No Pain, No Gain: Stock market bull run is no fun for this investor

The No Pain, No Gain portfolio has, sadly, failed to reap any benefit from the stock market's recent bull run. Since I last discussed its performance two hitherto profitable constituents have fallen into the red; one of them collapsing quite alarmingly.

Lennox is the source of my dismay. The food and drink distributor operating in Spain has had an appalling time, with an unseemly boardroom bust-up followed by a pathetic set of interim figures. Not surprisingly the shares are pale shadows of their former selves. They are now 33.5p (after crashing to 22p) against 64.5p when recruited. It is difficult to see things getting much better.

Peter Voller, the ousted chief executive, still sits on 21.54 per cent of the capital and has probably been deterred from selling his stake by the slump in the share price. Until cleared the overhang will remain a drag on the shares. Clearly Lennox is an uncomfortable setback for the portfolio. Should the shares fall further - say to 20p - they will be sold without further ado.

The group managed a profit of only £93,000 at the half-year stage. It looks as though it will struggle to reach the £1.7m produced in its last full year. I am surprised by the upbeat nature of its interim statement. It is impossible to ignore the feeling that the Lennox management is more than happy with the display. But, worryingly, it offers little guidance on likely second-half profits.

The Lennox setback has contributed to the portfolio's profit shrinking to around the £72,000 mark. With the stock market enjoying something of a charge - FTSE has topped 5,500 points - such an outcome is disappointing. Still the occasional hiccup is to be expected and although Lennox and one or two other constituents are causing some anxiety I am not at the moment planning any major changes. Indeed with the stock market seemingly in good form there must be every chance that the portfolio will resume its profits progress.

Its true that the economy is encountering a few stresses and strains but shares remain cheap and in these low interest rate days many provide enticing yields. It is not difficult to alight on major companies, with solid records and reasonable prospects, offering handsome returns, often above four per cent. Shares of the portfolio's two FTSE constituents, the brewer Scottish & Newcastle and support services group Rentokil Initial, are on at least four per cent yields.

Rentokil, endearingly referred to in the stock market as the "royal rat catcher", remains at the centre of one of the most fascinating and outrageous takeover bids the City has ever witnessed. Sir Gerry Robinson's pursuit of the group has been well documented and I do not intend to dwell on the manoeuvring taking place.

Suffice to say I will probably stick with the management, although I could be tempted to snub both predator and defender and snatch a modest profit.

I will not be a party to supporting Sir Gerry's exorbitant signing on fee. I appreciate that as chairman of the drinks group Allied Domecq, he helped the portfolio to a handsome profit when Pernod Ricard mounted a £7.4bn takeover. But his efforts at Allied, where he behaved as a conventional chairman, have little in common with his machinations at Rentokil.

Besides Scottish and Rentokil my only major player is Stagecoach, the bus and train group. I am pleased to see that its shares have recovered from a poor run that took them down to nearly 100p. At 112.5p, they also offer a sound yield - 3.1 per cent.

Yields are not so important down among the smallcaps where most of the portfolio's cash is invested. The stock market undercard contains a host of relatively young and (hopefully) growing companies. Many cannot afford to pay dividends.

If their resources are sufficiently strong that they are able to grow and reward shareholders at the same time then investors get the best of both worlds. Of the portfolio members six do not pay dividends (although one is promising its first distribution) and two have recently joined the dividend list but have so far been content with modest payments.

Dividend payments play no part in my calculations when charting the progress of the portfolio. My shares sink or swim on their stock market display.

On the other side of the equation I should point out that dealings costs are excluded and I rely on the mid-market price. I realise that this formula can sometimes give me a modest advantage over other investors but it was chosen for a very good reason - old fashioned and often-neglected transparency.

cash@independent.co.uk