Steve Leuthold is the founder and Chairman of Leuthold Weeden
Capital Management and a portfolio manager for three of its funds.
He has been an investment strategist, manager and researcher for
more than thirty
. He is also Chairman of The Leuthold Group,
an investment research organization, where he leads a team that
uses quantitative historical research to develop sophisticated
The Myths of Inflation and Investing
Index Funds, The Risks And Pitfalls
Managing your mother lode . . . your serious money
When investing, everyone has strengths and weaknesses. It is
particularly important to recognize the weaknesses and continue to
be aware of them. Then you can defense against them. Examples: 'I
hate to admit I'm wrong', 'I'm a sucker for sexy tech stocks', 'I'm
Establish your own personal set of investment disciplines,
considering your own investment shortcomings. Write them
down. Carry them with you. Follow them. Revise your disciplines
only after considering the revisions for a period of time (in a
Manage risk as well as
When deciding on an investment, always consider how much you
might lose, as well as how much you might make. Compare the
potential risk with the potential reward. Does it make sense if the
potential gain is 25%, but if things go wrong the risk is 50%?
Apply this kind of analysis to an entire market (
real estate), as well as to individual issues.
Cash is not
Cash reserves reduce overall portfolio risk in declining
markets. But more importantly, cash
provide the investor
to take advantage of the unexpected
opportunities that develop in markets - see the
Market crisis is market
Your emotions say sell, sell, sell. But your personal
disciplines previously established say BUY! However, if you have no
cash reserves, the opportunity is lost.
Bonds can be
Over the next year, if yields fall to 6%, a 20-year bond now
priced to yield 7% will provide a total return of over 20%, twice
the historical return achieved by the stock market. What of the
risk? If yields rise to 8% instead of falling to 6%, the total
return loss from the bond is less than 2%. And, with bond yields
, the stock market could be down much more.
Stock market new
valuation eras have always been temporary.
When Wall Street starts using the
'new era', saying it's
really different this time for the stock market . . . well, that's
the signal to consider asset class options like cash and bonds.
can inflate beyond most all expectations, they always
Not even Microsoft is
Virtually every blue chip growth company ultimately has matured
and become a no-growth company. No company's earnings growth will
ever be permanent. Of America's 100 leading companies in 1920, only
1 is on the list today (GE). Thus, you can't just buy today's
leaders, put them away, and expect them to still be
even 10 years from now.
Short term trading is a
Over 90% of non-professional short term traders will end up
losers, if they stay in the game. Even those with winning trades
of the time will mostly end up losers since losses on
losing trades are usually at least twice as large as the average
gains realized. The few that are successful, professional or not,
typically will ultimately 'burn out'. So, even if successful, the
ultimate price can be high. Many of those who do win still end up
as life's losers.
History is experience ...
learn from it.
History is not a Xerox machine, and does not repeat itself
exactly. Simply put, history is mankind's past experience. It is
said, experience is the best teacher, but it is much less painful
to learn the hard lessons from the experience of others. In terms
of human nature, investor psychology in the horse and
little different than today. Society may have changed, but human
nature has not. Fear and greed continue to be the dominant market