Taking a share in a winning streak

Smaller Companies

SHARES in general make great investments. Since 1975, the FT All Share index has risen roughly 35-fold, or nearly 80-fold assuming dividends reinvested and no tax. Any investor who matches that performance will be delighted - most unit trusts do not.

Against this background, I have been assessing my performance as a share tipster over 1995, and I am relieved to say the results are good. Against a 13 per cent rise in the index, I have achieved an average rise of 25.8 per cent from 61 shares selected.

But actually (cue for a deafening bout of chest thumping) that understates my performance because the recommendations have been made at weekly intervals through the year against the background of steadily rising share prices. The median level for the FT All Share index in 1995 so far is nearly 1,600. It is the 7.6 per cent appreciation from just under 1,600 to 1,719 that should be compared with the 25.8 per cent gain on my selections. On that basis I have beaten the index by almost a four-times margin.

The performance of my 10 New Year nap selections helps to bear this out. Their performance can be validly compared with the 13 per cent rise in the index. So far they are up 40 per cent on average.

Nor have these performances been distorted by one superstock. The best performer, Unipalm, which connects companies to the Internet and is currently in bid talks, is up 174.7 per cent. Out of the 61 stocks, only seven are down, typically by insignificant amounts, while 26 shares are up by 25 per cent or more.

The key to the above performance and, I believe, to investment success generally lies with the selections. Many people think investment success is all about timing and buying stocks cheap to sell them dear. Most people who consciously set out to do this end up with a rubbish portfolio of lowly rated no-hopers.

I believe that success comes from long-term investment. Shares should be sold not to crystallise a profit but to avoid tying up scarce resources in poor performers. In general, this means sell any share that falls by 20 per cent on your purchase price or where problems are unmistakably signalled.

Leadership in the 1995 bull market has come from technology stocks, and this boom looks set to last. Stocks featured in this column include telecoms equipment suppliers, Telspec, Rainford and Filtronic Comtek, which all look to be at an early stage in a period of exponential growth. Other companies such as Datron- tech, Northamber and Persona are distributing computer supplies manufactured by fast-growing US concerns.

Another source of recommendations has been UK companies specialising in high-tech niches in global markets. Selections include Vinten, Renishaw, Huntleigh Technology, Eurotherm and Druck Holdings.

Luck also plays a part. When I recommended Andrews Sykes (air conditioning) and Hozelock (garden accessories), I had no idea that the hottest summer in 200 years was around the corner.

There are also many companies that I believe are the best at what they do. Examples would include Perpetual, unit trust management; Robert Wiseman, milk distribution; Dorling Kindersley, producers of reference and children's books being repackaged in CD-Rom; Mitie, cleaning and support services; and Colleagues Group, which orchestrates direct-marketing campaigns for blue-chip companies.

Other selections come under a broad brush heading of special situations and include companies such as Goode Durrant, vehicle hire; Games Workshop, designers of war-game systems for teenagers; Celltech, new drug development; Henlys, bus manufacturer; Ashtead, plant hire; Tinsley-Robor, CD packaging; Stoves, kitchen equipment; Burford, linking with Japanese giant Sega to develop a virtual reality theme park; engineering specialist Morris Ashby; and textile-related long-term success stories such as Marks and Spencer supplier Dewhirst and printer and dyer, Leeds Group.

So far prospects look good all around. But if any share starts to go sour by dropping 20 per cent below its purchase price or hitting trading problems, sell and move on to new pastures.