Updated: May 3, 2013 12:14PM
Is it possible to make money in the stock market by holding stocks for the long run? Yes, and there's living proof. But the man who has done it for himself, his subscribers and his managed accounts is about to retire!
At age 88, the legendary Chuck Allmon has announced he will discontinue the Growth Stock Outlook newsletter he has written since January 1965, though he will continue to advise $200 million in managed accounts.
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 for his newsletter.
The stock he has held longest is Automatic Data Products. 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 percent -- or roughly 500 times the original investment!
Think that was a fluke? Here are a few others to strengthen his claim that "buy-and-hold" works -- if you buy the right stocks:
**Limited Stores, purchased in April 1972 at an adjusted cost of 2 cents, and showing a return of 39,623 percent!
**Stryker, purchased in July 1980 (well before their hip replacement product came into wide use), and now showing a return of 35,282 percent, with an adjusted cost basis of 11 cents!
Sure, he has had some losers along the way. But most were weeded out of his newsletter, which carries a list of about 80 stocks, many held since before 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."
As I interviewed Allmon, I 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 a major inflation. They may lose control of the whole works down the road. ... 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."
How low could it go? "Before this reaches bottom, we'll see a Dow dividend yield of 6 [percent] to 8 percent, from its current level of 4 percent."
Since dividends aren't likely to rise, that means the market would fall as much as 50 percent from here?
"That's right!" he exclaims. "In the next year or two or three, that's where we're likely to go!"
Allmon is equally bearish on the prospects for recovery: "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 those mortgage rates will surely drop now, after the Fed's recent 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."
Lest you think Allmon is all talk, his managed accounts have a total return that is down only 4 percent so far this year. He says: "We've been sitting in cash for so long, and now it will pay off in spades."
Asked whether his subscribers should sell the remaining 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 a 15 percent capital gains tax rate again in your lifetime!"
Allmon has chosen Jim Stack, of InvesTech Research (www.InvesTech.com), 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.
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 a registered investment adviser. Distributed by Creators Syndicate. Copyright Terry Savage Productions Ltd. Visit terrysavage.com and suntimes.com.