' What I suspect matters for readers, and for Ludo himself, is what it

all adds up to in money terms. He started with #17,000 from a maturing

insurance policy less than five years ago and he now has #38,642. '

IN the quarter which ended on September 30, Ludovic's portfolio, which

I manage, beat the stock market indices handsomely, according to Tilney,

his stockbrokers who do the valuations. Since the end of June, the FT

All Share Index was up 5.18% and the FTSE 100 Index (the ''Footsie'')

was up 4.74%. He managed a rise of 14.93%.

This is all very encouraging, though there is always an element of

luck in such outcomes. It is, however, hard to beat indices all the time

(and he did not beat them in the previous quarter;) not least for the

reason that they incur no costs -- neither brokerage nor stamp duty, a

tax on savings, if not as nasty as capital gains tax, none of which the

index pays! But then no index benefits from his re-investment of

after-tax dividends, which does count for a bit.

What I suspect matters for readers, and for Ludo himself, is what it

all adds up to in money terms. He started with #17,000 from a maturing

insurance policy less than five years ago and he now has #38,642 of

which #37,492 is the value of his shareholdings and #1154 is cash at the

Abbey National. (No credit is taken for any interest such cash balances

may earn.)

His cash balance was #1978 last quarter but he applied for some

additional shares in BT and got 720 for an outlay of #1085. To what

money was left has been added the dividend income of #261 after tax

during the quarter.

I am psyching myself up for another initiative, either a new

investment trust savings scheme or another share, to get the cash

balance deployed where it will grow. It takes courage to make an

investment, even for someone else; and I am always aware of the costs

involved which soar if a mistake has been made and a quick sale is

required to cut losses.

The investment trust schemes greatly reduce the risk of getting timing

wrong. And some big companies actually provide for small investors to

buy their shares cheaply in relatively small amounts, which appeals to

me. I shall report on the decision quite soon.

Of the actual shares he holds, I am delighted to say that Zeneca has

confounded the pessimists and confirmed my judgment in holding on to it

and taking up the rights. A colleague tells me that other analysts

recommended Zeneca at the time of its de-merger from ICI. If so their

work escaped me completely. They were certainly the unrepresentative

minority, for most said ''sell''.

Like any of us, analysts can get it wrong sometimes. This was a case

in point. My only regret was in not buying a little more but I was on

holiday when the right moment occurred, which is the sort of penalty a

self-managed portfolio tends to inflict.

Royal Bank of Scotland shares have also been powering away. Its

management seems to be getting things right. It bought the Adam Bank in

Edinburgh after that fledgling got into such trouble that it might never

have been able to fly by itself.

The price paid was fair to both sides, and I hope the Royal keeps the

Adam customers, mostly flyers and potential flyers themselves, if small

game compared to the corporate clients a big bank serves.

Royal also continues to prosper in North America, where most other

British banks have done badly.

Ludo hopes that the bank will eventually hive off its Direct Line

insurance company (still going from strength to strength). Were that to

happen it might achieve a further upwards re-rating of Royal Bank

shares. The Bank's line (sic!) is to say firmly that it intends to leave

well alone. Yet, just below the very top of its team, somewhat different

noises are heard to the effect that nothing has been ruled out.

Bat is doing less well, with doubts about its US insurance performance

compounding the effect of the cigarette ''war'' there. It remains a huge

cash generator, however, and is likely to strengthen its financial

services side in the UK, where it already owns Eagle Star and Allied

Dunbar.

Ludo will hold on for still growing dividends. He stopped smoking a

couple of years ago, he told me casually just the other week. ''But that

does not mean I have any moral objection to holding the shares,'' he

quickly added. So they remain.

British Telecom is a large milch cow as well. How I love when the

press whines about its ''obscene'' profits: no doubt, they would prefer

it to make a loss. A more significant worry is that, instead of passing

its surpluses to shareholders, its management is discouraged (by the tax

system and those who find obscenity

in balance sheets) from

doing so.

Shareholders would be able to decide their own investment policy,

which might differ from that of BT's management. In short, I worry about

BT's latest North American ventures, an area where it has so far failed

to share the Royal Bank's prudent touch.

I suspect, however, the BT remains under-valued, though I may slice a

little off quite soon to raise funds for the holding promised above.

BP remains to perplex. Its fate depends on the oil price (maybe on

Opec!) but the downwards pressure on crude oil will maintain its impetus

to become even leaner and fitter still.

Scottish Power is doing well. If it looks dear against its English

counterparts, it is not exactly similar to any of them. I expect

above-average dividend growth.

A reader advises me that the size of the Foreign and Colonial holding

makes the portfolio top-heavy. It is certainly the largest holding, but

it could easily double its present size without it imposing much

distortion.

That is because its own portfolio is so diversified (internationally

as well as by sector) and because it enjoys exceptional management, as

is attested by its record. Every small investor's portfolio should be

dominated by an investment trust or two.

That said, F&C's discount is now remarkably narrow and its yield tiny.

I give it a lot of thought. A good rule, however, is to let well

performing stocks get on with it: but, ''Up to a point, Lord Copper''

comes to mind.

Were F&C ever to falter its price would suffer drastically. A prudent

investor should be able to wield a salami knive now and again.

How it all began.

LUDOVIC Ranfurly was the beneficiary of a maturing endownment policy

of #17,000 nearly five years ago. Late in life, during which he had

cashed in accumulated superannuations as he changed jobs, he married a

woman much younger than himself. Were he to die before her, any pension

she received would be pretty modest. So he asked me to manage the

#17,000, re-investing the dividends, to leave his wife better off than

she would be if the money were merely deposited in a building-society

account.

I agreed, thinking the work might show that any person with a modest

amount of money and a little time could manage a fairly safe portfolio

of stocks and shares which would both beat the safest investment (cash

on high yielding deposit) and confer a degree of stimulation.

These aims are succeeding. Ludo's capital has more than doubled and

the flow of dividends is already greater than a building society account

could deliver now that interest rates are lower than when he started.

Another friend tells me the portfolio was slow

to perform -- true, but patience is a great virtue in

investment. What I call vegetable growth is far more dependable than

the hyper-space leaps of science

fiction. The chosen shares are not a random selection, but they are

not numerous enough to be a representative spectrum, so they could as

easily lag as lead the appropriate indices.

They are, however, leading at the moment.