Derek Pain: Given time, shares will always rise from the pits of despair
No Pain, No Gain
Saturday 13 August 2011
Ruthless action is being taken with the No Pain, No Gain portfolio. I have decided to ditch two shares, one a long standing constituent. The departures have nothing to do with the turbulent behaviour of the stock market, which is related to the weakness of the US economy and the expected failure of the euro.
I have always maintained that investors should consider buying shares at times of stress and strain or, at the very least, put their heads down and let the flak fly over them. Since I first began to appreciate the ins and outs of the City in the 1950s, I have experienced many shares slumps. The drip-drip of the early 1970s, the tumultuous crash of 1987 and the turn of the century collapse of internet hysteria are just some of the reverses that have occurred.
Shares have always managed to struggle out of the pits of despair. Admittedly, they have yet to regain the peak reached in 1999 but, given time, they will hit new highs. It is easy to say that shares are cheap. The trouble with such statements is that in these uncertain times they could be still cheaper tomorrow. Even so, prices are in the bargain basement, although it is always difficult to buy at the very bottom. Often a little flexibility is needed but investors who act at times of trouble and invest in established, well-run and well-funded companies, are long-term winners. The present crisis will have its ups and downs but do not be influenced by short-term considerations; it is the long view that counts.
I have always been sceptical about the EU. Indeed, I am appalled by the continuous encroachment of Europe into Britain's affairs. Thank goodness we steered clear of the ill-conceived euro, which is almost certainly doomed in its present form. Although its demise could create short-term discomfort, there is no reason to believe the eventual impact will, as some allege, be disastrous for this country. It could merely mean that we have to get reacquainted with the likes of the Deutschmark and lira.
The two shares chopped from the No Pain, No Gain portfolio this week are Clarity Commerce Solutions and Lighthouse. Both have failed to perform. At the time of writing, I am still awaiting Clarity's results, which were promised in June. It is an old City saying that it takes longer to add up poor figures than good ones. Clarity Commerce Solutions, which supplies software systems to retail and leisure businesses, has made no secret that the tough conditions many of its customers are experiencing is making life more difficult. There have been indications that contracts are being delayed, not cancelled. Even so, it seems the company's prospects have, along with its shares, deteriorated.
It was in April 2009 that the portfolio alighted on Clarity. Then the retail environment looked rather different from today's sorry mess. It is clearly well run. Its shares, purchased at 29.5p, went on to hover around the 50p mark. Unfortunately, as the extent of the retail downturn became apparent, they lost their way. I should have sold while there was still a profit. But I held on and now have to accept 16p a share.
Lighthouse, an accountancy and wealth management company, has, to my mind, done nothing wrong. Yet its shares, the longest serving constituent of the portfolio, remain deep in the doldrums. They were picked up five years ago at 17.5p and reached 35p or so. The current price is about 7p.
I am astonished at such a low appreciation. The company is profitable, pays a dividend and has cash that comfortably exceeds its capitalisation. I, and others, have bemoaned the unfair valuation but the stock market seems unable to accept our reasoning and is intent on concentrating on possible problems created by the reshaping of the financial advisory industry. It mirrors another former constituent, Printing.com, recruited in 2004. It, too, had much to commend it but the stock market insisted on a pathetic rating.
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