The Private Investor: 'What is a worthwhile gain? It's all a matter of personal taste'

Last week I wrote a column the bulk of which was concerned with an attempt to pay a euro-denominated cheque into a British bank. It ran under the arresting headline, "Down Bromley way, the euro is a non-starter".

I can only assume that the volume of response was due to the magic word "euro" appearing in the headline (that is, rather than the less magical name of "Bromley").

But I stick by what I said, which was a very small and quite simple point; that, according to the Government, we are supposed to be in some sort of prepare-and-decide mode, preparatory to joining the euro when the famous five tests set by the Chancellor Gordon Brown have been met.

So it doesn't wash to say that cashing a euro cheque is no more or less difficult than it used to be to cash an Irish punt or French franc cheque. Nor does it do to say that it's much the same for someone trying to cash a US dollar or a Swiss franc cheque.

Why not? Because we're not trying to join the US or Swiss currencies and because we are supposed to be closer to the euro than we used to be to the pre-EMU polyglot. But we aren't. Not down Bromley High Street on a Saturday morning in the NatWest branch, not even with such a good French farmers' market nearby.

Catching up on more correspondence, a reader has contacted me as a "secretary of a very inexperienced investment club". Better to be inexperienced than have had suffered some of the experiences I have had, I must say. I was asked, "What represents, in today's market climate, a worthwhile gain?" A very good question, and one that I propose to spend some time not answering.

First, what represents a worthwhile gain is entirely a matter of personal taste. We all know there is such a thing as greed, which may or may not be a famously good thing, but how do you quantify it?

A rule to take profits of say 50 per cent or 100 per cent seems superficially attractive because it gives us a framework in which to make decisions. Such a rule is arbitrary. If you had taken the brave decision at the nadir of the market in March to "buy the rubbish", mostly bombed-out software, media and telecoms stuff, the likes of Colt or Arm Holdings, say (as I did), you might be looking at a 60 per cent gains now.

Yet just because a share has risen by 60 per cent in a few months doesn't mean it might not rise by another 60 per cent soon enough.

I have a case in point. When I bought Stagecoach shares at their nadir of 15p and 20p towards the end of last year, when the yield was about 15 per cent, I went on to sell them when they'd risen to about 30p a few months on. That was a "worthwhile gain" by most standards but, as it happens, I then watched helplessly as those same Stagecoach shares rose and rose to reach 81p the last time I looked.

The rational thing to have done when they were at 30p would have been not to say "they've about doubled and it's never bad thing to take profits". The sensible thing to have done was to say, on the basis of the prospects for Stagecoach, renewed speculation about it being taken private or whatever, is 30p expensive or cheap for this share?

You should try to approach each share you hold on a fresh basis, as if you didn't to hold it at all and you consider its medium-to-long-term merits as they appear from the perspective of that day and at that price. As economists say, "bygones are bygones" and past investment decisions should not influence present ones.

In the case of Stagecoach I returned and returned as they were rising and at every point there was a good case for going back in, but something prevented me from doing so, a sort of psychological trap. So I am not saying that doing the rational thing is easy.

Many of us get attached to our holdings and try to justify past decisions for reasons that have little to do with objectivity. Understanding that alone represents a very worthwhile gain.

s.o'grady@independent.co.uk

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