Shares: A view on the bright side: Market gloom may be a precursor to boom, Quentin Lumsden argues

THE KEY to successful investment is to have a view, to stick with quality and to be patient. My view is that the painful period for the economy in the early 1990s is setting the scene for a big equity bull market through the rest of the decade - just as the recession of the early 1980s primed the Thatcher bull market.

The quality lies in the share selection of companies that are well-managed and strongly financed leaders in their field. If they are, the buyer will do well ultimately, although there is little protection in the short term if the whole stock market takes a dive.

That is where patience is needed. In a pattern of alternating good and bad years established since 1989, it is now clear that 1991 was a good year (after an awful 1990) and has been followed by what is shaping up as a fairly disastrous 1992. The good news is that if this pattern holds, good times should return in 1993 - a prospect that looks highly likely. German interest rates should be falling by then and the dollar strengthening, while many economists believe confidence should be improving in the UK, helped by lower inflation and interest rates.

My guess is that a look back at selections made in 1992 from the perspective of next spring will show a much more positive picture. Meanwhile, I am happy with most of my selections. January featured four computer software stocks - Electronic Data Processing, Sage, Micro Focus and Borland. Sage and Micro Focus are holding their own, Borland has halved to around pounds 20 and looks to have gone ex-growth, but EDP is doing superbly (see accompanying list), I first wrote about it a year ago when the shares were 176p - they now stand above 400p. That same August 1991 column featured catalogue retailer Betterware at 60p against a recent peak of 165p. Later in the month, I picked another candidate, Granada at 211p, for my running series on recovery stocks. The total series includes six selections, the other five being Dixons at 140p; Midland Bank 251p; Coats Viyella 172p; Next, which has been featured twice at 45p and 68p; and the one poor performer, struggling advertising agency, WPP, though the company at least lives to fight another day.

Still on the recovery theme, February featured media and transport stocks. Amazingly, given the absence of recovery, only two out of 13 shares are lower, with some substantial gainers like News Corporation, up nearly 50 per cent. The complete list reads Abbott Mead Vickers, recommended at 378p; Gold Greenless Trott 208p; Capital Radio 215p; Central Independent TV 1168p; Daily Mail & General Trust pounds 61; Euromoney 613p; Headline Book Publishing 150p; Johnston Press 293p; Blenheim 423p; News Corp 605p; and three transport stocks - British Airways, at 250p; BAA 568p; and NFC 240p. The one that is struggling is Capital, which should be sold. The rest look an outstanding portfolio for immediate purchase for substantial capital gains in the next period of market recovery.

Over the next few weeks, I suggested buying FTSE-100 and Thames Water traded call options ahead of an election, which I forecast the Tories would win by a clear majority. Anyone with sufficient gambling spirit to act on these suggestions would have made a quick fortune. Thereafter featured a string of solid recommendations of such quality stocks as Elan Corporation, the fast-growing nicotine patch company; Rothmans, the tobacco and luxury goods company; Scottish & Newcastle, the beer and leisure group; international stocks Waste Management International and Remy Cointreau.

One that embarrassed was Euro Disney, which has since dived from 1650p to 758p, although I still believe it is going to be a fabulous money-spinner in the end. Two other companies that have not worked out as hoped were Psion, of the hand- held computers, and Clarke Foods, which is mounting a spectacular assault on the UK ice-cream market. Clarke's figures have been badly affected by teething problems at its new state-of-the-art factory though it claims all is well now. Psion has found the sales build-up slower than hoped. Both now look even more speculative.

There have been some offsetting coups. In May, I wrote about a small company, Benson Group, growing fast by acquisition which has since moved up from 13p to 16p. In June, I suggested ways to profit from a falling market by buying traded put options. Anyone who followed my advice to buy FTSE-100 September 2550 puts at 66 will have more than trebled their money at current prices. Similar advice to buy puts on four individual stocks, Vaal Reefs, BP, British Steel and Land Securities, would also have made substantial percentage profits.

Overall, it has been a hard six months, but happier and more profitable days should lie ahead.

Prices Update

THE following are Friday's closing prices of shares mentioned in this article:

Electronic Data Processing, 410p, Sage 333p, Micro Focus 1638p, Borland 1913p, Betterware 140p, Dixons 184p, Midland Bank (now HSBC) 340p, Coats Viyella 159p, Next 88p, WPP 35p, News Corporation 825p, Abbott Mead Vickers 376p, Gold Greenless Trott 218p, Capital Radio 133p, Central Independent TV 1388p, Granada 235p, Daily Mail & General Trust pounds 59.50, Euromoney 693p, Headline Book Publishing 178p, Johnston Press 328p, Blenheim 458p, British Airways 224p, BAA 632p, NFC 225p, FT-SE 100 2312.6 points.

(Photograph omitted)