As 2011 is in the past and the new year is here, there is always a lot of talk about the prior year as well as predictions about the year ahead. If you believe you know the outcome in advance of a time that doesn't yet exist, go ahead and make your prediction and your bets. Even talking about a calendar year in the past isn't of much use unless you were trading your way to a new car, home, or yacht and December 31, 2011 was your deadline. I believe the best time frame is a full market cycle that includes up and down periods. Those who don't understand investment results are created over complete cycles probably find themselves earning big gains that are later wiped out by large losses, over and over again. The pursuit of an asymmetric return profile necessarily requires the capture of some of the upside and then the avoidance of some of the downside. It's the capture of more of one than the other. With that said, we view the past stock market performance history using the Russell broad market indices. Nevertheless, below is a table of the typical format of presenting a performance profile. In the table we show the calendar year but also include longer periods to include the more important full market cycle (5 years or longer). The definitions for the indices are at the bottom of this post. 

Source: Rusell Return and value data utilized in this calculation tool comes from sources believed to be reliable but is neither guaranteed nor warranted and is subject to revision without notice

A picture speaks a thousand words. Below is the price chart of some of the broad stock market indices that represent the performance of stocks of companies of different sizes: small, mid, and large company stocks. Stocks broadly started 2011 in a rising price trend. The year was filled with negative headlines and fear. The stocks indices declined around -20% very quickly late summer and then recovered those losses to close the year at about the price they started. One useful thing about viewing price charts this way is we can see the visual representation of the path along the way, not just the ending point. The calendar year range for these broad indices was -9% to 1.5%. Stocks were "flat" if we look at the average, but that doesn't present the experience during the year. In the chart, we can note the highest high, the lowest low, and the distance between the high and low (the draw-down) along the way. You can probably see how stock investors probably oscillated between the fear of missing out and the fear of losing money in such a volatile period. 

Source: http://stockcharts.com/freecharts/perf.html?$RUT,$rui,$rua,$rmc, 

Looking at these stock market indices over a full market cycle (a period typically 5-6 years that includes both rising and declining price trends) we see the performance profile of stocks that include both gains and losses. Performance tables do not present "investment returns" appropriately because they only illustrate the end result for a period, but not the path or the worse draw-down along the way. In the price chart below, we get a visual representation for the most recent market cycles. Since April 2005, these stock indices gained a total 10 - 25%, or and average of only 1-4% annually.  From that starting point, they were up over 40% at one point (October 2007) and then declined over -50% by March 2009. The smallest stocks recovered their declines is the 100% gain it takes to recover from a -50% loss. The majority of the stock market, mid and large companies, are still far from their previous highs with the broadest index, the Russell 3000 (green line) gaining only about 10% over the entire period. While these price charts don't include dividends, they also don't include any costs. As we have illustrated both the risk and reward over the most recent full market cycle, you may agree that the stock market by itself has not presented the kind of asymmetric investment returns that meets most investors' objectives. In fact, applying a conventional asset allocation with annual reblancing to a broad mix of stocks and bonds doesn't create the kind of asymmetric profile many investors want. It's important to understand long term (secular) trends and Seasons and Cycles of the Stock Market.

Index Definitions (Source: Russell Investments)

The Russell 3000 Index measures the performance of the largest 3000 U.S. companies representing approximately 98% of the investable U.S. equity market.  The Russell 3000 Index is constructed to provide a comprehensive, unbiased, and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected.

The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market. The Russell 1000 Index is constructed to provide a comprehensive and unbiased barometer for the large-cap segment and is completely reconstituted annually to ensure new and growing equities are reflected

The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe. The Russell Midcap is a subset of the Russell 1000® Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap represents approximately 31% of the total market capitalization of the Russell 1000 companies. The Russell Midcap Index is constructed to provide a comprehensive and unbiased barometer for the mid-cap segment. The Index is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true mid-cap opportunity set.

The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000 Index is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set.

The Russell Microcap Index measures the performance of the microcap segment of the U.S. equity market. Microcap stocks make up less than 3% of the U.S. equity market (by market cap) and consist of the smallest 1,000 securities in the small-cap Russell 2000® Index, plus the next smallest eligible securities by market cap. The Russell Microcap Index is constructed to provide a comprehensive and unbiased barometer for the microcap segment trading on national exchanges, while excluding lesser-regulated OTC bulletin board securities and pink-sheet stocks due to their failure to meet national exchange listing requirements. The Russell Microcap is completely reconstituted annually to ensure larger stocks do not distort performance and characteristics of the true microcap opportunity set.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.