No Pain, No Gain

'I'm selling Safeway because political nonsense beat logic'

The no pain, no gain portfolio starts the New Year in good heart and, judging by the plethora of bullish comments floating around, should make further progress during 2004.

I am, of course, with the bulls. Shares are remarkably cheap. Last year witnessed the end of the deeply depressing bear market that for three years devastated prices.

During this year, I would expect the FTSE 100 index to top 5,000, the level I predicted it would end last year. I was disappointed my unbridled cheer for the now departed 2003 was not fully realised but at least my optimism, if rather heady, was not entirely misplaced.

I have decided to lock in a modest profit on Safeway, the supermarket group about to sink into the smaller trolley of its rival, Wm Morrison. The portfolio's longest-serving member was recruited in recognition of its takeover potential. But I was looking for a rather more generous bid than Morrison's tight-fisted exercise.

Safeway is worth much more than the £3bn the bidder is offering. Still, the Yorkshire group cannot be faulted for gratefully accepting the cut-price bargain Westminster has presented it on a plate. New Labour-inspired silliness is responsible, and again we have witnessed commercial logic destroyed by political nonsense.

My £5,000-a-time rule would create difficulties if I accepted the Morrison cash and shares bid. I would have to buy more Morrison shares to accommodate the cash element.

There is also a question mark over Morrison's ability to swallow such a huge acquisition. So I have decided to bale out, pocketing a modest profit by selling at 282p.

Safeway's departure will again reduce the portfolio to the dreaded 13 constituents, so I have been casting around for additions. Bright Futures, offering equipment for the aged and disabled, is one I have been monitoring. But my enthusiasm has been blunted by a flurry of director sales and one corporate backer sold out completely.

The company emerged from a cash shell and I can empathise with the desire of its early supporters to lighten their loads. But I was disconcerted to witness Stephen Harpin (chief executive) and Lance Hickman (finance director) unloading, even if they remain significant shareholders.

The shares are 8.5p against 12.5p when I discussed them last month. I have not altogether abandoned interest and there could still be some mileage in them. The company is expected to hit break even for last year, with forecasts of a £275,000 profit this year. Mark Watson-Mitchell at SQC Research has a 20p target price on the shares.

I am still keen on Printing.com, the Ofex-traded online printer. I hear a research note is being prepared, which I would like to see before deciding whether to add the shares to the portfolio. Another share I find intriguing is Ofex, the AIM-traded company that runs the fringe share market.

Merrydown, the cider and Shloer soft-drink group which for a time hit 100p, is now the portfolio's star performer but the likes of Burtonwood Brewery, Galliford Try, the builder, and S&U, the consumer credit group, are others sporting handsome gains.

Owing to the £5,000-a-share structure of the portfolio I cannot top-slice. take some profit by selling part of a holding and retaining the rest, thereby enjoying a free ride. But I would not attempt to discourage any portfolio follower from disposing of, say, half their stakes in our high-flyers.

After all, it is never wrong to take a profit. I have, by the way, still got a sell instruction on Galliford at 40p.