I am hopeful that the battered No Pain, No Gain portfolio will stage a recovery in the months ahead. We must all realise by now that 2009 is going to be a tough year. The unanswerable questions are: just how bad will it be; and how long before the bitterly cold environment starts to get a little warmer?
There is no doubt that shares are, on accepted measurements, exceptionally cheap. But many indicators, such as earnings and yields, now give a false impression. It is blatantly obvious that profits are under intense pressure and that many dividends will be cut, even erased altogether. With high-street institutions offering skimpy returns to depositors, a share on a mouth-watering yield is clearly suspect. After all, in my younger days it was accepted that high yields indicated high risks; such thinking would have served many savers well last year.
The fear factor, and the nation's dire trading outlook, are not surprisingly forcing many investors to keep their powder dry. They realise that shares that are cheap today could be even cheaper tomorrow.
Nevertheless, fraught days offer bargains for the buy-and-hold brigade. As I have said before, it is virtually impossible to judge the point when shares are at their lowest. Capturing stock near its bottom is an achievement. So there is no rush to buy, and time is on our side. My guess is that in the not too distant future it could become increasingly apparent that buying opportunities beckon.
Last month, I listed some of the shares that could join the portfolio. Two of them, Healthcare Locums and Marstons, have since made considerable headway. However, they have not moved out of my compass zone and I could descend on one, or both, of them in the near future.
I am inclined to go along with the view that the first half of this year will be unrewarding for most investors, but that there could be a significant improvement in the second six months.
The nation's punditry is convinced that dark days lurk ahead. In stock-market terms, an optimist is someone prepared to suggest that the Footsie will end 2009 above 5,000 points.
My own forecasting record is appalling. Since this column was launched nearly 10 years ago, I have occasionally been on the right Footsie track. But I was completely wrong- footed last year, predicting that the benchmark index would finish near to 6,400 points.
I suspect that someone, somewhere, guessed that the Footsie would end at around what was its ultimate 2008 resting place – 4,434. My recollection is that the lowest estimate I encountered was 5,800, with some brave souls shooting for 7,200.
Still, nothing ventured, nothing gained. In spite of my poor record in the hazardous activity of prediction, I offer my Footsie forecast – around 5,300. Please do not take this too seriously, but I find that there is a high degree of satisfaction in being able to take a relatively optimistic view in these deeply depressing times. Although, last year, the Footsie's constituents suffered their biggest fall on record, and the others making up the top 350 index were also savaged, utter carnage occurred among small caps. Indeed, they were battered unmercifully even before the leading counters felt the full force of the credit crunch.
The small-cap bloodbath has shown little sign of easing, and further damage could be inflicted in the months ahead. That is why I am not rushing to strengthen the portfolio. But I don't think it will be long before I venture forth. Some bargains do look irresistible, even in the economic gloom.
There is no doubt that the portfolio is in need of some additional constituents. Its membership is down to 11. I am not a devotee of the stop-loss system, but I must admit that putting sell prices on two of my top performers, Goals Soccer Centres and Prezzo, allowed me to record handsome profits. My regret is that they had surrendered so much of their gains before I ditched them.
Goals was sold at 300p against a peak of 444p and a buying price of 125.5p; it is now around 155p. Prezzo departed at 60p, compared with a high of 94p and 17.25p when it was recruited; the current price is 27p. A few similar winners would certainly give the portfolio much-needed strength. Let's hope I descend on such uplifting performers before this year ends.