Growth Stocks

While stating my philosophy and approach to investing in these early blogs, I should mention another mentor--Charles Allmon. He was a long-time columnist for Better Investing magazine. He published a newsletter called Growth Stock Outlook. When Allmon left the newsletter business in 2008 at age 87, William Baldwin of Forbes noted his retirement after 44 years of publishing recommendations for growth stocks.

The Forbes article asked what Allmon had learned from reading an estimated 100,000 company financial reports. He said the most important thing is sales growth. "In the long run, a company cannot grow any faster than its sales. I look at sales first, earnings second and balance sheet third."

Allmon has made some great recommendations. In my early years as a subscriber to Better Investing, his column was always my first read. In 1987, I purchased some shares of a closed-end mutual fund he founded, Growth Stock Outlook Trust (named after his newsletter). I remember watching the old Financial News Network as the market crashed in 1987. Allmon had been correct in saying the market was overpriced and his GSO mutual fund was mostly in cash when the market fell. As I watched the carnage on Wall Street, I thought, "Allmon is scooping up some bargains today." I was surprised to learn that he was not a buyer that day nor in the days that followed. He thought the market was still overpriced and he missed a great opportunity. That fund was a disappointment in an otherwise stellar career. He seemed to be thinking more like a market timer rather than the great stock picker he was.

In spite of the fund's performance, Allmon has been a very helpful mentor. He taught me the importance of thoroughly scrutinizing a company. Though a growth-stock picker, he put a strong emphasis on the company's balance sheet. The events of 2008-2009 reinforced the wisdom of his approach. He enjoyed recommending companies that had lots of cash. He knew the importance of dividends and he often pointed out the rewards of buying companies that paid cash to its shareholders.

The financial markets have been increasingly segmented in recent years, with some managers focusing on growth, some on value and others on high-income stocks. Allmon had a growth orientation, but he also looked for value. He welcomed dividends. He taught me to look for stocks that have all three of these characteristics. When I find a growth stock at an attractive price that pays a good and expanding dividend, I always feel like I've found a gem, a real treasure--a stock that Allmon would like.

The name of this blog was, in large part, inspired by Charles Allmon: GROVALINC--growth, value and income.