(FORTUNE Magazine) – Successful money managers can spring from unusual backgrounds. Take Charles Allmon, 66, of Bethesda, Maryland, who publishes the Growth Stock Outlook newsletter and runs $425 million for institutions and wealthy individuals. A photography buff, Allmon was a longtime editor of National Geographic until he quit journalism to devote full time to investing, his other avocation. From an office adorned with pictures taken during his travels to 70 countries, he explores far and wide for stocks, bypassing big-name companies for lesser- known issues. His picks over the past 7 1/2 years earned Growth Stock Outlook the second-best record among newsletters, according to the Hulbert Financial Digest. Bearish throughout 1987, Allmon was 80% in cash before the October crash and beat the market for the year. Interviewed by FORTUNE's Andrew Serwer, he told how he plans to keep his portfolios sailing ahead.

Where is the market headed now? Let's not kid ourselves, this is a primary bear market that is going to bottom out sometime in 1988 or 1989. During the last two recessions the Dow Jones industrials sold for less than book value, or net worth, per share. I think this downturn is going to be a real humdinger, and there's no reason to think that the market will behave any differently this time. Book value for the Dow at the end of 1989 will work out to a little over 1100. That's where I think we're headed.

What makes you so sure? The only people who are absolutely sure are the fortune tellers who have their hands in your pocket. Some of them said the Dow would go to 4000. I don't use fancy abracadabra or tea leaves; I look at the facts. Book value and dividend yield are the two best measures for an investor. When the Dow is selling for almost three times book value, as it was last summer, you know it is way overvalued. I will turn bullish when the Dow sells below book value and when dividend yields hit 6% to 7%. With the Dow still at twice book value and the dividend yield at 3.5%, we still have a long way to go.

So in the meantime, what stocks do you buy? Cheap ones. Right now there really aren't any values in big stocks. For instance, Merck is a great company but it sells for $146 a share. I'm going to buy when it sells for under $100. These days, only small stocks have low price/earnings multiples. But you can't just buy cheap; you have to go through a company's balance sheet. We look for low debt levels, strong cash flow, and a low level of current liabilities compared with current assets. I couldn't care less about industry groups and that sort of stuff.

You're still holding lots of cash? That's right. I'm only 20% in stocks, but I believe that during 1988 these stocks will outperform the market, moving up 35% on average if the Dow reaches the 2150 range. Even if the market falls I will be getting, say, 6.5% interest on the rest of the money.

You must consider those stocks real winners. Name some. A couple of over-the-counter stocks we like are Harleysville Group and CLARCOR. Harleysville is a property and casualty insurance company that sells for $14 a share. Book value is $16.50, and the company should earn $2 a share this year. CLARCOR has several businesses, including a lithograph process used on metal for items like tea tins and cookie boxes. The stock sells for $27, and the company could earn $2.80 for the year ending November 1988. And it has great management. Two other over-the-counter stocks we own are Cerner and Medex. Cerner makes computer software for laboratory testing. The stock fell nearly 50%, to $14, last year and sells for 13 times our 1988 earnings estimate. The company is growing 20% per year and has an excellent balance sheet. Medex makes electronic medical equipment.

Do you own any Big Board stocks? Sure, but not the ones owned by institutions. Clorox is one of our old favorites. Clorox bleach is sold in 50 countries, and this is a stock you can hold in good times or bad. At $28 a share it sells for 12 times estimated 1988 earnings. A German company owns 23% and has the right to buy up to 30% in the open market. It might buy the whole thing, for which it would have to pay around $35 a share. Institutions don't like this stock because it isn't really that exciting. Another familiar name we like is Hershey Foods, a super operation with a great product.

What's your biggest position? It's an unusual one called American Family, which sells cancer insurance. Some 70% of its revenues come from Japan, where it insures 17% of the population. It recently was listed on the Tokyo Stock Exchange and prints a Japanese translation of its financial reports. The stock sells for ten times our 1988 earnings estimate of $1.35, but we think the Japanese will come to perceive it as a Japanese company and that its multiple will be driven up. I would buy it right now.

Any other unusual picks? We like Angelica, a uniform and linen service for restaurants and hospitals. It's not a glamorous company, but I don't care if it's furnishing dirty uniforms or clean uniforms. I'm interested if it's making money, which it is. Angelica has been around for a long time and has a solid balance sheet. It sells for around $22 and should earn $2 a share this year. Hughes Supply isn't that unusual, but we sure like it. The company sells construction materials in the Southeast. The stock sells for almost exactly book value. Even though construction may be slowing down, this company can keep growing. Another stock we own in a related field is Clayton Homes, which produces manufactured housing. This company is doing well while everyone else in the business is holding his head.