Derek Pain: Time to dump two losers and hope for one high-flier

No Pain, No Gain

The stock market has experienced a tumultuous time during my enforced absence. At one stage this year's gains were effectively annihilated. But the no pain, no gain portfolio has survived quite comfortably with the three constituents I earmarked for relegation putting in a two-to-one performance.

I indicated, before ill-health laid me low, that I intended to adopt a ruthless approach towards the portfolio's laggards if they failed to offer some encouragement by the time I returned. Well, two of them have managed to retreat even further from my buying price. Another has staged a modest uplift.

G4S, the security giant that seems to court calamity, and Northern Petroleum, the oil and gas group, are the duo consigned for the old heave-ho. Avation, the commercial aircraft group, lives to fight another day.

The portfolio is sadly out-of-pocket over G4S and Northern. It paid 264p for the security group and 68p for Northern. Much to my dismay G4S goes out at 228.3p and Northern at 30.5p.

I feel the immediate outlook for both is at best subdued. G4S, with a new chief executive and margins under pressure, could struggle to recapture past buoyancy. Since enlisted nearly three years ago the shares have twice bounced back after self-inflicted setbacks. But this time round, the group faces a long, hard slog before the shares can hope to recapture their old equilibrium. Northern, with its shares around their lowest for years, is in transition with bits expected to be sold and new, largely unproven, exploration acreage acquired. Management changes are also in the wind. The major redeeming feature is its stake in a promising oil field off South America.

This year G4S topped 300p; Northern, in recent times, stood above 90p and some years ago was riding around 160p. In each case the stock market has brutally but clearly made up its mind about prospects.

Avation fell to around 60p following a cash call. But share-buying by chairman Jeff Chatfield and a buy tip in the Mail on Sunday prompted a useful uplift. The shares, as I write, are around 75p against the portfolio's 83.5p buying price. I've decided to hang around – at least for a time.

The portfolio contains other loss-makers. TEG, the environment group, is one but I remain hopeful it will turn out to be a winner. Last week it produced an upbeat statement. The “waste market”, it observed, “continues to develop in favour of TEG”.

SnackTime, the vending group, is another casualty. But I feel the time to sell is long gone. Rather than scramble a few hundred pounds from the original £5,000 investment I am convinced it is best to hold on and pray the shares are capable of resurrecting their old exuberance when the price approached 200p.

Thankfully, the portfolio can offer some encouraging gains. Booker, the cash and carry chain that sits a little below its peak, remains the star of my share exercise. And Whitbread, the leisure group, has hit new peaks. Support services group Mears has at long last topped its all-time high. During the group's second time in the portfolio the shares have occasionally created just a little anxiety and I recall pondering their removal. Butpatience is necessary for the long-term investor. In the portfolio's early days I sold Mears, notching up a handsome profit. Five years ago the shares were re-recruited at 272p; they are now around 388p.

Other successes include the Spirit Pub Co and Marston's, the Brakspear and Pedigree brewer embracing more than 2,100 pubs.

Naturally, I intend to recruit. The portfolio is now down to 12 constituents. It has more than enough cash in the bank to enlist two more. I said earlier this year that if Northern was excluded I had a ready-made substitute – Amerisur, a South American-focussed oil and gas group, But, despite some encouraging developments, the shares have slipped back.

I have, therefore, decided to hold off. I don't regard a resource stock as an essential ingredient but it is always advisable to spread the investment risk. Unfortunately I have come a cropper with my two oil ventures and cannot afford such expensive reverses.

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