There has been a lot of discussion about the lost decade for the stock market in America. For the first time in its history, the S&P 500 actually finished an entire decade with a lower valuation than at the start of the decade. While this has caused some investors to abandon ship on long term investing, that is a big mistake. Although the index as a whole has struggled over a 10 year time period, there are some individual companies that have performed quite well. Let's take a look at some of the characteristics that made some investments winners while the market was plunging.

TUTORIAL: Market Strength: Introduction

Market Capitalization
It may have been a bad decade for many of the large cap companies but small and mid cap companies did quite well. According to US News, "the Russell 2000 Small Cap Value index was up more than 60 percent for the Lost Decade." The S&P MidCap 400 and the S&P SmallCap 600 were both up over 60% during the same time period. The old saying of no risk and no reward is true. Smaller companies offer a lot more growth potential because of their tiny size and have rewarded investors accordingly. (These three index genres offer different approaches to tracking average market performance. For more, see Market Cap, Equal Weight And Fundamental Indexing.)

Great Business Model
Investor capital always flows to the next great business model and cutting edge technology has been loved by investors. Netflix is a great example of this. At a time when consumers were used to getting their movies via traditional retail locations, a tiny upstart company called Netflix came along and changed the game. Netflix investors were rewarded with many times the stock's price since its IPO in 2002. Apple has given investors a huge return while changing the face of music distribution and revolutionizing the smartphone market at the same time. (Learning how to assess business models helps investors identify companies that are the best investments. For more, see Getting To Know Business Models.)

Produces Items That People Need
One of the common traits of most of the high flying stocks is that they create products that people need. Weight loss products, coffees, juices and other beverages are things that are used on a daily basis. This is why small upstarts have seen their products flying off of the shelves. Medifast has produced a 16,209% return over the last decade with its line of weight loss products. Green Coffee Mountain has carved out a nice niche for itself in the coffee industry generating a 9,211% return over the last 10 years.

Large Amounts of Cash to Deploy
In order for a company to be able to expand its operations, a company has to have significant cash reserves and very little debt. Market winners generate ample amounts of free cash fund so that the companies can fund their operations without relying on a lot of outside debt. Debt is one of the biggest encumbrances to growth and profitability as a company will have to spend a ton of money just servicing its debt loads. (Borrowed funds can mean a leg up for companies, or the boot for investors. For more, see Will Corporate Debt Drag Your Stock Down?)

No Repeat Performers
It is very rare that a stock that was a market winner in one decade turns out to be a winner in the next decade as well. It can happen where a company that performed poorly in one decade has a greater chance of performing better the next. That is because the market stars of one decade quickly flame out over the next decade. Investors have can have a better chance of finding a future breakout star by searching for a company that was an underperformer in previous years. Alternative beverage maker, Hansen Natural's 129% return in the 1990s was dwarfed by its remarkable 7,022% return over the past decade.

Bottom Line
As you can clearly see, it is possible for investors to make money in the stock market even when entire sectors are struggling. (For related reading, see Sector Rotation: The Essentials.)

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