People often thinks of great investors as nearly infallible geniuses who generate big returns year-in, and year-out. But in his latest letter to investors, Bill Nygren — whose Oakmark Fund has generated returns more than five times the broader market over the past decade — says that’s far from true. (A tip of the cap to GuruFocus.com for highlighting the letter.)

According to Nygren, in only 8 of the last 40 quarters has his fund beaten the S&P 500 by more than a percentage point and produced positive returns. “That’s like hitting .200 in baseball,” Nygren says. “The dreaded Mendoza Line is just one out away from a sure ticket to the minor leagues.”

In investing, however, a .200 average can work. “For value investors, much of the value we add is by protecting capital during down markets,” Nygren says. “We often don’t keep up with strong markets, but make up for it by losing less during market declines. As we’ve frequently said, expectations are typically quite low for companies we own, which means they don’t usually fall as much as the market does when times get tough. Nobody exchanges high-fives for losing less than the market, but that’s how our eight-for-40 record translated into a very good decade.”

Nygren also says he’s bullish heading into 2011.

“The current market price is still only about 13 times projected forward earnings, which is below the long-term historical average of about 15 times,” he writes. “Despite last quarter’s decline in the bond market (meaning yields increased), the S&P 500 dividend yield about matches the five-year government bond yield, which is historically unusual.” He adds that corporate balance sheets are less levered than usual, and says he expects companies to make more share repurchases, dividend increases, and acquisitions. “And we expect investors to begin selling bonds to buy domestic equities, reversing the flows that have created headwinds for equities for the past two-plus years,” he says.