The stock market has proven itself to be a system of extremes, overvaluing growth and undervaluing consistency. There is reason for disappointment over the last 12 years, but it’s mostly because the stock market overdid itself in the five years up to 2000. The stock market got into a bubble, and really, it’s been a bear market ever since.

No company better illustrates this point than American Express Company (NYSE/AXP), a Dow Jones component that has mimicked the S&P 500 almost exactly. This stock is trading at the same level it was in 2000 and 2007. Without those dividends, investors wouldn’t be ahead at all, and that’s not even counting inflation. Even though American Express is a good company, it’s been a bear market stock for over a decade. The company’s recent stock chart is below:

Chart courtesy of www.StockCharts.com

But during the 1990s, American Express was a powerhouse wealth creator. Contrast this with both present-day Visa Inc. (NYSE/V) and MasterCard Incorporated (NYSE/MA), which are doing exceptionally well on the stock market, and you’ll realize that companies themselves experience their own business cycles: it isn’t just the economy.

It doesn’t really matter how you describe the stock market; even in a bear market, there are stocks that are going up. But in my mind, it has been a bear market all these years, and that’s somewhat discouraging as an equity investor. The performance of the stock market serves to illustrate just how important dividend income is. Whether dividends are reinvested in shares or the income is used for something else, stock market returns have proven to be flat in recent history, along with a good dose of fear and uncertainty. If the bear market continues, it makes you wonder whether the investment risk of equities is worth it.

Bear market or not, good investing is all about good timing and getting the business cycle right (either for an individual company or the economy). Microsoft Corporation (NASDAQ/MSFT) is the perfect example. Would you buy this stock today? Even with a hefty dividend yield of 3.5%, I know I wouldn’t. Microsoft’s shares have been in their own bear market for the last 12 years. (See “Want to Know Where Stocks Are Headed? Follow These Three.”) Eventually, I’m sure, the stock will break out into a new trend. But the investor has to ask, “Do I want to risk that bet, and what are the opportunity costs of doing so?” Microsoft’s stock chart is below:

Chart courtesy of www.StockCharts.com

Over time, it does pay to buy good businesses when they’re down and reinvest dividends into new shares. The more difficult thing to achieve in making investment decisions (stock market or not) is the timing. It can be a difficult thing to do, but buying assets when they’re down, trying to engage in the buy low/sell high investment strategy, is probably the most fruitful.

Of course, you have to wait for the right opportunities to present themselves. Just buying a stock market index in the bottom half of 2009 was a good idea. And so was selling a stock market index back in 2000 and 2007. I really view us as being in a bear market for stocks, and it’s going to last a while longer. The next big thing likely won’t be in technology or manufacturing, but probably in resources. Something related to natural gas stands out right now.