Friday, December 02, 2011

Charles Allmon winding down

Charles Allmon will be 91 in a couple of months. He closed his retail investment letter, Growth Stock Outlook, in 2008. (See April 30, 2009, column.)

Now his money management business is being wound up. Accounts are being transferred to Virginia-based Hendershot Investments Inc. (see website), headed by former employees Ingrid Hendershot [iluvbabyb] and Susan Christ, “both CFAs,” as Allmon notes typically, and both graduates of his highly quantitative fundamentalist school of security analysis. He says he may periodically write for their clients.

Allmon’s system supposedly buys stocks solely on the basis of value and eschews market timing. But in fact he has made one of the boldest timing moves in recent market history: He’s been substantially in cash since 1987. Incredibly, despite that, his record has been good — above all in this last disappointing decade.

Over the wild year to date through October, Growth Stock Outlook is up 3.7% by Hulbert Financial Digest count vs. 0.39% for the dividend-reinvested Wilshire 5000 Total Stock Market Index.

Since the Hulbert Financial Digest began following GSO in 1980, its annualized appreciation has been 8.6% vs. 10.8% for the Wilshire.

But on a risk-adjusted basis, GSO is in first place since 1980 among 11 for which HFD has continuous data. (And, Mark Hulbert notes, “one could argue that the proper comparison is with all newsletters I started following in 1980 and which dropped by the wayside along the way — a number that is around three dozen …”)

Moreover, GSO achieved this while being substantially in cash since 1987 — a triumph of stock selection. GSO’s stock selections alone would have significantly outperformed the market over the entire period.

Allmon says he has no party affiliation. But his intense aversion to candidate Obama did lead him to bearishness, even by his standards, presciently in mid-2008. (See June 5, 2008 column.) And he’s doubling down — if Obama is re-elected.

But Allmon also says:

•“In the mid-century you will see a booming economy for your children and grandchildren.”

Allmon predicts that the Dow Jones Industrial Average DJIA +0.48% will reach 25,000 in 2030-2040.

•Gold will then be $4,000-5,000 an ounce, he says reluctantly when pinned down — and will trade in a $1,200-$2,500 range through the next five years. Allmon holds a gold mine stock (see below) but seems to value it primarily as insurance.

How are these macro predictions derived from the micro entrails of balance sheets? What is the balance between analysis and intuition?

Allmon laughs and says I’ll find his final letter to clients, due in mid-December, interesting.

Currently, his model portfolio is about 75% in cash except for:

Altria Group Inc. MO -0.66% (6%)

Bristol-Myers Squibb Co. BMY +0.49% (3%)

Newmont Mining Corp. NEM -2.27% (10%)

Philip Morris International Inc. PM +0.58% (6%)

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