A grizzly truth: Veteran money manager is scared of the market

"I'm scared to death of the market."

That's not what you'd expect to hear from a guy who has made a living researching and investing in the market since the 1960s. But that's exactly the kind of candor I've come to expect from Steve Leuthold, Minnesota's resident stock market historian and contrarian investor.

I recently sat down with Leuthold in his corner office overlooking the Minneapolis riverfront at the firm that bears his name -- Leuthold Weeden Capital Management. Leuthold, 74, recently scaled back his duties, stepping down as chief investment officer, although he'll continue to write and manage some portfolios, including money for his family foundation.

We talked about how he got into the business, how he avoided the tech bubble in 2000 but lost half his individual clients in the process, and how 2011 wasn't a good year to be a potato farmer -- one of Leuthold's longstanding hobbies. But I sought out Leuthold to ask him a single question: With 50 years of stock market history and experience behind him, what should my readers think about this market?

This is when Leuthold admitted he was afraid, but buying stocks nevertheless.

"I've been scared to death of the market before and it's been the time to buy," he said, pointing out that the hundreds of data points the Leuthold investment team use to make buy-and-sell decisions have turned positive. Their core portfolio is now half invested in stocks -- up from 30 percent earlier this year.

"You do have pretty good valuations here, and we do think the economy is OK. We're not expecting a double dip -- we're probably going to see 2.5 to 3 percent GDP growth next year." He also expects a "Band-Aid" solution in Europe to address the uncertainty coming from Greece, Italy and Spain.

But several alarming issues loom: gridlock in Washington, the U.S. deficit and concerns about the long-term value of the U.S. dollar, to name three on the top of Leuthold's mind.

He said the last time individuals faced an economic crisis of this magnitude was in the 1970s. But investors who lost faith in the market back then could invest in Treasury bills and earn 15 percent in interest.

"Now there is nowhere to go with safety where you can get a decent return on your money," said Leuthold, who thinks the policy of keeping interest rates low is really hurting average investors, who are in over their heads to begin with.

"You can't just dump the money to people and say, 'You make up your mind [about investing for retirement].' You can't. They get frightened at the bottoms and sell out, they get boisterous at the tops and buy," he said.

I don't disagree, but individuals have to do something with their money, even in bleak times. So I pressed him for more insights. Here are his investing words of wisdom for my readers:

"Opinions are for show; numbers are for dough." In other words, don't make investment decisions based on emotions, news reports or cocktail talk. Do your research. If you have a tendency to make emotional decisions, consider an asset allocation fund made up of a mix of stocks and bonds with a manager paid to worry for you.

Be conservative. Save more, spend less because the idea that the future will always be better, well, "That's not necessarily true."

Don't follow the herd. Although being in the middle of the herd is the most comfortable place to be, consider getting out of your comfort zone. "When you see everybody go one way, look at why they may be wrong."

Go global. Investors should work toward having 50 percent of their portfolio based outside the United States, particularly in Asia. "The U.S. was the economic king of the world after World War II," Leuthold explained. "We had this huge wave behind the U.S. that gave us superior growth for 30 years. Then all of a sudden [other countries] started catching up. ... We go along like we're still the kings and can afford deficits as far as the eye can see and something is going to happen magically to support all these retired people with Social Security and Medicare. And it's a pipe dream."

Remember that investing isn't about the warm fuzzies. It can be downright unnerving. One short-term, tactical play is to consider investing in European stocks with global earnings. He mentioned Nestlé, Siemens and Unilever.

"They're cheap, they've been knocked down" because of the debt woes in Europe, he explained. "When it's time to buy, you won't want to. When it's time to sell, you don't want to."

Kara McGuire • 612-673-7293 or kmcguire@startribune.com. Twitter: @Kara_McGuire