Common sense along with a college-level investment class will teach you that successful investing is driven by diversification, timing and a little luck — not necessarily in that order.

In 2000, a lost decade of investing in stocks began. It could be argued that the malaise has lasted even longer than 10 years. Without getting too caught up in the data, let’s look at the numbers. On Dec. 8, 1999 (well before the peak in March 2000), the Dow finished at 11,068, Standard & Poor’s at 1403 and the NASDAQ at 3586. Twelve years later, on Dec. 8, 2011 the Dow closed at 11,997, the S&P at 1234 and the NASDAQ at 2569.

This is not exactly a dazzling performance — in fact, it stinks. But of course, a properly structured portfolio doesn’t rely on just the ownership of stocks to produce a total return. Bonds have been outperforming stocks for many years, and a healthy allocation of bonds and even cash to a portfolio of stocks would have greatly helped investment returns during that time.

Not surprisingly, the underperformance of the stock markets after the March 2000 peak helped hasten the rotation of money into real estate and real estate investments. Many folks got burned by the crash and soured on stocks. The rotation of money out of stocks led to the growing influence of speculative investing in the real estate market in the early 2000s.

The pool of buyers in the early 2000s was not just first-time buyers stretching to buy a house. Yes, there were mortgage brokers and banks willing to lend to anyone who could fog a mirror. Many of these buyers ended up in loans with little down payment and negative amortization payments, along with an interest rate reset down the road. That was a toxic combination.

But along with these traditional buyers was a large pool of speculative buyers, otherwise known as flippers. With the stock markets moribund, how could an investor ignore the double-digit returns available in real estate? Here in Santa Barbara, during the peak years of 2000 through 2005, I would estimate that 30 to 34 percent of all homes were purchased on spec. The additional demand from this transient pool of buyers drove demand and prices even higher.

Interestingly, even though the peak of real estate activity was in the summer of 2005, prices continued to rise until late 2006. At this point the dynamics began to shift and the collapse of Lehman Brothers precipitated the financial collapse of 2008. Since then, we have experienced the greatest recession in seven decades and the recovery is far from clear.

So where do we go from here, and the housing prices we have now? The short answer is probably sideways.

There are a number of factors that will keep the lid on real estate appreciation. First, the pool of buyers is much smaller. Many of the traditional buyers are still nervous and staying on the sidelines, or they have decided that renting a home makes better financial sense for their family. Other families are interested buyers but can’t qualify for loans. Let’s be clear: Three years after the financial crisis, banks are still more interested in raising cash and healing their balance sheets than in making loans for housing. The required down payments and minimum FICO scores needed to secure a loan are onerous for the average family.

Secondly, every community in the United States has a growing percentage of distressed sales, short sales and REO (bank owned) properties. These properties all put a downward pressure on future sale prices in those neighborhoods. Further, with more than 20 percent of all U.S. homes being worth less than the mortgage carried on them, the future outlook for more distressed sales is sobering. Short of an aggressive principal restructuring of these loans by the lenders, there is quite a bit cause for concern.

In spite of this, my feeling is that the worst is over for the U.S. housing market. We have seen the bottom, but the recovery is not going to be swift. The policies of the Federal Reserve should allow interest rates to remain low for some time to come. This will allow the qualified buyers to buy homes at incredibly attractive mortgage rates.

That said, I think the best we can expect of home prices for the next several years is that prices will track the prevailing rate of inflation. In this environment, that may only mean a 1 to 2 percent increase per year. In reality, prices tracking with inflation would mean that a home is remaining stable in value, but not increasing.

If you agree with me that the peak in housing was 2005 — three years before the financial crisis — then an actual recovery beginning around 2015 would constitute a lost decade for housing appreciation.

In this sense, the stock market and now the housing market would share an uncharacteristic and unflattering similarity.

— Bill Masho is the broker/owner of Masho Associates. He can be reached at 805.895.4362.