No Pain No Gain: It seems all pain and no gain these days in the Brown bear market. But I am eyeing recruits

Two long-serving stalwarts of the no pain, no gain portfolio have produced bitterly disappointing trading statements in the past few weeks. If I was ill-prepared for the setback experienced by Scottish & Newcastle, which I have already dwelt on, I was even more surprised by the sudden outbreak of caution at Allied Domecq, the wines and spirits group.

S&N, the nation's biggest brewer, has continued to retreat since its profits alert and the shares are now some distance from my buying price. Allied's shares have also been mauled, but they at least have the distinction of remaining, if to a lesser extent, in the money.

My other two Footsie constituents are showing gains. Safeway's progress is the result of take-over action with no fewer than six potential bidders circling. Six Continents, my latest recruit, is beginning to score from the planned hotels and pubs demerger and mooted bid by Hugh Osmond.

Allied's shares seem to have been treated harshly, but so many companies could make a similar complaint these days. With the exception of the important Spanish market, where de-stocking took its toll, trading seems to be going well. Pensions and an old Allied bugbear, exchange rates, caused the major damage. A pensions charge of perhaps £40m (against earlier estimates of £16m) seems likely this year, plus an estimated £40m loss on foreign currency movements.

The wine and spirit group is no stranger to foreign currency setbacks. A decade or so ago, it lost a staggering £149m when it misread the foreign exchange markets. Allied, like S&N, is in for a flat year. Its year's profits are likely to emerge at around £480m, little changed.

Under the old brewer's chief executive, Philip Bowman, it has made splendid progress. At one time it was a fixture in the last chance saloon. Since selling its pubs estate it has substantially strengthened its wines and spirits operations. A worldwide downturn would hurt. But with its shares selling at not much more than nine times prospective earnings and a 4 per cent-plus dividend yield, they are worth retaining.

I am still seeking recruits. The portfolio is now 14 strong and, I feel, would benefit from a couple of additions. There are bargain basement buys around and I hope within the next few weeks to alight on at least one newcomer.

Springwood, the night clubs chain, which has produced another profits warning, is a constituent causing anxiety. Its shares could be the next for the chop. Although things are grim on the night-club circuit, Springwood seems yet another victim of ill-judged expansion.

Of course, the (Gordon) Brown bear market has severely damaged the portfolio. It is now a few thousand pounds in the red, a long way from those happy days when shares were riding high and it was more than £30,000 to the good. This is the first time since it was launched four years ago that a loss has been recorded. This year's declines by S&N and Allied are largely responsible for the damage.

One sympathetic reader, Dr Gwyn Harris, suggests I should include dividend payments in my calculations. With some high yielding constituents, it is a tempting suggestion. It might even edge us back into the black. But when I started the portfolio, the idea was to keep things simple. Dealing costs as well as dividends would be ignored.

Although capital growth is becoming much harder to achieve and dividends are now much more relevant to investment decisions, I feel it is a bit late in the day to change the ground rules.