Derek Pain: Unexpected gains ease the portfolio's pains

The stock market revival is at last making a realistic impression on the no pain, no gain portfolio. Eight constituents – compared with only two not so long ago – are showing gains and some of the walking wounded have managed to narrow their deficits.

But into every life, as the old song goes, a little rain must fall. Private & Commercial Finance, a hire purchase group, last week slumped to a new low of 6.75p after it was forced into a deeply discounted share placing.

So, PCF joins my other horror shares. Although Pubs 'n' Bars, the 100-strong pubs chain, has more than doubled from its bottom of the barrel level, it is still only 7p (after hitting 10p) against my 23.5p buying price. And Green CO2 has performed even more disastrously, standing at 1.25p compared with the 27.5p the portfolio lashed out six years ago.

Lighthouse, the wealth management group, is another to have eroded the portfolio's wealth, although not so substantially. The shares are 10.25p against a 17.5p buying level. Maybe interim figures, due later this month, will offer a little inspiration?

Still, despite my mishaps and other dreadfuls dotted around, the stock market performance has exceeded most expectations. My own guess was that shares would begin their recovery towards the end of the year. So their gain, from a low base, has certainly been quicker – and more substantial – than I envisaged. Further progress could be made in the months ahead although it would, at this stage, be foolish to become wildly optimistic even if more mega deals appear.

Don't forget many of the more astute players have probably yet to bank the profits they have made since those dismal days in March. However, institutional investors appear more bullish than for a long time and are more likely to hang on to the shares they have acquired.

The portfolio's profit now tops £96,000, with past successes making a major impact. Its still a long way from the peak of nearly £150,000, hit in those balmy days before the stock market – and the world's economy – tumbled off the cliff. Still, it has made significant progress since March when the return was £77,000.

I have yet to decide what to do about PCF, although I will probably dump the shares. I do not relish embracing another penny dreadful. I held on to Pubs 'n' Bars and Green CO2 for too long. Then there was little point in realising the small cash pots that remained. But a hat-trick of disasters has such a doleful ring that I do not think the portfolio should suffer such an indignity.

PCF's inability to raise £2.3m by offering new loan notes to replace expiring paper is not entirely a surprise, although chairman Michael Cumming must regret his comment that "a significant number" of loan note holders were rolling over their interests into the new issue. In the event, only £389,000 was raised – despite a 10 per cent coupon and the possibility of converting into shares at 25p.

To help plug the cash gap, the group has placed shares at a heavily discounted 6p, raising £1.35m. It is still short of all the necessary replacement cash. I would have been more sympathetic if the board displayed its confidence by taking a substantial role in the placing. But it appears that only the chief executive, Scott Maybury, took up shares, and he subscribed for only 166,660, lifting his stake to 2.94 per cent. Tony Nelson, the deputy chairman, put £10,000 into the loan note issue.

PCF remains profitable although it is expected to make little, if any, progress this year, producing around £200,000. A sharp improvement is likely next year with, perhaps, £900,000 possible.

The group has long-standing bank funding although it is having to pay more for its cash. However, the loan note fiasco, besides heavily diluting existing shareholders, will impact on its ability to build its business.

It all adds up to a subdued outlook. When I descended on the shares I viewed them as a recovery play. Initially I was not disappointed. But I am now.

There has been some encouragement from Whitbread, the leisure group. It has revealed that the recession is not hitting it as hard as many suspected. And its shares have responded dramatically.