"I'm sort of a maverick," said Charles Allmon, neatly summarizing his career, his approach to investing and his snappish views on his colleagues and competitors. A highly successful maverick, he is a colorful money manager in a business where gray is the dominant color.
Through most of November, for instance, when the stock market was popping new records almost daily, Allmon was sitting with 40 percent to 50 percent of his managed accounts in cash. And he wasn't a bit sorry. He'd had a good year and it was time to take profits.
"I didn't want those gains to slip through our fingers," he said.
Allmon, editor of the widely read Growth Stock Outlook newsletter, said he looked around at the market in early September, when the Dow was slipping and sliding, and decided to reduce his investments from about 90 percent to about 50 percent.
"I just decided there were too many negatives," he said.
Soon afterwards, the bull market found new power and stocks began to hit new highs. But even that didn't change his view. "Bull markets are when you sell your dogs," Allmon quipped.
Allmon, whose office is in Bethesda, is chiefly interested in consistent performance. His goal is to see that his $50,000 supervised, but hypothetical, model portfolio goes up 15 percent to 20 percent a year. So far this year, his portfolio was up 17.9 percent on Oct. 31, and he thinks it will reach 20 percent.
For the five years prior to June 30, Allmon has had a total return of 206 percent, or 25.1 percent compounded annually.
That record has put him at the top of the list of newsletters monitored by Washingtonian Mark Hulbert, who publishes the Hulbert Financial Digest. Hulbert tracks the performance of a wide range of newsletters. Going back over five years, four years and three years, Allmon has ranked first on both for total return and risk-adjusted basis.
However, during 1984, and during the first 10 months of this year, Allmon did well, but others did better. So, on a short-term basis, Allmon was moved out of first place. In 1984, when many institutional investors were losing money, Allmon gained 3.5 percent. So far this year, Allmon's portfolio has gained 17.9 percent.
For the past 20 years, Allmon has specialized in unearthing growth stocks, which he defines as stocks that "have the ability to grow in good times and bad."
Life in Allmon's portfolio begins with a listing in his quarterly New Issue Digest, which includes stocks that have been publicly traded for less than 18 months. The current New Issue Digest contains 74 stocks. Once listed, a stock has 18 months to graduate to his quarterly newsletter, Junior Growth Stocks. If a stock doesn't move, it is delisted.
Junior Growth Stocks currently lists 239 stocks. They can stay in "Junior" for as long as Allmon and his staff see some potential in the stock. If and when the stocks "prove themselves," they are recommended by Allmon to subscribers of Growth Stock Outlook, which is published twice monthly.
Allmon said he tends to make his recommendations in bunches to reduce the impact of buying surges. And recommendations don't come that often. Allmon hasn't recommended any stocks since June 22. "I don't see a whole lot of bargains out there," Allmon said.
Among the nine stocks Allmon recommended in June, there were six winners and three losers as of Oct. 15. The stocks and their percentage of gain or loss were: Aeroflex Laboratories (up 19 percent), Angelica Corp. (up 9), Cooper Vision (up 10), Ennis Business Forms (down 3), Hershey Foods (up 1), United Medical (down 10), Interface Systems (up 13), Ocilla Industries (down 27) and Stocker & Yale (up 16). These may have changed when the market recently moved up.
Most of these stocks are part of Allmon's model portfolio. Of the 42 stocks in the portfolio, as of Oct. 15, there were 28 winners and 14 losers. The bull market move, said Allmon has reduced the losers to eight. Some of the stocks have been in the portfolio since 1980 and have had spectacular growth -- such as Wallace Computer Services, which has risen from $8.63 to $34.75, an increase of 303 percent. Similarly, Noxell Corp., in the portfolio since 1981, has gone from $14.75 to $51.50, up 249 percent; J. M. Smucker is up from $26.25 to $78.50, an increase of 199 percent.
The losers tend to be fewer and offer less dramatic numbers because Allmon will weed them from the portfolio quickly.
Allmon gives new subscribers a handy-dandy guide to what he's doing and thinking. "Our objective," he wrote, "is to double each company's listing price in five years. Sometimes we do better, but let's not sound like hogs. The primary basis on which we select a company is its earning power; normally it must show a 17 percent annual growth compounded for four years to qualify."
When it comes to rating stocks, Allmon gives an "A" rating to a company that offers:
*A conservative price-earnings ratio within its industry.
*A record of rising sales and earnings.
*A forecast of higher earnings.
*A steady or rising stock price in recent weeks.
*A positive management attitude toward company growth and stockholder relations.
*A favorable prospect for long-term growth.
Although Allmon makes no personal investment in the stocks he recommends, he is able to put his theories, experience and recommendations to use on behalf of clients who have given him $215 million to manage in pension and personal accounts. Allmon religiously follows the rule of diversification.
"We never invest more than 5 percent of a portfolio's assets in one stock," he said. "Don't swing for home runs in one or two stocks," he said, "because you probably will strike out. You must diversify."
At 64, Allmon is a wealthy workaholic who built his business from scratch and doesn't hesitate to say what he thinks. In an era when hedging is all the rage, Allmon tells subscribers: "We do not play around with options. They serve no useful purpose, create neither capital nor jobs. We suggest a trip to Las Vegas, instead."
Allmon came to the investment world along a nontraditional path. When he left Purdue University, where he studied agriculture, he bounced around the world, first to a banana plantation in Honduras, then to a rubber plantation in Liberia. Taking pictures at scenic spots in the Pacific brought him to National Geographic where, in 1953, he joined the staff as assistant illustrations editor. His international photographs and his artistic skills are prominently displayed on his office walls.
Dabbling in stocks in the 1950s, Allmon recalls "losing his shirt" but getting an education that enabled him to start his newsletter in 1965. He left National Geographic in 1969 to work on his newsletter full-time. These days he travels widely here and abroad to speak at investment conferences.
He enjoys the meetings, Allmon said, because he likes to hear what is being said by others in his business. "They're 85 percent phonies, but I still like to hear what they are saying. I think serious investors would be wise to attend one or two of these conferences a year because at no place do you get a bigger collection of phonies. . . . "
" . . . You go back the next year or the year after. You've heard what they've been saying. And you say, 'My God, this guy said this one year, and the next thing, he's done 180 degreess.' And the year after that, he's on something else."
When he isn't working, Allmon and his wife, Gwen, go to their cottage on Lake Champlain in Vermont. They plan to build a home on Maui in the Hawaiian Islands.
To help him pick his stocks, publish and circulate his newsletters and run his managed accounts, Allmon has a staff of 24, including several certified public accountants. "I don't suffer fools gladly," Allmon said, noting that he looks for aides who are not only well-educated and bright, but highly motivated. As a result, he said, it takes him three to six months to fill some of his jobs.
After 20 years in the stock-picking business, Allmon is still looking for companies that are growing rapidly. "Two-thirds of all the jobs in this country come from companies with 200 or fewer employes. That's where the action is, and that's where I want to be."
But looking for undervalued companies isn't as easy as it once was, Allmon said. Today, many professional investors are conducting the same search, often with the aid of computers. "We're finding it more difficult to find good values," said Allmon. "But you have bull markets, you have bear markets . . . and if you have enough patience, you'll get a whack at this thing."