One month in the life of the Thrifty 30

November was such a frustrating month. Every new idea crumbled into dust. The result: ''7,500 of the Thrifty 30 portfolio in cash and one demoralised investor.

I started with high expectations. The addition of Smith & Nephew would be a departure. Valued by the market at ''500m, it's ten times bigger than any the companies in the Thrifty 30. It's also expensive, trading at nearly three times book value.

Investing in a company like Smith & Nephew requires supreme confidence in the business, because it must remain highly profitable to justify its price. Assuming the accounting value of the company is accurate and we require a 10% return, we can say that a company must earn a return on equity of nearly 30% in a typical year to be worth paying three times book value.

It's possible. Smith & Nephew's median return on equity over the last ten years is 28% and it's a market leading supplier of endoscopy devices used in minimally invasive surgery and devices to manage wounds like pressure sores. Its biggest division supplies replacement joints, like hips and knees, a competitive but still lucrative market. Since its products are targeted at the elderly and people with sports injuries, it has growth credentials.

Although Smith & Nephew is having to cut costs and relocate manufacturing to low-wage economies to stay competitive, the resulting concern of investors, might, I hoped, be an opportunity to buy shares Warren Buffett style, in a great company at a fair price.

But it failed at the final hurdle; free cash flow. Profits are adjusted and can vary dramatically from the amount of money that flows into a company's bank accounts in a particular year. Over long periods though, the differences between net profit and free cash flow should roughly even out as, for example, the cost of plant and machinery bought in one year is depreciated, deducted year-by-year as it is used.

In fact, Smith & Nephew's median free cash flow return on equity (13%), although improving, is far lower than the 28% accounting return on equity and although my measure underestimates free cash flow, published accounts rarely contain all the information required to calculate it, the size of the discrepancy is sufficient to worry me.

I'm also nervous about profitability at three other stars of the 'naughties', shipbrokers Clarksons and Braemar Shipping Services.

I don't usually allow the parlous economy to put me off an investment, often that's why shares are cheap, but the 2000's was a period of unprecedented globalisation fuelled by Chinese production and Western consumption that in turn fuelled a huge boom in shipping.

It seems most unlikely the next decade will be as profitable for shipbrokers. Their profits are already under pressure as a glut of ships forces charter rates down and makes shipowners and shipbuilders more cautious. History shows that down swings in shipping can last decades, which would test even my patience. That said, Braemar is encroaching so deeply into bargain territory that the new reality may be factored in the price.

And that's really the positive ending I've been searching for as I've been writing this depressing dirge. They're all good companies, so time spent researching them now is not wasted. They may not be cheap enough to add to the portfolio today, but they probably will be one day, and if that's the case, the payoff is merely delayed.