No Pain, No Gain: Play it shrewd in times of stock-market disorder

I suspect few serial investors are inhibited by the current stock-market turmoil. My guess is that many are quietly taking advantage of what they regard as the cheap pickings now on offer. Only those burdened with worrying debts are running for cover.

Trevor Hemmings, the 70-year-old leisure tycoon, has invested some of his winnings from the expected Scottish & Newcastle takeover in beleaguered pub chain Mitchells & Butlers, where he has emerged as a 3 per cent shareholder. And another veteran stock-market player, Bob Morton, has increased his involvement in Clarity Commerce Solutions, a software group.

I have, during my 50 years writing about the City, witnessed quite a few share horror shows. The slow, numbing 1970s slide and the slam-bang crash of 1987 were regarded as desperately frightening events when they occurred. Now they are almost lost in the mist of time. I must have seen eight or nine severe setbacks that set alarm bells ringing but shares recovered each time.

Shrewd investors have always taken advantage of such upheavals; others had the sense to sit tight. But a few (often small shareholders) panicked and suffered the lamentable consequences. Investors must realise that every so often shares stumble. Invariably, the reasons responsible for the bad times differ – so each slump acquires a menace of its own. In the early 1960s, when the stock market was enduring one of its now-forgotten slides – shares suffered their worst one-day fall for some 25 years – the then chairman of the Stock Exchange, Baron Ritchie of Dundee, said: "Small investors should put their heads down and let the wind blow over them."

It was sound advice then – as it is today.

Quite clearly, old-timers such as Messrs Hemmings, 70, and Morton, 65, are not taking shelter. Perhaps other investors should follow their example. Morton's Clarity involvement is his second deal since the credit crunch started. His first was in the dying months of last year, when he merged his Harrier Group with Conchango, an IT consultancy that produced pre-tax profits of £2.3m in the nine months up to September.

It was a classic reverse deal. And, not for the first time, Morton managed to turn disaster into success. Harrier had not been his finest hour. The company found the going tough and decided to sell its software business and seek pastures new. With £4.7m in the bank it hunted acquisitions. Before it found one it was hit by AIM's reluctance to tolerate cash shells and its shares were suspended.

The Harrier flag was kept flying on Plus. After several false dawns the £31.5m takeover of unquoted Conchango was clinched. So last month Harrier, as Conchango, returned to AIM. However, the shares, perhaps not surprisingly in the present malaise, received a lukewarm reception. They left Plus at 19p, touched 23.5p but now reside once again at 19p.

Michael Altendorf and Richard Thwaite started the computer group in 1991. It has a host of blue-chip clients including Tesco and Vodafone. The founders still control the company, although their dominance will weaken as they issue shares for acquisitions. Former Harrier shareholders, including Morton with 7 per cent held by his Southwind family trust, account for 17 per cent.

Clarity, capitalised at £6m, represents his return to a past stamping-ground. He used to be chairman. Dismayed by the group's declining fortunes, Morton attempted last year to return to the boardroom, leading a shareholder revolt. But the rebellion failed and, stuck with a 10 per cent shareholding, he seemingly retired to the sidelines.

But it would appear the group is in urgent need of a cash injection. And the failed rebel is prepared to oblige. Through Southwind he has pumped in a short-term loan and is largely underwriting a cash call of up to £1.8m, at 25p a share. Clarity plunged into losses last year, with more red ink being splashed around in the current year. The trading slump has taken its toll on the shares; they have fallen from more than 70p to 26p in the past nine months.

Still, many microcaps have fared even more poorly. And they have not been influenced by shareholder shenanigans and mounting losses. So Clarity, once it gets its act together, could prove a rewarding investment – at least Morton must think so.

cash@independent.co.uk

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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