Philosophy is needed because 1994 has been a testing year for investors, with the FT- A All-Share index peaking at 1,764.11 in February and then falling steadily to 1,445.85 - a decline of nearly 16 per cent.
My belief is that it is now at a level where shares offer excellent value, with recovery waiting for a better tone in bond markets.
My main objective in reviewing past recommendations is to see which shares are performing badly and should be sold. But it is also a useful discipline to keep an eye on the overall performance.
Big winners are rare but hopefully their time will come. In November 1993, for example, I recommended shares in a wallpaper and fabrics group, Osborne & Little, at 186p. When I reviewed the second half of 1993 in December, they did not rate a mention. But now, after the announcement of a 200 per cent increase in earnings per share, they are 385p and poised to climb further.
Analysts' forecasts of earnings per share reaching 31.5p in the current year, for a prospective price-earnings ratio of just over 12, are based on an assumed sales increase of 11 per cent. That already makes the shares look cheap. But sales are running ahead by 25-30 per cent in the first two months of the year to 31 March 1995, so forecast could be well beaten.
My first set of recommendations since the last review featured the drinks group Matthew Clark at 553p, Hadleigh Industries at 88p, the construction group Allen at 146p, housebuilder Banner Homes at 132p, and Dart Group, the flower importer and air cargo operator, at 142p.
Only Banner at 119p has declined after peaking at 177p, but the shares look cheap on a prospective p/e of 9.5.
Best performer is tiny Hadleigh, a transport services business, which is up 22.7 per cent to 108p and should continue to do well.
The following week, I examined toy shares, including another look at the phenomenal Bluebird Toys, up from 144p to 205p, yet still on a single-figure prospective p/e. An old favourite, Bluebird shares were first recommended in December 1992 at an adjusted 33p. Also doing well is the bicycle manufacturer Casket, up from 40p to 491 2 , and well placed to benefit from economic recovery on the Continent after its acquisition of a large German bike manufacturer.
Blue Sky shares were the subject of the next piece, which also included the virtual reality specialist Virtuality at 315p, along with Phonelink at 343p, and On Demand Information at 110p.
The latter two have slipped modestly, but Virtuality is much weaker at 194p on fears of cheap competition and should be sold.
Also disappointing is the performance of Hambro Countrywide, down from 86p to 53p in a piece featuring estate agents. The on and off housing recovery is not helping and these shares should also be sold. Like Virtuality, they illustrate the merits of cutting losses on a 20 per cent decline to avoid more serious disasters.
The next issue featured motor distributors with a mixture of small winners and losers, which roughly cancel each other out.
Best bets for future success in a still promising sector are Reg Vardy, at 196p against a recommendation price of 193p, Tony Bramall's acquisitive Sanderson Bramall, at 182p against 178p, and Ford specialist, Dagenham Motors, at 159p against 132p.
A clutch of special situations featured Carlisle Group at 22.75p against 29p at present, where Nigel Wray, chairman of the successful property group Burford, has acquired a stake. A rumoured acquisition has yet to materialise, but it is normal for deals to take longer than expected to come to fruition.
Less successful so far has been Bernard Kerrison's Strategem Group, at 120p against 134p, but there seems no specific reason to lose faith.
The next couple of recommendations were in the front line in market terms, with share prices bubbling around peak levels. Lucas Industries, recommended at 232p, has come back to 161p on US worries. Recovery looks likely to prove a long haul with George Simpson, the hot-shot new boss, likely to start with a kitchen sink clear-out.
Carpet maker Tomkinsons, at 269p against 312p, is also a disappointment, with signs that the middle-class passion for sanded floors and rugs is making wall-to-wall carpeting increasingly unfashionable.
The bulk of subsequent recommendations are performing soundly and should only need a better market background to show their paces.
Other shares that are giving cause for concern are the cable- laying business Utility Cable, at 29p versus 361 2 p, the recently floated packaging group, Parkside International, at 103p against 114p, and Wyevale Garden Centres, at 145p against 177p.
Utility and Wyevale should be sold and Parkside put on probation.
Further significant weakness or evidence of trading problems (not apparent with recent good results) should trigger a sale. In stock markets, there are always other fish to play.Reuse content