City: Handicapped

I SHOULD have heeded that old saying: 'Sell in May and go away, buy again on St Leger's Day.' This year, it proved a remarkably prescient guide to what you should have done as a stock market investor. After a post-election surge, the FT-SE 100 Index went into a steep decline from mid-May onwards. If you had bought again on St Leger's Day (12 September), when it was pretty close to the bottom, you would since have seen an appreciation of nearly 20 per cent.

With spectacularly bad timing, this column's shares portfolio was set up right at the top of the post-election bull market, and a pretty humiliating performance it has proved as a result. You would have been down 3.7 per cent on your money if you had invested a similar amount in each of the nine shares selected: Marks & Spencer, Glaxo, Boots, Bass, Yorkshire Water, Sherwood Computer, Sherwood Group, Transfer Technology and Victaulic. Over the same period, the FT-SE 100 showed a net gain of nearly 6 per cent. A more flattering comparison is with the FT-SE All Share, which was down on the period.

Of the bunch, Boots has been by far the best performer, showing a gain of around 20 per cent. Yorkshire Water, another classic defensive stock, was up 16 per cent over the period. But the performance of three of the smaller company selections has been little short of disastrous - Victaulic down 21 per cent, Sherwood Group 25 per cent, and Transfer Technology a sickening 34 per cent.

Like everybody else, I'm still bullish about equities, for the early part of the new year at least. For the time being, the herd is too strong a force to resist. You only have to look at the March FT-SE 100 Futures contract to see just how strong. By rights (after taking account of dividends payable less the cost of capital), the contract should be at a 20-point premium to the index. In fact, the difference is more than 40 points. The only obvious fly in the ointment is the burgeoning government deficit. From April onwards, the Government will be competing hard for funds, possibly driving up interest rates. But with some form of economic recovery now looking a certainty, rather than the mirage it has proved in the past, there seems little in the immediate future to interrupt the flow of positive sentiment.