Steve Leuthold: Why His Investment Advice Is Important and What He’s Saying Now
By Dr. Steve Sjuggerud, Advisory Panelist, Investment U
Monday, December 2, 2002: Issue #193
“It’s a new bull market,” Steve Leuthold proclaims in this week’s Barron’s. But who is Steve Leuthold, and why should we care?
Steve Leuthold is one of a very rare breed of investment analysts. Here’s why:
- He doesn’t work on Wall Street.
- He doesn’t have an Investment Banking division to support.
- He doesn’t follow the crowd.
- He simply sells his independent thoughts about the market.
The list of independent analysts of Leuthold’s caliber is extremely short. Ned Davis and Ed Hyman might be the only guys that qualify. I think being away from the crowd helps keep them from thinking like the crowd That could be why The Leuthold Group’s headquarters is in Minneapolis, and Ned Davis Research is in tiny Nokomis, Florida.
Why What Steve Leuthold Says Is Important
These guys have crunched more numbers – and thought more about them – than anyone on the planet. They are beholden to no one. Big investors simply pay them a ridiculous amount of money for their thoughts, and they don’t share them with the public very often. When they do, there’s a lot at risk. They’re making a big statement. And if they’re wrong, everyone is going to know it. Their businesses will suffer.
Leuthold was bearish on the market (and correct) for a long time. He’s been so bearish, he even created a fund aptly named The Grizzly Fund. So it was a shocker that he came out as an emphatic stock market optimist in the Barron’s interview:
“It is not a bear market rally. It is more like the bull markets we had after the secular bear market in 1973-1974 This time, however, we didn’t get to the super-low valuations of 1973-1974. After all, we don’t have 12% inflation and 13% rates on the long bond like we had back then either.”
Today – Like 1975 – There Are Extraordinary Values in the “Small Stuff”
Leuthold may be onto something here with his 1973-1974 comparison. For example, Leuthold recommends small-cap stocks over the big household names. Back then, just like today, the big name stocks had become extremely expensive and had crashed. By 1975, like today, there were many extraordinary values to be found in the small stuff.
I went back and looked up the numbers on small stocks back then in Jeremy Siegel’s book Stocks for the Long Run. Amazingly, I found that total returns in small stocks in the nine years after the 1973-1974 bear market were in excess of 1,400 percent! I’d happily settle for half that, wouldn’t you?
Beyond being bullish, Leuthold is jumping into the leading sectors at the end of the bull market, like tech stocks and energy stocks. This is surprising to me, as legend has it on Wall Street that the leaders in the new bull market are rarely the old leaders of the past.
Is Now the Time to “Back Up the Truck” And Load Up on Stocks???
Leuthold is adamant that this is a new bull market. So what should we do with this advice? Is it time to back up the truck and buy all we can? I don’t think so
Remember, I don’t trust forecasts (see Investment U E-letter #152, “Why Forecasts are Worthless”). Even if the forecast comes from someone as qualified as Steve Leuthold, nobody knows whether the Nasdaq will be at 500 or 5,000 next year.
I prefer facts to fortune telling. And the fact is, Leuthold is right – there is value in small stocks right now. He also likes high yield bonds, noting as I have that “the spreads we see today are still close to the widest we’ve seen in history.”
For what to do with Leuthold’s advice, I’d say you should
- Feel a little better about stocks (especially smaller ones), and
- Own high yield bonds, preferably through a bond fund.
That should do it.
Good investing,
Steve
Today’s Investment U Crib Sheet
- To learn more about Steve Leuthold, visit http://www.weedenco.com/Research/Leutholdmain.html
- My recommended high-yield bond fund is Vanguard’s High-Yield Corporate Investor shares (VWEHX) For more information on this fund, visit the vanguard web site.
- What to Do When Interest Rates Rise
- Is the Market Headed Lower?
- Small-Cap Stocks: The Most Important Trend Headed into 2009
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