As we approach the year end it is apposite to look back on an eventful and, for me, quite an active investment year. In terms of overall performance, I have achieved 20 per cent capital appreciation on my portfolio, broadly maintaining a steady level of performance following gains of 16 per cent in 2016 and 18 per cent in 2015.

Pride of place this year must go to Treatt, the flavours and fragrances specialist. No less than three profits upgrades sent its shares to a peak of 523p in June.

While I have the highest regard for this company, even I felt that price was a trifle “toppy” and decided to sell 8 per cent of my holding at 488p. Even after this, Treatt still represents by far my largest investment, and indeed over a third of the total value of my Isa.

The company’s annual results on Tuesday were excellent, with a 40 per cent increase in earnings, a 10 per cent increase in the annual dividend and a share placing to provide capital for new head office complex. This has delivered an encouraging bounce in the shares.

Other pleasing performances have come from Christie, the leisure business services group, and Anpario, the natural animal feed additives company, both of which have notched up annual gains of about 50 per cent.

This performance was closely followed by Air Partner, the aircraft services company, Gooch & Housego, the electro-optical group, and Vianet, the data management systems provider, all coming in at about 40 per cent.

The one big negative has been publisher Quarto, which more than halved following poor trading, a high debt millstone, and finally the passing of the dividend. Although I managed to sell some, it still represents a useful holding.

I am prepared to give it the benefit of doubt because I still believe that there is a valuable underlying business there — particularly in children’s books. This view is supported by the fact that takeover talks during the year — while subsequently aborted — were suggesting a significantly greater takeout price. However, I am looking for a substantial improvement in profits next year.

The main focus of my buying activity in 2017 has been international events and exhibitions company Tarsus, which I have added to on 10 separate occasions between 279p and 311p.

I have a very high regard for this well-managed company, reinforced by attendance at a recent presentation on its US travel trades events acquisition, and news that it has extended its contract to operate the Dubai Air Show until 2027.

Other much smaller purchases made this year include new holdings in defence- dominated engineer MS International and palm oil producer MP Evans, plus I have added to my holdings in the insurance services group Charles Taylor.

During the year I became increasingly concerned with the very high valuations of quality Aim-listed stocks, of which I hold a fair few. Many of these stocks have an inheritance tax exemption if held for two years, thanks to the current rules on business property relief. This status, combined with tax-free dividends and investment growth if they are within an Isa wrapper, has created a somewhat artificial pricing premium. This could lead to vulnerability if taxation policies change, as would be almost certain to happen under a Labour government. Additionally, for those Aim shares held outside of my Isa, capital gains tax is at a historically low level and could be increased at any time.

These factors coupled with a desire to create some liquidity have caused me to “top slice” my holdings in soft drinks manufacturer Nichols and the aforementioned Gooch & Housego. Both have done me proud, but some judicious pruning made sense.

Nichols originally cost on average less than £2 per share in 2005-06 when I built the majority of my stake. Thus, disposing of a fifth of my holding at £18 means I have “banked” an excellent profit — subsequently, the shares have slipped back to £16.

Gooch & Housego has performed even better. Here I sold two-fifths of my holding at an average price of £13.50, having bought in 2004 at just over £1 per share.

Both these performances clearly demonstrate the benefits of patience, retaining quality stocks rather than chopping and changing, as sadly so many investors do. Yes, I will have a nasty GCT bill to meet next year as both of the above holdings were not within my Isa, but I have created a comfortable liquidity cushion available for new ideas — or more likely, parental responsibilities, as the number of grandchildren we have has also multiplied.

Additionally, and for the first time for many years, I now possess the funds to make a further Isa cash injection. Quarto apart, virtually all my other holdings have increased their dividends — broadly, both my Isa and non-Isa portfolios yield a combined 2.5 per cent.

Dividends have always been an important consideration for me. Investment commentators and academics frequently, and quite rightly, point to the part that the compounding of dividend reinvestment plays in long-term wealth creation. However, we should not forget that significant capital appreciation can dwarf dividend yield as I think my 2017 ratio of 20 per cent to 2.5 per cent clearly demonstrates.

John Lee is an active private investor and author of ‘How to Make a Million — Slowly’. He is a shareholder in all the companies indicated.

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