Flexible approach can reap rewards

Patience is a much neglected virtue in the stock market. Many private investors are not prepared to take a relatively long-term view and as soon as a share under performs it suffers the old heave-ho.

Patience is a much neglected virtue in the stock market. Many private investors are not prepared to take a relatively long-term view and as soon as a share under performs it suffers the old heave-ho.

But the stock market can be a volatile place. And it is often wise to give a share, at least for a time, the benefit of the doubt. I do not believe in adopting a rigid formula,such as the stop-loss system, in which, irrespective of the circumstances, a share is dumped once it falls below a certain price.

I am not suggesting investors stick with a share, come hell or high water - a sure recipe for disaster. My point is that a shareholder must use his own judgement; he will not always get it right but he will not, in effect, have decisions made for him.

Since it was launched in February last year, the no pain, no gain portfolio has sold shares when I took the view there was no point in hanging around waiting for losses to increase. Deep Sea Leisure is an example. The shares were sold at 102.5p, well down from my 250p buying price. It was clear the aquarium group was no longer enjoying itself and the price is now bumping along at 42.5p.

It could be argued that I stayed with Deep Sea's declining fortunes for far too long. A stop-loss system would have taken me out at around 200p or 220p. And it would also have ensured profits were taken before they evaporated in the dot.com burn-out.

But it would have failed me if I had used it in connection with S&U and Safeway. S&U, a financial group, went down to 216p following my tip. The shares are now 360p, comfortably above the 292.5p buying price. Safeway, interim results tomorrow, plunged to 154.75p after the shares entered the portfolio at 248.5p; the price is now 320.5p.

Naturally I agonised about dumping them. Under the stop-loss system they would have stood no chance of remaining in the portfolio. My more flexible approach allowed the shares to weather the storm and, much to my relief, they staged what was clearly a justified rally.

Of course, an active investor could have moved in and out of the shares during their slump and rally. But the no pain, no gain portfolio is for the long haul and aimed at more relaxed investors who do not spend their days screen-trading and even fretting about ha'penny moves.

Five of the 16 portfolio constituents are currently showing losses. I am anxious about Stagecoach and may shunt the shares into the sidings. Lynx, a computer group, could also be logged off.

But the other culprits, I think, are worth retaining. Merrydown is, I believe, still recovering and its shares have climbed from a low of 24.5p this year. Interim figures are due. Gowrings, after scoring an impressive gain, has fallen back. The company is now between announcements - often a time when shares slip as interest wanes. I would not be surprised if they start to move ahead as the group gets nearer its year's results. But they are not due until March.

The 16 stocks in the portfolio do pay dividends, a function that many stock market companies, including some Footsie constituents and high flyers, find completely beyond their resources. It seems to me that dividend payments are often overlooked in today's investment climate. They are, however, an important factor when deciding whether it is worth buying a particular share.