No Pain, No Gain: Shares have taken a hit – but I'm not panicking

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The Independent Online

The stock market turmoil has, not surprisingly, hit the No Pain, No Gain portfolio. Only four shares have managed to make progress since my June calculation and the overall valuation has fallen quite significantly.

Unfortunately the gain of one member of the successful quartet is something of an illusion. For Wyatt, the online support services group, has escaped the mayhem by being sidelined. Its shares, after moving ahead, have been suspended (at 22p) while it puts together what amounts to a reverse take over. No doubt they would have suffered if dealings had continued.

The other winners are a mixed bag. They are Goals Soccer Centres, Hargreaves Services, which is paying £7m for what was once Imperial Chemical Industries' bulk liquid transport fleet, and Rentokil Initial. While they made modest headway, the rest lost ground.

But I am unruffled. Indeed I remain relatively sanguine about the upheaval. My near 50 years in the City have been punctuated by a series of equity setbacks. The most worrying was in the 1970s; it went on and on as interest rates and the cost of oil soared and property values collapsed. The disaster became self-feeding. Capitalism, cried many, was finished. Eventually a group of big hitters, led by the Prudential, pumped, it was rumoured, £20m into the market, inspiring a dramatic recovery.

Although the Seventies' crash, which was not helped by the inadequacies of the woeful Heath Government, left a deep impression it is fair to say that after a time most collapses hardly register on any graph showing the relentless progress of equities since the Second World War. The present debacle will, I believe, also quickly fade into relative obscurity although the uncertainty created by worries about the extent of the banking shenanigans may leave a festering sore that is slow to heal.

The trouble with wounding setbacks is that their roots are rarely the same. Of course shares tumble. But why? The reasons are often many and varied. This time round it is the American housing market and convoluted financial instruments that have provoked the battering. I don't think US housing has ever prompted a slump in the past. Because I believe a recovery will occur the portfolio is, in the main, holding fire. It is a buy and hold investor and will not indulge in panic trading. Such activity may enrich stockbrokers, but has little relevance to a long-term exercise. Three constituents have braved the hysteria to produce trading figures. Prezzo, the restaurant chain that has enjoyed a fancy share rating, served up exhilarating interim profits.

But I may unload the shares. They are now close to the 60p-sell option I put on them in June. If they should hit the signalled sale price it means the shares will have lost more than a third of their value – too steep a decline to tolerate.

Yet trading is going well. At the pre-tax level – the most telling measurement of a company's performance – profits are up 48 per cent to £4.7m. And, perhaps more importantly, there is no warning that trading is being hit by higher interest charges. The shares have suffered on talk of an eating out slow down. Yet with current trading in line with expectations Michael Carlton, the chairman, is confident of further progress in the second half year.

Lighthouse, the financial advisory group, has produced an even sharper interim gain. Pre-tax profits are 66 per cent higher at £786,000 with funds being advised up some 42 per cent to £5.6bn. The group, where LV has a significant stake, plans to start paying dividends next year.

The third of the reporting trio is English Wines Group, the portfolio's only Plus Markets share. It made its first interim pre-tax profit, albeit only £13,000. Still that compares with a £253,000 loss.

Progress is being made, even if the atrocious summer weather worried some shareholders. Turnover was up 11 per cent at £1.1m and, remarkably in this inflationary age, administrative costs actually fell – by a cool 27 per cent. The group, like the other two that have declared figures, is obviously enjoying sound trading. EWG, in particular, is a long-term investment and hopefully will continue to roll out improving figures.

On a £200,000 investment the portfolio is now worth around £324,000 against the £343,000 prevailing in June. The stock market setback is not the only influence behind the decline. After a disappointing interim statement, Access Intelligence was sold last month, incurring a £2,800 loss.

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