Even the experts have stumbled

There was a rude awakening for many investors when the stock market suffered a sharp reverse last year. I am not just referring to the inexperienced relative newcomer. Many top-notch players were caught on the hop.

There was a rude awakening for many investors when the stock market suffered a sharp reverse last year. I am not just referring to the inexperienced relative newcomer. Many top-notch players were caught on the hop.

Although there was never any question that individual shares can go down as well as up, the sight of the stock market as a whole falling about 10 per cent - an event not experienced since 1994 - came, I suspect, as an unpleasant surprise to many.

In such a tortuous market I believe the constituents of the no pain, no gain portfolio did reasonably well. They are still on a winning streak although, as I pointed out last month, some shares are not pulling their weight. Six of the 16 constituents are below my buying price although onlyLynx is providing cause for serious concern. Some of the others, including Allied Domecq, Mears and Weeks, are handsomely in the black.

This week I am not planning changes to the portfolio. I have said on a number of occasions it is intended for the long haul. But clearly adjustments have to be made occasionally, particularly if the story that prompted the original investment changes. There is clearly a case for dumping Lynx and, perhaps, taking some profits on Allied, Mears and Weeks. Allied, the spirits group, impressed by playing what appeared to be a clever game over the sale of the Seagram drinks cabinet although the eventual results of its manoeuvring have yet to be established. Its shares are 424p after touching 452.5p, compared with the equivalent of a 236p buying price.

Mears, a service maintenance group, and Weeks, an engineering consultancy, have made heady progress largely on trading considerations but takeover possibilities cannot be ignored. Mears is 48p (against a 23p tip price and a high of 50.75p) and Weeks 7p (4.25p and 8.5p). I would not attempt to dissuade any investor from locking in profits from this trio - say by cutting their stake in half.

Lynx is one of my two hi-tech shares; City of London is the other. I was never a fan of the so-called New Economy andavoided being drawn into the buying frenzy that drove many shares to ridiculous levels early last year. Obviously I regret tipping the shares of Lynx, a computer group. Although the 216p I paid is well below its subsequent peak of 370p, it is no consolation when the price is down to 86.5p. City of London is also the cause of some regret. Although the shares are still above the tip price they are not even within hailing distance of the peak hit during the dot.com craziness and profits should have been taken. Most of the no pain, no gain portfolio is old economy. And my intention is to keep it that way although bargains must soon be lurking among the burnt out internet shares.

Despite their falls it should be noted that Lynx and City of London are profitable and pay dividends. They are, therefore, "real" companies and would not have made it into the no pain, no gain portfolio if they had been unable to fulfil such basic requirements. I am not suggesting I would never go for a loss maker. But in the bizarre dot.com world it seemed to me that the promise of jam tomorrow attracted an absurd level of over-subscription.

I am not pessimistic about the outlook for shares this year. Indeed it would appear most analysts expect Footsie to move ahead with the forecasters at Morgan Stanley, no slouches, looking for the index to end the year at 8,125 points. My guess is about 7,000. There are still some intriguing buys among old economy shares and dividend yields remain attractive. Brewer Scottish & Newcastle, a no pain, no gain constituent, offers about 6 per cent; a return that will look increasingly attractive as interest rates fall.

The Americans have set the trend and there is little doubt interest rates here are set to decline. The Monetary Policy Committee may hold back tomorrow but a cut appears inevitable. Although worries about the American economy may persist - last week's sharp and unexpected cut did smack a little of panic - the overall outlook is not depressing.

Shares often gain encouragement from lower interest rates and with so many old economy shares continuing to look undervalued in this deflationary climate, I would expect the market to put last year's discomfort behind it and resume, probably in the second half of the year, its advance.