Fidelity Magellan fund manager Peter Lynch, considered by many to be America's top stock-market investor, says the man on the street is missing a golden opportunity to make money in the stock market.
"It's tragic," he said referring to the lack of public participation and the widespread perception that the stock market is a dangerous place to invest money.Lynch, whose mutual fund has been a top performer for more than a decade, has written a book, "One Up On Wall Street," saying that small investors can pick stocks and make money just as well as the professionals, and sometimes even better.
"The opportunity has never been better for the average investor. Never," said Lynch in a speech Monday to financial writers about his new book published by Simon & Shuster. He explained that with careful research and first-hand observation small investors can find good companies that the professionals have neglected
The risk of failure is to lose 100 percent of an investment, he said. But the reward for sticking with an unknown stock is that it could become what he calls in his book "a ten-bagger," a stock that goes up tenfold in value or more. Often, conservatively-managed funds miss these chances.
Lynch's rosy scenario has a thorn-tree growing in the middle right now, he conceded. With short-term interest rates on government bonds pushing up to the highest level in more than four years, stocks are that much less attractive.
"That's a very impressive thing to compete against," said Lynch. "Right now you can buy seven-year governments (bonds) and double your money in seven years. That's a very difficult alternative."
He said the stock market might have difficulty if bond market yields continue to rise. But for the present, stocks hold good value, he said.
"Stocks today based on earnings and cash flow are still attractive and have not entered the overpriced range, they're still fairly priced," he said, citing the continuing pace of takeovers as evidence of their underlying value.
"I come up with a sort of a neutral to okay picture (for the stock market)," he said. A further sharp jump in interest rates could bring on a recession, which would create new bargains in stocks of companies with good earnings potential.
He said small investors could find those companies using first-hand experience. Then they must be patient. Small investors can hold stocks for years, unlike professional fund managers.
"They read the same books and go to all the same movies. They think and act the same way. So it is an outstanding opportunity for the small investor," he said. But individuals usually blow the chance.
"For some reason, when individual investors turn to the stock market they act irrationally," he said. "They want to play the market. They think of it as a game."
The man on the street can uncover products and services missed by the institutional investors who dominate stock market investing, he said.