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 tumbled.

So the bargain hunter in him kicked into gear. A year and a half ago, Buffett penned an op-ed in The New York Times saying he was buying U.S. stocks for his personal portfolio. The market continued its long cliff dive, 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 critics. 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 right at the tail end of the dot-com explosion -- when tech companies like Hewlett-Packard (NYSE: HPQ) and IBM (NYSE: IBM), and even notoriously bland companies like Merck (NYSE: MRK) and Verizon (NYSE: VZ), 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 S&P 500 average over a 100-year period, a pattern emerges:


S&P 500 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 have huge runs; markets have huge busts. 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 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 volatile, especially 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.

Even better, as fear over this Great Recession rules the market, companies with a history of proven long-term returns -- companies like Pfizer (Nasdaq: PFE) and Southern Company (NYSE: SO) -- trade at prices that set investors up for seriously attractive returns going forward. Anyone who's 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, like Citigroup (NYSE: C), may never return to the glory enjoyed two or three years ago. That's life.

Nonetheless, the trend is as true today as it has 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 it's 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 of Berkshire, Southern Company, and Verizon. Berkshire Hathaway is an Inside Value selection and a Stock Advisor recommendation, and Southern is an Income Investor choice. The Fool owns shares of Berkshire Hathaway and has a disclosure policy.