It has been almost a year since the onset of the recent bear market. On March 9, 2009, the Standard & Poor’s 500 stock index had fallen 57 per cent from its peak, making this investment period the second-worst bear market of all time. To compound the problem, this is the second bear market in this decade, with the S& P falling 49 per cent in the 2000-2002 decline. The combined result of the two declines has produced the worst 10-year performance for equity investments in U.S. stock market history.

To gain some perspective on this historic bear market, I spoke with five members of our community who hold prominent positions on Wall Street: Jack Schott, portfolio manager and chair of the investment committee of Steinberg Global Asset Management; Bob Dewey, retired senior partner at Donaldson, Lufkin and Jenrette, who was responsible for all of their equity business; John Goldthwait, managing director of Boston Financial Management; John Straus, chairman of UBS Private Bank in the U.S.; and J. Shepard, senior vice president, Morgan Stanley Smith Barney. I asked each one what they had learned from the current meltdown, and what the future holds for equity investing over the next five years.

Bob Dewey relearned a lesson that made me feel better about the poor performance of my own portfolio. He pointed out that 99 per cent of “professional investors” failed to predict the recent downturn. Market timing is not possible, he concluded. The only rational investment strategy is to hold stocks for the long term.

Jack Schott was surprised by the level of corruption in the securities industry. According to Jack, a lot of government regulators were asleep at the switch. When I asked Jack if this meant more regulation was needed, he responded, “Yes, maybe some. But what is more important is that we start enforcing what is already on the books.”

J. Shepard pointed to the problem of excessive leverage, which found many financial institutions leveraged at 30 to 40 times their balance sheets. When these leveraged investments began to decline in value, these institutions were forced to come up with money they didn’t have. Last fall the situation became so dire that the entire financial system was threatened with collapse. He praises Ben Bernanke for his courageous leadership in stabilizing the credit markets which has enabled the economy to begin to mend.

John Straus and John Goldthwait relearned lessons that relate to sound portfolio management. Many investors, according to both men, did not have clear goals for their portfolios nor did they understand the level of risk they were undertaking. John Straus advises clients to take as little risk as possible in order to achieve financial goals. This means paying attention to asset allocation or the mix in one’s portfolio between stocks and bonds.

John Goldthwait preaches a similar message. He reminds us that as we grow older, the balance between stocks and bonds should change to a greater emphasis on bonds, which reduces the risk within the portfolio. Individuals should consult a trusted financial advisor in making asset allocation decisions.

Stock market history suggests that a substantial market rebound will follow the current downturn. Stocks are incredibly cheap on an historic basis, and have performed well over the last five months. Interestingly, our five East Chop experts were not so sure about the long-term outlook. Two were outright bearish about the prospects for stocks over the next five years, while two were cautiously optimistic at best. There was only one bull in the group.

They all agreed on the problems the economy faces over the next five years. Consumer spending accounts for 70 per cent of economic activity in the U.S., and the American consumer will be pinched. Pressures to save, and the likelihood of higher taxes, interest rates and inflation will reduce the ability of consumers to spend over the next five years. Sadly, this is a recipe for slower economic growth and reduced stock market returns.

The fact that our five economic gurus tend toward pessimism may in fact be a good sign. Widespread pessimism regarding the market often fuels substantial stock market gains. Now, doesn’t that make a lot of sense? I think I’ll go to the beach!