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Options Trading

The Warren Buffett You’ve (Maybe) Never Heard Of

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Recently a titan of value investing passed away: CharlesAllmon, author of the highly influential investment newsletter, Growth StockOutlook, that held sway from the 1960s through the 1980s. He’s an under-sungexample of how “slow and steady” investing really can win the long-termrace. 

I learned of Allmon’s passing from Mark Hulbert’s MarketWatch column, in which he introduces Allmon’scontrarian approach to a new generation of investors and draws a few smartlessons from Allmon’s career. Allmon was so contrarian, in fact, that in thego-go 1980s he refused to invest in companies that didn’t meet his strict valuecriteria, moving 75% of his investments into cash and keeping them there untilhis newsletter discontinued in 2008. Now that’ssticking to your guns.

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Hulberttakes 3 lessons away from Allmon’s stellar career. First, slow and steady canreally win – if you’re willing to forgo some upside in good times to outbalancethe losses of tougher times. Second, you don’t need to incur tons of risk toachieve stellar results. And third, the power of compounding interest can benothing short of amazing. As Hulbert writes: “Though Allmon’s returns in any given year were never at thetop of the rankings, at the same time he never lost money in any calendar year.As a result, his very conservative strategy continued to propel his portfolio’sworth ever higher, even while the market gyrated wildly above and below.”

I’d like to underline that third point. We’re with Einsteinwho famously called compound interest the eight wonder of the world. I get soexcited when I encounter younger investors – from youngsters we encounter aspart of our financial literacy volunteering efforts, our millennial-age staff,to TradeKing clients – who “get” the concept of making their money work forthem, instead of the other way around. Do yourself a favor and sock away alittle extra this month! Your much older self will thank you profusely.

Be Good,

Don Montanaro

CEO, TradeKing Group

Follow Don on Twitter and hone your skills at TradeKing All-Stars. You can also followTradeKing on Twitter, Facebook, Google+ or YouTube.

[image by Kate Ter Haar on Flickr]

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