NEW YORK (MarketWatch) — Charles Allmon is back (well, 50%) in stocks. But he won’t say the bear market is over. The sage of Growth Stock Outlook, which he founded in 1965 and was one of the first investment letters monitored by the Hulbert Financial Digest, is now 88. He closed the public letter last year but still communicates with institutional clients.
Allmon’s wife and two daughters just gave a party for him near (one of) his homes, in Maryland, last weekend. I was invited, along with an assortment of friends, colleagues, clients and Wall Street luminaries, like celebrated oil analyst Charley Maxwell of Weeden & Co.
Allmon’s 8-year old grandson gave a virtuoso violin rendering of “Red River Valley,” bringing a tear to his grandfather’s eye, probably a rare event, at least in a work setting. I asked questions in a mock interview. What follows is based on those questions, plus a careful reading of Allmon’s post-closure institutional communications.
(Full disclosure: the Allmons have been friends since I interviewed him for my 1985 (!) book “Wall Street Gurus: How You Can Profit From Investment Newsletters,” and my family has stayed at another of his homes, his Montana ranch.)
Allmon went to 50% invested on April 15. Incredibly, this is his highest exposure to equities in more than 20 years. Since 1986 — i.e. before the 1987 Crash, which seemed important at the time — he has been 75% or more in cash.
Nevertheless, Allmon’s record has been formidable, and not just in the light of the Crash of 2008.
Over the past 12 months through March, his Growth Stock Outlook has lost just 2.6% by Hulbert Financial Digest count, much better than negative 37.96% for the dividend-reinvested Wilshire 5000 Total Stock Market Index. Over the year to date, GSO is absolutely flat, compared to negative 10.56% for the total return Wilshire 5000.
But over the past three years, the letter has achieved a 2.02% annualized gain, against a negative 13.33% annualized result for the total return Wilshire 5000. Over the past five years, it has achieved a 2.92% annualized gain, versus a negative 4.35% annualized for the Wilshire 5000. Over the past 10 years, it has achieved an annualized gain of 3.49%, compared to a 2.11% annualized loss for the Wilshire.
The stock market break has not completely gotten GSO back above water — yet. Still, it actually seemed possible at a couple of moments during this dramatic decade. () Over the 29 years that HFD has followed GSO, it has achieved a lifetime annualized gain of 8.8% versus 9.8% for the Wilshire.
Remember, though, that’s with GSO’s staggering post-1986 cash position. On a risk-adjusted basis, i.e. accounting for cash, GSO is HFD’s No. 1 performer over the entire period. And a portfolio fully invested in GSO’s stocks, says Mark Hulbert, would easily have beaten the market.
For anyone already in possession of a fortune, Allmon’s strategy was perfect. For anyone trying to build a fortune, Allmon’s advice required some tweaks. But it still had astonishing potential.
Interestingly, Allmon’s own instincts are clearly those of the entrepreneur rather than the rentier. He disrupted the closing section of his party by irrepressibly getting up to inform the audience of the potential of the latest start-up he’s involved in, exploiting the high-tech applications of sapphires, which he’d forgotten to mention in his earlier speech.
Also interestingly, although Allmon has been saying for some time that a great buying opportunity is approaching, his current stock surge is strictly to catch what he sees as a bear-market rally. He still thinks the stock market could decline to 3,200-4,200 on the Dow by 2011-2012 — and that it could cross the price of gold.
But he’s impressed with the strength of the March rally, and thinks it could reach Dow 9,000-10,000. However, he warns that a 10% retrenchment will cause him to bail out quickly.
In March, Allmon’s core stock position, then about 10% of his model portfolio, was comprised of:
Altria Group Inc. (MO:$17.04,00$-0.02,00-0.12%)
Newmont Mining Corp. (NEM:$43.16,00$0.49,001.15%)
Philip Morris International Inc. (PM:$40.1900,$0.9000,2.29%)
On April 15, he added:
Automatic Data Processing Inc. (ADP:$36.42,00$-0.40,00-1.09%)
Bristol-Myers Squibb Co. (BMY:$19.87,00$0.06,000.30%)
Kellogg Co. (K:$42.82,00$-0.18,00-0.42%)
Paychex Inc. (PAYX:$27.48,00$-0.40,00-1.43%)
Petmed Express Inc. (PETS:$15.68,00$-0.29,00-1.82%)
The Procter & Gamble Co. (PG:$51.65,00$0.81,001.59%)
Ross Stores Inc. (ROST:$36.97,00$-1.05,00-2.76%)
Sigma-Aldrich Corp. (SIAL:$43.83,00$-0.748,0-1.68%)
This brought him to 50% invested.
Allmon will have no successor. His staff shake their heads sadly when the subject is mentioned. This is all the odder because his methods are rigorously fundamental — “we are number crunchers,” he once told me — and look like they could be reduced to a computer program.
For more on this seminal figure in American investing history, see: ; ; ; ; .
And here’s a quote from the chapter on Allmon in my 1985 book (which mysteriously no publisher has asked me to reissue):
“He also thinks there will be a repeat of the 1973-4 wipeout sometime in the next eight or 10 years, when just enough young people have entered the investment business with no memory of a real bear market. He suspects it may be heralded by a bursting of the real-estate business that possibly will begin where it is most speculative.”
OK, he was early.
But close enough to show why it can’t be done by computer.
