You think you've had a bad year? Poor Warren Buffett has seen more than $25 billion evaporate from his net worth in the past year as Berkshire Hathaway followed the market straight off a cliff.

Adding insult to injury, he was fiercely criticized for the awful performance of investments in Goldman Sachs and General Electric. In addition to preferred shares that pay 10% dividends, he got warrants for common shares at prices that quickly fell off a cliff. Both companies have staged solid rebounds, but not before an onslaught of heckling.

In response to the market panic, Buffett penned an op-ed in The New York Times last fall saying he was buying U.S. stocks for his personal portfolio. Shortly afterward, stocks continued to disintegrate, and the economy has virtually imploded.

This has caused some to wonder: Has the Oracle of Omaha lost his touch? 

You cannot be serious
Simon Maierhofer thinks so. In fact, he took issue with Buffett's claim that stocks will outperform cash in the coming years:

How did [Buffett's] "cash is trash" philosophy fare over the past 10 years? $10,000 invested in the S&P 500 exactly 10 years ago would be worth $7,500 today. The safest cash equivalent, [Treasury bills] ... would have returned about 30%, putting you at $13,000. We don't encourage investing by looking in the rear view mirror but a look at the numbers shows that the only bull market right now is in cash.

Let's leave aside for a moment the question of inflation, which ensures that the $10,000 of 10 years ago is not, in fact, the equivalent of $10,000 today. What does the market's performance over the past 10 years suggest for the future? 

Up, up, and away 
Any 10-year retrospective has to contend with the fact that 1999 was smack in the middle of the dot-com boom, when tech companies such as Qualcomm (NASDAQ:QCOM) and IBM (NYSE:IBM) -- and even bland companies like Procter & Gamble (NYSE:PG) or Harley-Davidson (NYSE:HOG) -- traded like infinite growth was written in stone. Since then, we've seen not one but two bubbles burst. The dismal state of trailing-10-year returns is hardly news. But if we look at 10-year returns for the Dow Jones Industrial Average over the past 100 years, a pattern emerges:


Dow Jones Industrial 
Average Return





















After booms come busts, after busts come booms. That's how markets work. If we had chosen a different frame (i.e. ending in 2006 instead of 2008), the numbers would likely be different, but the overall pattern would be the same. Markets go up, markets go down. Typically right after each other.

This isn't a short-term, cherry-picked set of data, after all. It's 100 years of market returns, during which time the nation overcame two world wars, four smaller wars, a flu epidemic, the Great Depression, civil uprisings, multiple recessions, oil shocks, and terrorist attacks -- not to mention sideburns, Chia Pets, Carrot Top, and boy bands.

Anything can happen in the short term -- and the short term right now is chaotic and volatile like never before. Yet over the long term -- going back an entire century -- the trend of the stock market is pretty clear. 

It's time to be brave
Yes, stocks are scary right now. Yes, there will be boom times and bust times -- and the busts are no fun, even when we're resigned to their presence. But if you want your money to earn you adequate post-inflation returns over the long haul, cash isn't going to get you there. Never has. Never will. 

As fear, panic, and forced liquidation rule the market, companies with a history of proven long-term returns -- like Alcoa (NYSE:AA), Eli Lilly (NYSE:LLY), and Dow Chemical (NYSE:DOW) -- have recently touched their lowest prices in far more than a decade. Anyone who favors holding cash or buying Treasuries at historic highs in lieu of stocks at historic lows is making a mistake they'll almost certainly regret down the road.

None of this is to say we've reached a market bottom. Historical earnings multiples, for example, suggest that more pain could await investors. Some periods of market lethargy have indeed lasted for longer than 10 years, too.

Nonetheless, the trend is as true today as it's been for the past century: We're at a point where bargain-hunting investors can be as assured as they've been in decades that stocks will perform well in the long term.

Our team at Motley Fool Inside Value is sifting through the rubble in search of the bargains that will translate into long-term opportunities. To see what they're recommending right now, click here to try the service free for 30 days. There's no obligation to subscribe.

This article was first published Nov. 24, 2008. It has been updated.

Fool contributor Morgan Housel owns shares in Berkshire Hathaway and P&G. Berkshire Hathaway is a Motley Fool Inside Value selection, as well as a Motley Fool Stock Advisor pick. P&G is an Income Investor recommendation. The Fool owns shares of Berkshire Hathaway and P&G, and has a disclosure policy.