No Pain, No Gain: Taking stock: a brief look at six years of investment

I have been asked to explain how, at the last count, the No Pain, No Gain portfolio had achieved a £39,000 profit.

I have been asked to explain how, at the last count, the No Pain, No Gain portfolio had achieved a £39,000 profit. After all, the 14 constituents, although mostly in the money, fail to tell the whole story as, like any investor, I have been forced to chop and change to try to keep on top of an often volatile stock market.

So, perhaps, it is time for a recap. And with the portfolio well into its sixth year it may also be appropriate to outline the rules governing its performance. But first a quick look at the highs and lows that have created its present composition and so, I hope, throw some light on how I arrive at the overall profit figure.

First I should explain that the portfolio did not enjoy a "big bang" launch. It evolved, put together as and when suitable purchases materialised. All told, 31 shares have been recruited, with a few surviving from those early days. The first constituent, Regal Hotel, fell to a far from generous takeover bid and checked out with an uncomfortable loss. Some, such as Mears, Inter-Link Foods and GallifordTry, were sold at handsome profits. Others have more than washed their faces, while nine have been kicked out at a loss.

Profile Media is by far my worst performer. But it remains in the portfolio, so there is still a chance of redemption. Of those sold Springwood, the nightclub chain, represents the most haunting setback. It managed to turn £5,000 into £513. I sold a few weeks before it went belly-up.

After allowing for the profits (and losses) achieved by the former constituents, the performance of the 14 survivors is calculated. With £5,000 invested in each share the basic outlay, £155,000, is subtracted from the overall value.

The £5,000 requirement has presented difficulties. It prevents increasing involvement in a share when a cash-raising exercise is under way. It was unable to take up its entitlement when Profile produced a rescue package. That may have been a blessing, although the shares were this week more than double their rescue price. Its cash call, a placing, is the only one the portfolio has encountered.

There has not been a solitary rights issue. Indeed, I wonder what has happened to what was for years the most popular method for a company to raise cash on the stock market. The record £5.9bn BT rights fling three years ago seems to have killed the desire for such simple exercises. I suppose if a constituent did raise cash the old-fashioned way, the portfolio would have to sell its rights.

The £5,000 rule also created difficulties when Six Continentssplit in two. The portfolio was faced with splashing out to retain the £5,000 limit in the two new companies or sell one and put the cash into the remaining constituent. To preserve transparency I sold, with some regret, Six Continents before the demerger was effective. Sticking with a £5,000 limit also banishes such manoeuvres as top-slicing and averaging down.

Although run-of-the-mill dividend payments are ignored, special dividends such as the 18p a share being handed out by Stagecoach seem too weighty to exclude, so my Stagecoach buying price will be reduced to account for the dividend. A similar exercise was carried out over an Allied Domecq cash handout. The portfolio's overall performance is also influenced by my decision to take no account of dealing costs. They are so variable that I thought it safer to strip them out altogether.

I have tried to stick to the basic rules, although new situations can arise. But my intention is always to keep things as simple as possible.

The current 14 constituents have been rather quiet in the past week or so. Only, the Ofex member, has made a significant announcement, with its decision to switch to the junior Alternative Investment Market (Aim).

The fringe Ofex share market has this week experienced its own "big bang", with competing market makers now in session. Ofex is being drained as many of its better constituents move to Aim, and it needs more recruits. Aim, meanwhile, is going from strength to strength and could lift its membership to 1,000 before the end of the year.

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