Allmon's Legacy: Returns of 48,665%

Hats off to Chuck Allmon, publisher of the "Growth Stock Outlook" newsletter since January 1965. At age 88, he's retiring from writing that letter but will continue to advise on $200 million in managed accounts.

Allmon has chosen Jim Stack of InvesTech Research to advise his subscribers. That choice is just more evidence of Allmon's great market insight, since Stack is one of the most disciplined, and successful, newsletter writers in the business.

Not everyone knows Allmon, since he rarely toots his own horn. But those who have read "GSO" or heard him speak have the ultimate respect for this courtly gentleman. (Full disclosure: I've known him as a personal friend, and sometime mentor, for more years than I care to admit!) Allmon's great claim to fame could be that he never missed a monthly deadline in 44 years. But that's only the beginning of the story.

Buy-and-hold works: Chuck Allmon has always been a proponent of finding companies with good, growing businesses and sticking with them. That has led to an incredible track record.

The stock he's held longest is Automatic Data Processing ( ADP). It went onto the "Growth Stock Outlook" recommended list in 1966, and it's still there! At a split-adjusted cost of 8 cents, the stock shows a gain of 48,665% -- or roughly 500 times the original investment!

Think that was a fluke? Well, here are a few others to strengthen his claim that "buy-and-hold" works -- if you buy the right stocks:

Also on the list is The Limited ( LTD), purchased in April 1972 at an adjusted cost of 2 cents, and showing a return of 39,623%!

Or Stryker ( SYK), purchased in July 1980 (well before its hip-replacement product came into wide use), and now showing a return of 35,282%, with an adjusted cost basis of 11 cents.

Sure, he's had some losers along the way. But most were weeded out of his newsletter, which carries a list of about 80 stocks, many of them held since before you -- our younger readers - were born.

Says Allmon: "We have clients who have held these things for years. One told me he put his kids through college on a $3,000 investment."

What's next? As I interviewed Chuck for this column, I certainly couldn't resist asking what he thinks of the market and the economy now. After all, his calm perspective over the years is what led to those record investment profits. I never expected his vehement complaints about what's happening today:

"Looks to me like the new administration is going to set everything up for major inflation. They may lose control of the whole works. My own guess is that we're in the early stages of a repeat of the 1930s. At best we're going to have the biggest downturn since the 1930s, and it certainly will exceed the market drop in '73-'74."

Allmon is not just bearish on the market, but on the prospects for an economic recovery as well: "This real estate debacle is not over. Housing prices will keep on collapsing, as the economy slows and more adjustable mortgages reset."

When I point out that mortgage rates will surely drop now, after the Fed's recent interest-rate cuts, Allmon responds: "Remember, in Japan they pushed rates to zero and had a 10-year depression, which they're just coming out of. We're probably headed for the same thing."

Allmon reminds me that I wrote of his bearish market forecast several years ago (well before the peak was reached). And at the height of the bull market in July 2007, Allmon proclaimed that the Dow Jones Insutrial Average would soon hit 8,500.

His current forecast: "My guess now is that before this reaches bottom, we'll see a Dow dividend yield of 6% to 8% (the current yield is around 3.5% or 4%) and an S&P 500 dividend yield of 5% to 7% (it's currently about 3%)."

The implications are startling, since it's unlikely we'll see massive dividend increases to create that ratio. I ask whether that means prices could fall 50% from here. His energized reaction: "That's right! In the next year or two or three, that's where we're likely to go!"

Lest you think Allmon is all talk, his managed accounts have a total return that is down only 4% this year. He says: "We've been sitting in cash for so long, and now it will pay off in spades." Since 1970, his managed accounts had only three down years, each with a loss of less than 3%.

Never known to be shy about his opinions, Allmon adds a parting shot.

"People don't realize this mess is a creation of Congress. They caused this downturn. And if you were to pick out one person, it is Barney Frank. He forced Fannie ( FNM) and Freddie ( FRE) o make all these high-risk loans to our citizens. What did they expect, trying to make homeowners out of deadbeats? And he's still calling the shots. As long as Barney Frank is in that position, it will be a fiasco!"

Chuck Allmon speaks from 88 years of experience and 44 years of giving profitable investment advice. Asked whether his subscribers should sell the stocks on his list when "Growth Stock Outlook" stops publishing at year-end, he says: "You can't go wrong taking a profit. And you'll never see 15% capital gains tax rates again in your lifetime!"

Allmon promised that I could call back for his insights from time to time. I'll do that because I'd hate to lose his valuable perspective. And that's The Savage Truth.

Terry Savage is an expert on personal finance and also appears as a commentator on national television on issues related to investing and the financial markets. Savage's personal finance column in the Chicago Sun-Times is nationally syndicated. She was the first woman trader on the Chicago Board Options Exchange and is a registered investment adviser for stocks and futures. Savage currently serves as a director of the Chicago Mercantile Exchange Corp.

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