Derek Pain: A little light relief for the ‘no pain’ portfolio
No Pain, No Gain
Saturday 20 June 2009
The slightly more benign stock market atmosphere in recent months has filtered through to constituents of the no pain, no gain portfolio, helping the June valuation to look a little more encouraging.
I was quite depressed when I did the March quarterly review as the overall gain had declined yet again. It stood at an uninspiring £77,000 with past successes having kept it in the black.
The days when the portfolio showed a near £150,000 profit seemed nothing more than a distant memory. True, shares had shipped severe punishment since those halcyon times, but that did not make it any easier to tolerate the seemingly relentless erosion of capital.
The portfolio’s dire performance in March must have mirrored the expe
rience of many small buy-and-hold investors. I hope they did not panic: gritting your teeth and letting this storm take its inevitable toll as it thunders by is the best response.
Now the big question is whether the storm clouds are disappearing. Or are we experiencing a lull before another bashing? As I said last month, I think the worst is over, but there are plenty of experts who expect further carnage.
Certainly the stock market has staged a decent show. But don’t forget that its rally is from a very low base. And I would suggest that, for the next few months, it is likely to record modest gains at best as the economy remains in recession.
In the March review only two constituents displayed gains and one of those was a token gesture. This time around, four are in the black and others have reduced their losses. As a result, the portfolio is now posting a near £85,000 gain. Nothing spectacular. Just a reasonable improvement. At least, for a change, a move in the right direction.
I am content with most of my dozen shares. In the main they will respond to any improvement in the investment environment. For a long-term player they appear to be splendid lock-aways.
Unfortunately, I nurse a couple of howlers. The most obvious is Green CO2. Its fall from grace is something of an illusion and has little to do with the current set-up. The company was formerly known as Wyatt and indulged in online employment services.
Then came one of those transformational deals so beloved by small caps. It acquired companies involved in energy performance certificates and home information packs, adopting a new name in the process. I would imagine the sluggish state of the property market is not helping the group, but it now embraces a collection of activities that could offer long-term benefits. However, I suspect the loss the portfolio has endured will never be made good. Still, it could be cut significantly.
I should, of course, have sold the shares when they were much higher, but there always seemed to be the promise of better things to come. Now with the shares bobbing around 2p, any sale hardly seems worthwhile.
Pubs ‘n’ Bars has been another disaster. The pub trade has been a major casualty of the depression and I am not expecting much cheer from the heavily-borrowed chain.
And it’s red faces all round at Nighthawk Energy. The US-focused oil and gas group seriously blotted its copybook with the shock statement that its brilliant deal to sell a minority stake in its Jolly Ranch development in Colorado had been abandoned.
No wonder the shares failed to respond to the transaction when it was announced. Still, stockbrokers Daniel Stewart retains a 102p target price and Hanson Westhouse is on 97p. I believe Nighthawk remains a promising play, but it could be some time before it recovers from such a brutal setback.
It is likely to cut its exploration cash burn or raise funds from elsewhere. The failed asset sale was a protracted affair and the group could have difficulty lining up another deal. It has already pulled in £10m through placings at 20p a share. I hope another such exercise is not on the cards, and a heavily discounted rights issue might be an option.
Whitbread, the leisure group once seen as a recessionary hedge, produced a respectable trading statement. The performance at its budget hotels continues to slip, but the coffee shops and pub/restaurants seem to be making up much of the shortfall.
The major worry is that turnover at the hotels will decline even further. Nonetheless, the group has a strong balance sheet and should be able to display considerable resilience in these cash-conscious times.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
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