Thus - in the case of the Bearbull income portfolio - it was tempting to label as 'bad' last month's losses on energy industry engineer Petrofac (PFC), and most of the rest of the fund's performance so far this year as 'good'. Tempting, but - as I imply - inappropriate.
Far more useful is to label them as unprofitable, in Petrofac's case, or profitable, in the case of the remainder. That way, one is not encumbered by any emotions that might attach to loss or to gain. The IC's contents page last week had Bearbull 'lamenting' the loss on Petrofac, but the point is that's precisely what I didn't do. Nothing bad had happened and there was no emotional loss, so there was nothing to grieve. There was just a lossmaking situation to deal with. Thus sorted, I moved on - as I said last week, "a loss never bothers me after I take it".
And profits tend not to carry me away, either. When they crop up too frequently that usually prompts the question, where is the next set of losses coming from? In that context, this week the price of four holdings in the Bearbull income portfolio cleared the upper limits of their stop-loss boundaries, thanks to strong performance. How do I respond to that?
True, this is what we want - the opportunity to re-draw stop-loss parameters that, if adhered to, effectively lock in profits. Take shares in Vesuvius (VSVS), which supplies consumables to foundries. The stock was added to the income portfolio in August 2015 at 392p, and for the best part of 12 months did nothing other than get perilously close to its sell level. Last June's Brexit vote and sterling's fall changed all that. Helped by a staid yet sustained recovery in the global economy, Vesuvius reports strong trading and its share price - at 572p - has precisely doubled since the post-Brexit low. Since then, I have twice re-drawn the stop-loss boundaries - when the price crossed 470p in February and now. This week's revision calls for a tightening of the sell limit, especially as the dividend yield is down to 3.1 per cent based on 2017's likely payout; that's well below average for the FTSE All-Share index.
My default position is to allow for a 20 per cent fall from a base before selling. But when a holding shows serious gains - as, for example, with Zytronic (ZYT), elsewhere in the fund, which now shows a 164 per cent profit - that limit is trimmed to 15 per cent, occasionally less. It's time to make the same adjustment to Vesuvius.
Ditto the holding in global aviation services group Air Partner (AIR), whose price is up 72 per cent since the stock was purchased in September 2014. The NatWest 9 per cent preference stock (NWBD) moves little at the best (or worst) of times, so I already have a tight stop-loss. And GlaxoSmithKline (GSK), the fourth of the big movers, is a special case. Its shortcomings mean I have often wondered if it should stay in the income portfolio and after its strong showing this year - up 15 per cent since early December - I must address that question again.
I could ponder whether it would be best to sell the GSK holding before UK equities, as a group, topple. Really, though, that's just a device to point out that the All-Share index is at an all-time high and is showing levels of equanimity that unnerve the jittery souls among investors.
I don't make equity market calls but - put it this way - I don't feel the pressing need to reinvest the income portfolio's spare cash following the Petrofac disposal. That's chiefly because the UK equity market looks highly rated and, since last summer, has been showing month-on-month gains that can hardly be bettered.
That judgment is based on the simple fact that, in any 12-month period, a market can't produce more than 12 month-on-month gains. Based on the All-Share's returns, the figure has been nine or 10 gains out of the past 12 since last August. Sure, that rate could be sustained for a while; with the exception of one month, the market maintained that pace for the two years 2005 and 2006, during which time it gained 34 per cent. However, on average this century the All-Share has risen in seven months of any 12, so it's hitting above average. In addition, when the market does fall, it will drop faster than it rose. The average of its 91 'down' months since January 1999 is a 3.5 per cent loss, whereas the average of its 130 month-on-month gains is 2.9 per cent.
It makes me think I should be especially choosy about where I put the income portfolio's investable cash. Choosy and unemotional - I can define those terms quite clearly, even if I want to reserve them solely for investment.
