Derek Pain: Ignoring warning signs to sell has left me wrong-footed

No Pain, No Gain

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The Independent Online

Shares have enjoyed a fairly cheerful run since Christmas, and the stock market's progress has to some extent been reflected in the performance of the no pain, no gain portfolio. It has scored a quarterly gain of around £3,000 to just over £101,000, but I had hoped for a much more impressive result.

Some of my stars – such as Booker and Hargreaves Services – have continued to perform, but a couple of stocks have sadly let the side down.

Still, I suppose, any advance is not to be sniffed at but what I find particularly disappointing is that I had plenty of warning that the culprits were not faring too well. A glance at their respective share prices indicated problems ahead. I should have sold; stupidly I ignored the signs and held on.

Indeed, I have also been wrong-footed by NCI Vehicle Rescue, a Plus-traded stock, and sold at the turn of the year. I felt there was a danger the company was not trading well and unloaded, locking in a small profit. The subsequent interim report was quite encouraging and the shares have since held their value. I should have retained NCI and sold my other Plus constituent, Rivington Street Holdings, a financial and software conglomerate. At the time I dropped NCI, the Rivington share price was recording a 1p gain at 28.5p. Last year it topped 50p. The shares are now 20.5p.

Its a similar story with SnackTime, the vending group. At one time the shares were approaching 200p. Since my last quarterly review they have been decidedly uncertain, falling more than 20p before a profit warning sent them crashing to an all-time low of 35p. They have since climbed to 51.5p, helped by some director share buying. The group advised that profits would be "materially below" expectations. Before the warning the City had looked for profits in the region of £1.4m. Now such a result is just a pipe dream.

Rivington also posted an exceedingly cautious report. In December it produced downbeat profits and indicated it was finding the going tough. Now, in a later update, chairman Jim Mellon has deepened the gloom by revealing the group is trading "significantly behind budget" and interim profits will be "substantially reduced". It seems the full-year's figures are unlikely to offer much comfort.

The group is still heading for AIM, with the proposed move upmarket forcing it to change its accounting policies, a development that has impacted on profits. Sale of its corporate finance arm for £3m to be paid in stages is still awaiting Financial Services Authority approval. As I reported earlier, Rivington is carrying out a review which could well lead to further disposals.

Of course I am not happy with either SnackTime or Rivington. Both have suffered severe setbacks and, particularly in the case of SnackTime, the portfolio is uncomfortably out-of-pocket. Playing in the small-cap area can, of course, be richly rewarding; it can also be risky and damaging. For the time being I intend to stick with the two shares. But their performances will be carefully monitored and at the first sign of further trouble they will be dumped.

Whitbread, a Footsie stock, is another portfolio constituent to report in the past few weeks. Its display was not great, suggesting a slow down at its important Premier Inn budget hotel side. But the decline was nullified by improvements at its pub/restaurants and Costa Coffee operations. The group is still growing and seems extremely confident. Pre-tax profits for the year are expected to emerge at £315m, up from £271.2m, although analyst Simon French at stockbroker Panmure Gordon has reduced his 2013 forecast by some 5 per cent to £329m.

The portfolio has existed for just over 13 years. Although it was a gradual build up, the average yearly gain works out at around £7,700. Much of its progress was achieved before the devastating financial crash. Since then, small caps have taken a hiding as investors avoided the stock market's riskier elements. And takeover bids, which were a source of much early joy, have now become quite rare.

Still, as Clem Chambers, who runs the ADVFN City website, observes, private investors have moved back into shares.

Small investors, I believe, are invariably keen buyers when shares are in the ascendancy. They should, of course, be more active when the stock market is in the doldrums – that's when real bargains lurk.

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