You think you've had a bad two years? Poor Warren Buffett saw more than $25 billion evaporate from his net worth as global economies went berserk and Berkshire Hathaway shares (NYSE: BRK-B) tumbled.

So the bargain hunter in him kicked into gear. Just over a year ago, Buffett penned an op-ed in The New York Times saying he was buying U.S. stocks for his personal portfolio. Shortly after, stocks fell off a cliff, and the economy ... oh, no point in rubbing it in.

And while stocks have since rebounded off their lows, it wasn't before Buffett received an onslaught of criticism that caused some to wonder: Has Big Warren lost his touch?                                                                                

You cannot be serious
Simon Maierhofer was one of those criticizers. 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 10 years ago was smack in the middle of the dot-com explosion -- when tech companies like Microsoft (Nasdaq: MSFT), Yahoo! (Nasdaq: YHOO), and even stalwarts like Coca-Cola (NYSE: KO) and Procter & Gamble (NYSE: PG) -- traded like perpetual sunshine was carved in stone. Since then we've seen not one, but two bubbles burst. The fact that trailing 10-year returns look terrible is hardly news.                                                                               

But if we look at 10-year returns for the Dow Jones Industrial Average over a 100-year period, a pattern emerges:

10-Year Period

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, 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 Balloon Boy.

Anything can happen in the short term -- and the short term right now is chaotic and volatile. 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 volatile. 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.

Even better, as fear over this Great Recession rules the market, companies with a history of proven long-term returns -- companies like Dell (Nasdaq: DELL) and AT&T (NYSE: T) -- trade at prices that set investors up for seriously attractive returns going forward. Anyone who thinks 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're free to ring the "all-clear" bell. Historical earnings multiples, for example, suggest that more pain could be in store for investors. Periods of market lethargy have indeed lasted for longer than 10 years, too. And some companies may never return to the glory enjoyed two or three years ago. That's life.

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's being  recommended 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 of Berkshire and Procter & Gamble. Berkshire Hathaway, Coca-Cola, and Microsoft are Inside Value choices. Berkshire Hathaway is a Stock Advisor recommendation. Coca-Cola and Procter & Gamble are Income Investor selections. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Berkshire Hathaway and Procter & Gamble, and has a disclosure policy.