We're entering a new year and leaving behind a decade in which your so-called investments took a brutal beating. As we point out in our book The Big Gamble, while you may have believed that you were investing your money, clearly the results have proven that you were only speculating.  So many people gambled and lost, some economists are calling the 90s the "lost decade" for stocks.

The S&P 500 average is lower than a decade ago. Dividend yields may have brought some of the more fortunate closer to a break-even point, (the Vanguard Total Stock Market Index Fund lists the average annual returns of 0.18% for the ten years through the end of November), but we all took a hit with inflation registering a couple of percentage points per year.

Maybe we're viewing this through 20/20 hindsight, but these losses should not have been a great surprise considering that stock valuations were at an unsustainable and historical peak at the beginning of the 90s.  It was fertile ground for herd mentality to trump rational thought—everyone was buying into the notion that stocks were the best long-term investment because the meme was that over any given thirty-year period stocks do better than any other asset class. 

That kind of thinking works when there's a guarantee that the future will always be like the past . . . which is to say, never.  Besides, when everyone believes that ABC stock is the best long-term investment on the market, consider that a red flag.  What happens when demand is high? The price gets higher. And when you get enough people to agree on the same investment strategy, odds are good that they're wrong.

So, we've all learned a hard lesson from recent experience.  But is this the time to believe that the worst is over or that it's time to throw caution to the wind and forge ahead? Or is it time to be extra cautious now that we're already hearing New Year predictions of good things to come and theories about why it's time to get into the market.

Some of those prognosticators will rationalize that the near future will be a good time for stocks because there will be a capital shortage from every source except the stock market.  In their view, the stock market will be the only game in town. Why? They reason that during the past decade, corporations have had ready access to cash from banks, the bond markets or private-equity companies, so they weren't focused on trying to make shareholders happy.