It's all about Perspective

Happy New Year. There was no double-dip and 2010 turned out to be another great year for the stock market. In fact, you'd have to have gone out of your way to generate a return less than the S&P 500's 12.8%. And yet, many mutual and hedge funds managed to do just that but what else is new? I'll try and look surprised at least.

We can dig deeper and there is more to be surprised about. Once in awhile, I'll chance across an article that forces a complete overhaul of my investment perspective. A recent one can be found here. If you accept Crestmont Research's findings, you'll quickly realize that conventional investing wisdom has betrayed us yet again:

1)the stock market is actually much more volatile than we've been sold.
2) average returns are much much less than the annualized 7 to 10% we've been sold. The median 20-year return is actually 4.1% net of fees, average taxes and adjusted for inflation.
3) There are many 20-year periods where returns were actually negative. That's about 2.5 times longer than a real estate cycle.

While I've been highly critical about how active managers are over compensated for often underperforming their benchmarks, it appears that low-cost passive investing may not be the solution either--20 years is a long draught for anyone to ride out.