The article points out that in late 1999 the S&P 500 traded at 44 times earnings compared to a long-term average more like 16. That's at the heart of the underperformance. Many of the companies themselves did rather well "catching up" to their overvaluation.
In the article, Jeremy Grantham says "you'd better believe you're going to get dismal returns" with those kind of valuations and that stocks began the decade "horribly overpriced".
Some might have the impression that 1999-2009 stock performance is partly a reflection of poor business performance. That's not really the case. In a recent post, Jeffrey Saut said that markets tend to be driven by "fear, hope and greed only loosely connected to the business cycle."
That statement certainly applies to this past decade.
Here's an example. Coming into the decade Wal-Mart was earning $ 1.40/share. By the end of the decade Wal-Mart was earning more like $ 3.70/share. So that stock may have gone sideways but lots of value was created if you believe those earnings are sustainable and growing (I certainly do). The problem with Wal-Mart wasn't business performance it was just that investors collectively were paying too much (35-40x) for those earnings back in 1999. The stock went sideways and earnings caught up.
Today, even though the market overall isn't all that expensive, there are still plenty of individual businesses right now that appear to be in a similar situation. Businesses with terrific future business prospects selling for an unsustainable multiple of earnings. In many cases, the multiple will end up getting even more stretched but ultimately it normalizes. Predicting when is difficult if not impossible but you don't want to be there when it does.
Many businesses did just fine during the past decade. The problem wasn't business performance it was that the average stock in 1999 was priced to reflect 2009 or later intrinsic values. The S&P 500 was a decade ahead of itself. The NASDAQ, of course, was even worse.
Yet, the averages don't tell the whole story because, just like right now, plenty of individual stocks were cheap at that time.