No Pain, No Gain: Ditching shares is understandable, but is it wise?

The No Pain, No Gain portfolio has endured some punishing reverses. They tend to underline the sad state of the stock market and the increasingly fierce recessionary influences that are forcing the nation into an old-fashioned slump.

Thankfully, the portfolio is still sporting a profit, due to past successes. But the gain is down considerably from the peak of £143,000 reached last summer.

In such distressing times there is a temptation to ditch shares to snatch what is left of a profit. Such action is understandable. Whether it is wise is another matter. Often, it is best to batten down the hatches and wait for the storm to pass.

I have been writing about the City for 50 years and witnessed many ragged retreats and a few spectacular crashes. The worst, I feel, occurred in the early 1970s, when worries that the end of capitalism was imminent devastated the stock market.

Unfortunately, there are striking similarities between then and now. Soaring oil prices and interest rates plus a banking crisis (with at least one high street name being supported) loomed large in the Seventies disaster. This time round, almost every bank in the land is suffering acute embarrassment and the cost of oil has surged.

Only the interest rate picture is, at the moment, less frightening.

Still, the Seventies' despair is history. The stock market survived. And buy-and-hold investors who kept their nerve eventually reaped their reward as many shares recovered and went on to hit new peaks, despite some horrendous setbacks such as the selling frenzy that occurred in 1987.

The portfolio is not a sea of red. It contains a strong element of blue, although not one of its constituents is anywhere near its peak. Printing.com, the small item printer, is one that seems to me to have been harshly treated. The shares are bumping along at 32p, uncomfortably near their lowest point since arriving on AIM four years ago.

True, a rather cautious trading statement has prompted profit forecasts to be reduced. If current trends continue, the company is looking for "modest" progress. Consequently, stockbroker Brewin Dolphin has cut its year's profit estimate from £2.7m to £2.5m. Last year, the group produced £2.4m.

Not an inspiring prospect, I realise. But the shares are surely oversold. They now offer a historic yield of more than 9 per cent and a prospective return topping 10.5 per cent. The balance sheet is strong with cash of around £3.5m. Even in today's testing times such a high yield is astonishing.

I am not certain whether Wyatt, another constituent, should be regarded as cheap. But the shares hold a degree of promise. I have been wondering whether to dump them. They have been among the walking wounded for too long. The portfolio paid 27.5p; they are now a miserable 5p.

But two encouraging developments last week left the impression that the shares have, even in today's depressed market, been overlooked. The group has accomplished what looks like a rewarding deal and another is in the pipeline. It also produced figures rather better than I expected.

The takeover involves TEBC, an employee benefits business that should bed in happily with Wyatt's main occupation, running an employment consultancy called Premier Employer Solutions. Cost is a down payment of £150,000, plus another £150,000 over two years and further performance awards of up to £300,000.

Wyatt, with a capitalisation of only £630,000, is not flush with cash so chairman Bob Holt, the man behind the Mears support services group, is providing a £100,000 loan.

In the past year, Wyatt reshaped and losses from discontinued activities cost it dear – producing a £520,000 deficit against a £241,000 profit. But its remaining operations, largely PES, managed a profit of £415,000.

Prospects this year have been hurt by tax changes and PES is likely to experience a more subdued time. Even so, Holt clearly feels that Wyatt could establish itself as a significant player in the employment services market and is keen to add other businesses to the group. But with its shares in the dumps most vendors will want cash. That could mean a rights issue.

Wyatt is among the portfolio's worst performers. Still, I can see little point in selling. Indeed, there is a reasonable case for hanging on.