Off with the new, and on with the old

I hope readers of the no pain, no gain column were not too disturbed by the latest downturn, which had the bears out in full voice with their customary predictions of gloom and despair.

I hope readers of the no pain, no gain column were not too disturbed by the latest downturn, which had the bears out in full voice with their customary predictions of gloom and despair.

We witnessed a much-needed correction on the technology, media and telecom shares (TMT). Indeed many old-timers managed not insignificant rallies during the mayhem.

In the past 30 years there have been two savage bear markets. One, in the 1970s, was a slow drip-drip decline. But it was sufficiently severe for many to question the future of capitalism. The other was the 1987 crash, horrendous at the time but now seen as little more than a blip on the long-term Footsie chart.

There have been many other setbacks that at the time seemed depressingly worrying and gave the pessimists something to shout about. But they are largely forgotten, hardly registering on the Footsie Richter scale. The same fate will befall the last reversal, despite all the wild talk of another black Monday.

Lord Ritchie, a long-departed chairman of the London Stock Exchange, offered what I regard as particularly sound advice to small investors when shares had suffered one of their periodic tumbles back in the early 1960s. The FT 30 share index - Footsie did not arrive until 1984 - incurred an 18-point slump to 261.3, its largest one-day fall since just before the Second World War when German manoeuvres in Europe were causing alarm. At the height of the panic, Lord Ritchie said: "Small investors should put their heads down and let the wind blow over them."

Those who adopted his suggested stance then, and now, have little to regret. After all, the FT30 index is now around 3,570 points.

At the turn of the year I suggested the 100 Footsie index would advance to about 7,300 points by the end of 2000. The behaviour of blue chips has not supported my confidence although it is too early to jettison my forecast.

The TMT boom played havoc with Footsie. After the March upheaval - when nine old economy shares were replaced as constituents by nine new economy stocks - Footsie became much more susceptible to the gyrations of hi-tech shares. But on present form, many of the newcomers will suffer the old heave-ho when the index is next reviewed in June, probably being replaced by relegated old timers such as drink groups Allied Domecq, Scottish & Newcastle and Whitbread.

Interestingly, since Scottish joined the no pain, no gain portfolio a few months ago the shares have climbed from 394p to 471.5p.

The portfolio is intended for the long haul. It is not for investors who spend their time ducking and diving, cutting what could be short-term losses and snatching at quick profits.

I do not subscribe to the stop-loss approach when, say, once a share falls by 20 per cent it should be sold. Those adopting what is admittedly a highly popular approach to investment must have seen their portfolio almost wiped out, if they were brave enough to sell in the recent hi-tech turmoil, although they should have been left nursing significant profits.

The trouble is few like to sell. Fund managers hang on because they are in for the long-term; private investors because it goes against the grain.

Therefore the no pain, no gain portfolio is for those willing to look beyond the next stock market tumble. After all, as the performance of the little-known FT 30 share index demonstrates, shares are an essential part of capitalism. As long as the system survives they should continue to move ahead. Scottish, despite its old economy weakness which more than halved the price, illustrates this trend. Twenty-five years ago its shares were around 40p. In the intervening years, profits increased and the company pursued a progressive dividend policy.

Compared with some shooting stars, its quarter-of-a-century performance may look a little flat. But how many of yesteryear's high flyers are still with us, let alone still highly rated?

It is a happy and rewarding experience to stumble on a winner. By their very nature they are few and far between.

That is why the hi-tech bubble was destined to burst; quite simply not all the shares could be stars. There must be some splendid TMT investments. But some of the shares which arrived on the back of the stock market's realisation of the attractions of the new economy are going to struggle to make any progress.

Tears have already been shed over the TMT shake out. More are likely as the stock market continues to pick out the likely survivors and dumps the others. Old economy shares will,I expect, stay on the recovery road.