In a recent interview with The New York Times, former Fidelity star manager Peter Lynch says that the recent market plunge and financial crisis hasn’t shaken his belief that stocks are the best long-term choice for investors.
“I can’t tell you anything about where the market will be in the next six months or 12 months or two years,” Lynch said. “But at some point in the future, I think you’ll look back and see that we’ve gotten through this … [and that] stocks turned out to be the best bet.”
Three other top Wall Street minds interviewed by the Times — Pequot Capital Management’s Chief Investment Strategist Byron Wien, hedge fund manager Barton Biggs, and economist Henry Kaufman — also were optimistic about stocks for the long run, but, like Lynch, said investors should be “extremely cautious” in the short term.
“For investors with a truly long-term view, probably 20 years or more, the market will be worthwhile, they said, because stocks should outperform other asset classes,” writes the Times‘ Jeff Sommer. “To one degree or another, though, they said investors should be extremely cautious over the short term.”
Kaufman said continuing structural problems in the economy should make investors realize that stocks could keep going down for a period of time, and should make them alter their expectations for the next several years. “There is no golden rule that says how much a market should go down,” Kaufman said, adding, “Over the next five years, annual returns of 4 to 5 percent are in the range that people might expect.”
Wien said he thinks the market will rally later in the year as the government’s rescue plans start to pan out. But in the short term, he thinks equities may be too risky, so he’s advising small investors to focus on gold and corporate bonds, according to the Times.
Biggs had the starkest view: “Mr. Biggs said he thinks it’s ’50-50′ as to whether the economy begins to recover over the next year or ‘whether we are going into a depression and a deflation,’ which could conceivably be as painful as the 1930s,” writes Sommer. “If we’re going into the 1930s,” Biggs said, “it’ll be survivalism, and we’ll have very substantial social unrest.”
Lynch seemed much more optimistic. “People say they’re afraid of a stock market crash, he said. “Well, we’ve already had a crash. Look at the numbers.”
But Lynch reiterated his long-held view that investors shouldn’t get into the stock market unless than can afford to lose a significant portion of their money in the short term. “Even after this market decline, he would stick to the view that no one should hold stocks unless they could afford to lose an additional 50 percent,” Sommer wrote.