PORTFOLIO

Revaluations

JOHN BULL

This week I have made some major changes in my two portfolios, throwing out a num- ber of shares which recent economic events time left looking a shade weak and amal- gamating the two portfolios into one and so, in effect, closing down my more specu- lative activities. Prior to putting the two together, my first portfolio was showing a capital gain of 251 per cent before expenses although during the twenty-one months I have been in operation the Financial Times ordinary share index has shown a net loss of 5 per cent. The second portfolio has not shown large profits but has registered a tiny gain on a falling market (it was started a few months later than the first portfolio).

My feeling is that no early recovery in equity prices can be hoped for. We are, I think, once again in that normal situation for equity markets, sideways movement with no sustained trend. Indeed as I write the Financial Times ordinary share index has dropped to where it was as long ago as May 1961. Of course any good fund manager should be showing a considerable plus during the eight years which have elapsed. But it is slow work making and hanging on to profits in a sideways market and it is certainly not a period during which a speculative portfolio can be anything other than a worry.

Both of my portfolios were started with £5,000. Before deducting dealing expenses, they are now together worth £11,309. My liquidity is high at just over £2,700 (ready for occasional, highly selective buying); I have quadrupled my investment in gilt- edged securities, buying £2,300 nominal of Savings 3 per cent 1965-75 at £74 1/16 (thus providing a secure, tax free capital gain of a shade over 25 points in six years) and I have held on to £6,360 of equities. I indicate below my reasons for selling or keeping the various shares in my list.

Empire Stores: Best of the mail order houses, business continues to show a good growth rate, well ahead of national and retail sector averages. Unfortunately Empire Stores' high price-earnings ratio has looked out of place in recent months and so the share price has fallen back. Worth keeping, though, for the long haul.

Phoenix Assurance: One of the more profitable, smaller composite insurance offices. Price-earnings ratio and dividend yield not ungenerous. But my main reason for keeping Phoenix is that there remains an outside chance of a takeover in spite of Continental of New York's major share- holding in the company.

Witan: A well-managed investment trust, but now that Wall Street is down (and looking sick) and the investment dollar premium is down (and looking dead), the shares are vulnerable to substantial selling. 1 have exited at a pretty good profit.

E. Scragg: This Macclesfield manu- facturer of textile machinery has pushed profits up at a fast rate over the past two years and should do so again this year. The shares are selling at a modest price-earnings ratio and are a hold (though the break in the price last week was a trifle unnerving).

Clarkson (Engineers): Clarkson has re- cently completed an important merger and so there should be rationalisation benefits (and profits) to come. In any case Clark- son's record is much more inspiring than the machine tool industry as a whole. Hold.

Rio Tinto Zinc: RTZ has exciting pros- pects all over the world (in mineral develop- ment), particularly in Australia. But the shares have been rushed up on speculative enthusiasm and are now showing signs of a reaction. The price-earnings ratio remains on the high side so 1 have sold my hold- ing at a tiny profit.

Associated British Foods: Recent results showed pre-tax profits up 19 per cent and

ffolkes's industrial alphabet

His for Home market earnings 28 per cent to the good with every chance of a further increase this year. AB Foods is a big blue chip moving in the right direction, powered by rising supermarkets and overseas profits (though AB'S bread business is not a winner). Hold.

Jamaica Public Services: Commonwealth utility which has shown a rather worrying price action (l refer to the shares) recently, so I have ditched my holding.

Electric and Musical Industries: I can- not see Esn's profits bucking the trends— and I am just slightly worried about the weight of management at the top of the company—is there enough high quality talent there? I hale sold.

Lyons: I have recently said my piece about Lyons—once sleepy business being re-invigorated. Substantial profits rises ahead. Hold.

British and Commonwealth Shipping, Forte's, Bowater: These comparatively re- cent purchases are justifying themselves. particularly Forte's, though I am most hopeful of Bowater which is in the right phase of the world newsprint trade cycle. Hold.

Pillar Holdings: Extremely well managed aluminium fabricating group which it would be no surprise to see wrz gobble up. Hold.

Kaiser Steel: Kaiser's holding in the giant Australian ore producer Hammersley is it- self worth more than the share price. One day this anomaly will be ironed out to the benefit of the Kaiser shareholders. Hold.

Lonrho: Speculative share. I expect a bumpy ride tending upwards. Hold.

British Petroleum, Burmah Oil: When the Alaskan oil excitement bursts out again (at and after the action of leases this autumn) American interest should push both counters higher. These are very good long term holdings on grounds of the status improvements that the two companies have under way. Hold.

Vosper: Recovery prospect in shipbuild- ing which may not be worth waiting for. Sold.

Allied Breweries: I bought these shares on hopes of a generous bid from Unilever (which was thwarted). 1 show a rather nasty loss and as I cannot see an early improve- ment in the share price 1 am closing my position.

J. Bibby: The recovery may have run out of steam. I am showing a modest loss with no hope of early retrieval. Sold.

Valuations at 21 July 1969

100 Empire Stores at 50s .. £250 125 Phoenix Assurance at 33s 6d .. £209

500 E. Scragg at 16s 4id . . . . £409 500 Clarkson (Engineers) at 18s 41d £460 1.000 Associated British Foods at 9s £450

133 Lyons 'A' at 64s £427 200 British and Commonwealth Shipping at 36s 3d £363 200 Forte's Holdings at 48s 3d .. £482 200 Bowater at 53s 3d £533 £3,000 Savings 3 per cent 1965-

75 at £74 £7.222

600 Pillar Holdings at 16s 71c1 .. £499 15 Kaiser Steel at £35 4s £528 250 Lonrho at 48s £600 100 British Petroleum at I35s £675 100 Burmah Oil at 95s .. £475 Cash in hand .. £2,727 £11.309

Deduct: expenses £481

Total £10.828