find these kinds of deals.

Think I'm dead wrong and the next decade will clobber investors? Set me straight in the comments section below.

There's a lot to admire about famed super-investor Warren Buffett, but that doesn't mean we should own every stock he does. In fact, Anand Chokkavelu thinks you should avoid these three Buffett holdings.

Home Depot is a Motley Fool Inside Value recommendation. Johnson & Johnson is a Motley Fool Income Investor recommendation. The Fool has written calls (bull call spread) on Cisco Systems. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson. The Fool owns shares of Altria Group, ExxonMobil, and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer owns shares of Johnson & Johnson, but does not own shares of any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy assures you no Wookiees were harmed in the making of this article.