If you’ve heard anything about investing, you’ve probably heard about “One Up on Wall Street,” the book by Peter Lynch about how to use common sense to be a successful investor.

By following the book’s almost prosaic advise, like “think like an amateur” and “you’re more likely to find a better stock at the shopping mall than reading Merrill Lynch investment reports,” he contends, you ought to outperform the experts.

Now if you were to imagine all the technology companies in the city of Los Angeles as one big stock, I think Peter Lynch would find it to be a bargain company an undervalued stock, to use the investment parlance.

Why would Los Angeles be the “perfect stock”?

According to Chapter 8 of his book, here’s why:

– It Sounds Dull or Even Better, Ridiculous

There’s something about a computer software company or a biotechnology company in Los Angeles that draws a visceral negative reaction.

People associate Los Angeles with what the media has always focused on: Hollywood stars and the motion picture industry, and not computer geeks and lab nerds.

The media’s treatment of the region as homogenous and the corresponding public perception overlooks the significant differences in the region as well as its potential opportunities.

– It Does Something Disagreeable

The main reason why Los Angeles is an undervalued location results from a common investor folly: “Overreaction to one-time events.”

In the past five years, L.A. has had two major earthquakes, a major fire, a major flood (Ventura), and a major race riot.

While these are severe, they are all singularities which are unlikely to recur anytime soon. Thus they have little real impact on business prospects or quality of life.

Yet they are the things people mention most often in complaining about L.A.

In addition, there is overreaction to high-profile, ongoing urban problems. These include the infamous traffic and smog, as well as violent crime, coastal water contamination, and general squalor.

What’s overlooked is that L.A. is a gigantic place and thus is more likely than other areas to have both the worst and the best living conditions within its borders.

For example, Irvine, near the southern edge of 60 uninterrupted miles of urban area, has a lower crime rate than any other American city with population greater than 100,000.

Santa Monica and Newport Beach’s Balboa district are pedestrian downtowns whose layout permit dwellers to avoid automobile commutes entirely.

In addition, they are near the ocean and thus have little smog.

Implication: Look beneath the generalizations and you find a highly varied place.

– The Institutions Don’t Own It, and the Analysts Don’t Follow It

Venture capitalists are to startups what professional investors and analysts are to publicly traded companies.

Compared to Silicon Valley, there is a dearth of venture capitalists in L.A. only one VC for every eight in Silicon Valley. This imbalance of supply and demand, however, creates tremendous opportunities for potential investors.

Compare L.A.’s situation with the Bay Area where the supply of VC money far exceeds the demands of technology, which results in more and more garage startups getting funded out of a box.

In contrast, because less money is chasing (relatively) more goods, venture capitalists in L.A. can actually take less risk by waiting longer and invest in companies that are further along in technology development.

– There’s Something Depressing About it

In the world of investing, Lynch explains, there are two principal sources of undervaluation: 1) currently disappointing results and 2) protracted unpopularity.

The brutal fact is that Los Angeles has been the focus of many recent problems, economic and otherwise.

To wit, L.A. accounted for nearly three quarters of all jobs lost in the state of California from 1990 through 1993.

While a lot of this was attributable to aerospace downsizing, there was also much business downsizing and emigration of business to other states.

Couple these economic downturns with the 1992 riots and the 1994 Northridge earthquake, and it is no wonder that Los Angeles is viewed negatively.

– It’s Got a Niche

There are two principle reasons why Los Angeles should be and is a good region for high technology companies.

First, there is a tremendous talent pool from its universities Caltech, USC, UCLA, just to name a few.

Second, Los Angeles is still a desirable place to live.

It has an incredibly temperate climate and is surrounded by geographic features which people have traditionally paid premiums for oceans and mountains.

The bottom line: It is ironic that Los Angeles presents such enormous potential for both high technology companies and venture capital, and yet rarely do the two concepts become more than topics for discussion.

Los Angeles can meet the demand for both, but is too often overlooked.

Richard C. Hsu is an attorney who practices intellectual property law at Lyon & Lyon in Los Angeles.

William E. Mitchell is a student at the Stanford Graduate School of Business.