No Pain, No Gain: Take time to find new blood in a rising market

For the second New Year in succession the No Pain, No Gain portfolio is in need of new blood. But I am in no hurry to buy. At this time of year, many a Tom, Dick or Harry feels the need to indulge in some hopeful share tipping, and the stock market usually responds by happily squeezing the best possible prices from any gullible punter. It is, therefore, much wiser to wait until the tipping season is over.

I mentioned before the holiday that I was waving farewell to two constituents - IDN Telecom and Georgica. IDN, the subject of a takeover bid, will exit at 2.939p, and Georgica, at around 150p, is being dumped because it will not satisfy the portfolio's £5,000 stake rule once it splits into two quoted companies. Both investments have been profitable and if I were not a forced seller, I would have stuck with them.

Their departure will reduce the portfolio to 13 members. I am a superstitious old fart and will consequently not hang around on what many regard as an unlucky number longer than necessary.

I could, of course, always escape "unlucky 13" by selling an underperformer or, indeed, a highly rated share, thereby locking in a profit. For the time being, I am sticking with the remaining 13, although Lennox seems to have little going for it and Goals Soccer Centres is on an uncomfortably high rating. Wyatt, the little online consultancy that I had lumped with Lennox as a disaster share, posted a pleasant surprise to shareholders in the Christmas run-up.

It revealed that in its half-year it actually made an operating profit - £64,000 against a £319,000 loss. Turnover more than doubled to £1.2m. On month-to-month calculations, the company has been profitable since September. The move into the black did not extend to the pre-tax level where there was an £88,000 loss. But the deficit was down from the £375,000 suffered in the same period last year.

Wyatt has a long way to go before justifying my faith. Although the shares have climbed off the floor, they are only 12.5p against my 27.5p buying price. Still, chairman Bob Holt, the man behind the successful Mears support services group, is confident the improvement will continue. The company's personnel consultancy turned in its best-ever figures and the fire risk assessment operation is benefiting from the Government's new fire regulations.

Myhome International, the franchise group, was another to offer a little festive enthralment, successfully switching its shares from Plus (formerly Ofex) to the Alternative Investment Market (AIM).

The portfolio is in good heart and I must avoid damaging its overall performance in my search for recruits. Picking winners is getting more difficult as the stock market continues to confound the bears and delight the bulls. Last year was a good one for investors. The Footsie, although its festive display did not match some past performances, still managed to end the year with a near 11 per cent gain. Smallcaps also enjoyed a strong run.

What about this year? Many in the City expect another rousing performance. There are even suggestions the Footsie could exceed 7,000 points; topping its record level, the 6,950.6 achieved in the dot.com madness at the turn of the millennium. There is little doubt that, historically, shares are cheap and the joy run should continue. But 7,000? I doubt it. I'm inclined to settle for around the 6,600 mark with smallcaps also prospering.

Trying to predict the stock market performance over 12 months is a fool's exercise. Still the temptation to take part in this yearly ritual is irresistible and I am happy to add my modest contribution. I should, however, point out that my record is not particularly good. I was wrong last year, predicting a 2006 year-end Footsie of 5,900.

There are worries that the strong run, which started in March 2003, cannot have much further to go. Some see 2007 as the last year of the present euphoria, with shares fading in 2008 as the global economy runs out of enthusiasm. I'm not so sure. There is no evidence takeover euphoria will peter out, although private equity's growing debt burden worries me. Even so, progress could continue and, barring disasters, that 7,000 level could be topped - but not before next year.

cash@independent.co.uk