The punishing environment that has engulfed small caps in recent months has forced me into a decision I was reluctant to take.
When shares of Myhome International, the franchise group, were riding above 100p, I contemplated locking in profits. After all, with a 15.5p buying price the No Pain, No Gain portfolio was richly in the money. The group was, however, firing on all fronts (and still is) and on fundamentals the shares seemed reasonably cheap.
They look even cheaper now. Last week, the price fell below 50p, thereby triggering the sell order I placed last month. As with Prezzo, the restaurant chain, I believe I had no option but to limit the downturn and preserve at least some profit for the portfolio. I am obliged to honour any restriction I put on a share.
I paid the equivalent of 17.25p for Prezzo, watched the shares hit a 93.75p peak and then fretted as the price melted. At 60p, the game was up and a sell order invoked. It was much the same with Myhome. The shares had slumped to about 65p when I put a 50p limit on them.
Quite frankly, I am astonished that they continued to decline and I have been forced to sell. The company, embracing a host of franchise operations spreading from residential cleaning to vehicle valeting, appears to be trading exceedingly well and profits for last year should come in at about 1.9m, and could hit nearly 6m in the current year. It has, however, sprayed shares around for acquisitions. I feel confident that Myhome can accommodate the groups it has taken over, but it looks as if the City is having difficulties handling all the shares placed and promised.
When the stock market takes against a share (or shares), there is little a small investor can do. It is not only Myhome that is taking punishment; many micro caps are under pressure too. The credit crunch turmoil has taken money away from the more speculative (but often more rewarding) tiddlers into what are regarded as more secure investments.
The so-called flight to quality is one influence behind Footsie's resilient performance. And fears of a squeeze on household incomes have piled on the agony for companies exposed to consumer spending. In many cases it is the highly rated shares, such as Myhome and Prezzo, that have been hit hardest. A Lloyds TSB report saying that 21 per cent of investors have turned shares into cash or bonds in the past three months helps to illustrate the prevailing stock-market uncertainty.
This small-cap retreat is something of a reversal of past trends. Blue chips often lag behind their much smaller brethren. So the second half of this year has provided yet another indication of how fortunes can suffer when investment fashions change.
Of course, a great deal of cash has been made on the undercard in the past few years. Irish entrepreneur John Teeling provides a fine example. In 2002, his stable of quoted companies consisted of five resource stocks. The Teeling brigade calculates that any investor who pumped 1,000 into each share then now sits on stakes worth 60,000.
The portfolio, with its love of small caps, has, not surprisingly, taken a hit in the past few months. Profits have been eroded, even lost. The portfolio is now showing a gain of nearly 99,000 down from its peak of 143,000 in the summer and a little over 100,000 a year ago.
It is worth noting that micro caps were riding at record highs in June but have since fallen about 20 per cent and are now some 13 per cent lower than at the start of the year.
Still, I remain committed to them. Their time will come again. Indeed, the present setback presents a good buying opportunity. I could well be tempted back into Myhome (45p as I write) and Prezzo (54p). And I am considering one or two newcomers.
The portfolio is already looking rather threadbare because of the constituents that, for one reason or another, have departed. I may venture forth over the festive season for replacements. This is my last column of 2007, so any captures will be reported in the new year.
In the meantime, another once high-flying constituent is looking vulnerable. Goals Soccer Centres, which runs five-a-side football, is getting close to 300p, the price at which I would be obliged to kick the shares into touch and out of the portfolio.
At one time this year they hit 444p, but they are now hovering just above the relegation zone at 338.5p. I hope they stay up. Like Myhome, the available indications suggest that Goals is trading well.Reuse content