Stock-picking trumped buy-and-hold in the past decade, reversing the reigning investment strategy proffered by the likes of Vanguard Group and other mutual-fund firms that encouraged Americans to pile into passively managed index funds and those that closely follow benchmarks.
Investors who smartly selected stocks from broader indices, such as S&P 500 index constituents Apple , Coach and Cliffs Natural Resources, generated gains of up to 5,000 per cent.
The S&P 500, in contrast, dropped nine per cent since December 2000, undermined by two recessions and two bear markets at each end of the decade.
Yet, not every money manager is prepared to read the eulogy for buy-and-hold.
"Stock-picking is always important because there will always be a stock du jour, a stock of the year, and a stock of the decade," says Jay Suskind, senior vice president at Duncan-Williams Investment Bankers. "But I wouldn't get too wrapped up in 'buy-and-hold is dead.' The S&P is down for the decade, but that's over a 10-year period. There were times where you made a lot of money."
Even though the S&P 500 index of the largest U.S. stocks managed to beat three-quarters of active managed mutual funds over the past decade, some companies rallied 50-fold.
That's even more remarkable considering that, between 2001 and 2010, there was no shortage of negative news.
After Federal Reserve Chairman Alan Greenspan had raised interest rates several times to cool the U.S. economy, the dot-com bubble burst in early 2000. The real collapse wasn't felt until 2001, and losses accelerated after the terrorist attacks on Sept. 11.
"Part of the tech bubble was also a mega-cap stock bubble," says Bill Stone, chief investment strategist with PNC Wealth Management. "On top of technology, media and telecom, a lot of the weakness was in large-caps. If you look at stock indices that follow smaller market capitalization stocks over the last decade, they did significantly better."
Technology, media and telecommunications stocks are among the worst performers on the S&P 500 over the past ten years. They include JDS Uniphase, Tellabs, Qwest Communications, Sprint-Nextel , The New York Times and Gannett.
Each of those stocks plummeted by 75 per cent or more. Not long after the dot-com bubble burst, accounting scandals and bankruptcies at Enron and Worldcom further eroded investor trust. Still, each was eclipsed in September 2008 by Lehman Brothers, which came at the height of the financial crisis of 2008.
Lehman, the No. 4 U.S. investment bank at the time of its implosion with $639 billion (U.S.) in assets, was founded by German immigrant Henry Lehman in Montgomery, Ala., in 1844 as a general store. Lehman's collapse toppled global markets as credit dried up worldwide.
As a result, several financial stocks are among the worst S&P 500 performers of the past decade. American International Group , Citigroup , Morgan Stanley and E*Trade Financial have lost 66 per cent or more over the past 10 years.
Citigroup was downgraded to a penny stock in March 2009. To be sure, there was positive news for bullish investors in the past ten years. Before the height of the subprime-mortgage crisis, the Dow Jones Industrial Average hit an intraday record high of 14,198.10 on Oct. 11, 2007.
The emergence of countries like Brazil, China and India contributed to a massive increase in commodity prices, which has paid off for investors in precious metals, rice, corn and wheat futures, and oil. As if the past decade wasn't eventful enough, professional money managers expect a tumultuous start to the new decade in 2011, as the global markets face the threat of debt crises in countries such as Portugal and Italy. Intervention by the Federal Reserve has kept interest rates and the dollar depressed, although bond prices have been falling recently.
One of Duncan-Williams Investment Bankers' Suskind's best for 2011 and beyond is large-cap "quality" stocks.
"Buy the old quality, dividend-paying names and you'll probably do OK," he says. "Boring is better." PNC's Stone agrees that it's "about time to see a large-cap comeback. There are opportunities there. It's a strange fact that some of the cheapest stocks valuation-wise are also some of the biggest and strongest ones."