Some of our sell recommendations are more straight forward than others. This was less so in the case of Catlin Group particularly in light of some solid financial results. However, looking back at our original buy recommendation (via Wellington Underwriting in FAT93) offers some insight.

At the time, we believed the catastrophes of 2004 and 2005 would result in a robust rate environment for insurers. In the event, a benign catastrophe environment did ensue while rates also remained healthy. So from this perspective, we met one of our original objectives. A second objective, taking part in industry consolidation, was also on the mark, hence the reason we were selling Catlin and not Wellington.

However, changes in the industry were afoot. Catastrophe rates were expected to be neutral while non-catastrophe business remained under pressure. Having taken part in the first wave of consolidation, we did not believe Catlin was ripe for further corporate activity. And finally, our view on a weakening US dollar did not bode well for Catlin's significant exposure to America.

As such, we followed up last year's 'half sale' with a recommendation for Members to lock in profits and sell their remaining holdings in Catlin.

Late last year we took the opportunity to take some profits off the table in Scottish Power (LSE, SPW) due to takeover speculation driving the share price markedly higher. This conjecture as it turns out was well founded with Iberdrola of Spain stepping up with a cash and share offer.

Having knocked back earlier takeover attempts, the company now found itself the target of a much improved offer on the previous year's approach by E.ON of 570p. Shareholders were instead being offered 400p in cash, a 12p special dividend and 0.1646 of new Iberdrola shares. At the time of our sale recommendation, the value of the offer was about 815p.

Given our previous partial sale, and with less than half of Members' remaining shareholdings to be converted into new Iberdrola shares, we believed that the time was right to lock in the profits on the balance of our position. Accordingly, we recommended Members sell their remaining holdings in Scottish Power around 813p.

One of the longest surviving stocks in the Fat Prophets Portfolio was J Sainsbury (LSE, SBRY). Having first initiated coverage back in FAT2, we witnessed substantial change at the grocer and in our view a genuine recovery in the company's fortunes.

In fact throughout 2006 it was becoming clearer that Sainsbury's was reclaiming former glories and the share price was reacting accordingly. Then just as Sainsbury's operations were taking centre stage, along came a private equity consortium with a takeover attempt.

Sainsbury's well documented and undervalued land bank was the centrepiece of the private equity group's interest. However, it was not long before cracks in the approach for Sainsbury's began to appear. Under whelmed by an offer of 582p, permission to look closer at the books was not forthcoming and the deal went no further.

With the prospect of a successful takeover being mounted significantly diminished, the task of realising the property portfolio's value left to current management and a price earnings ratio well over 30 times, we believed the prudent action was to exit from our remaining position.

Our original recommendation of Krispy Kreme Doughnuts (US: KKD) was a classic contrarian buying opportunity. After pursuing an ambitious expansion plan, the US doughnut maker's earnings suffered due to falling margins and softening demand. Compounding matters, the company had to delay filing financial statements whilst an investigation of accounting procedures was being conducted.

Despite these significant challenges, we believed that the initiatives being implemented by new management and strong brand value would drive an earnings recovery.

By May of this year, losses were narrowing substantially, cash flows had strengthened and the hefty debt burden was beginning to ease. That said progress was proving to be slow.

While we continued to have faith in management's ability to capitalise on the company's exceptional brand strength and turn the business around in the long term, we decided to pursue better opportunities elsewhere.

In addition, considerable risk associated with weakness in the US dollar was likely to prove a strong headwind for UK based investors. Particularly in the case of Krispy Kreme whose product, unlike gold and oil stocks, does not provide a natural hedge against currency weakness. As such, we recommended selling Krispy Kreme Doughnuts at US$9.17 and locking in gains of around 10 percent.

Given over 60 percent of sales at auto parts and building products manufacturer Tomkins (TOMK) are in America, it is hardly surprising trading conditions were a challenge. Further uncertainty pervading markets across the Atlantic made us increasingly uncomfortable about the company's future earnings outlook.

While we were of the view that Tomkins would be able to mitigate the serious pockets of weakness with cost saving initiatives and faster growth in Asia, financial results pointed towards more difficult times ahead.

We were also mindful of the effect that a weaker dollar would have on sterling denominated earnings. With further declines in the dollar likely in our view, we viewed a sale of Tomkins as another step towards reducing our exposure.

Coincidently, vague speculation that Tomkins was the target of unspecified private equity interest had a notable impact on the share price. Given the surge in prices, we chose to make an opportunistic exit from our position with a profit.

If speculation regarding a takeover could be recorded, EMI Group (LSE, EMI) would have a big hit on its hands. A perennial object of rumours and approaches, the company finally found an acceptable proposal in private equity group Terra Firma's 265p cash offer.

We have always been big believers in the potential of digital music and this formed part of the basis for our original recommendation.

However, 'physical' music sales were declining more than legal digital sales could make up for. Although we still believe in the longer-term potential of the digital medium, Terra Firma's offer provided an opportune time to crystallise some of those gains in an otherwise challenging environment.

Given a declining global market for music sales, the price of the deal at 18 times 2007 EBITDA was in our view also fair. The market on the other hand believed another rival offer would be forthcoming, driving the shares of EMI above 265p.

Having been down this road to a potential takeover with EMI on many occasions, we believed the prudent course of action was to take advantage of the market's optimistic outlook and sell above the offer price at around 272p.

A signature dish of ours that has undergone significant change since entering the Portfolio is Scottish Power (SPW). The disposal of PacifiCorp in America announced in 2005 and the appointment of a new Chief Executive experienced in mergers lent credibility to the idea that a further shake-up in the form of a takeover was probable in the fast moving European utility sector.

In November, Spain's Iberdrola came forward with a cash and share offer valuing Scottish Power at 777p. The new company would be the third largest utility in Europe. Although we remain extremely upbeat on the utilities standalone prospects, we were also wary of the bid potentially coming to nought. As such we were more than happy to book substantial gains on a half sale recommendation whilst remaining partially invested in for exposure to long-term performance or a higher bid eventuating.

Back in December 2004 when we originally recommended specialty chemicals and paints group Imperial Chemical Industries (ICI) rising raw material inputs and a creaking balance sheet weighed on sentiment. However, we saw things differently. Restructuring programmes targeting millions in cost savings were a welcome step in bolstering margins. Combined with the ability to pass on higher costs to customers, we believed ICI was in a good position to buck market sentiment. This has proven to be the case. As a result, core turnover and earnings continue to grow steadily.

Further restructuring ensued as non-core business units were disposed of. This process gained momentum as 2006 drew to a close with the sale of the 'Uniqema' and 'Quest' divisions for £1.6 billion. Free of debt, we became concerned that a large acquisition would tempt management despite their contention that smaller strategic bolt-on acquisitions would be the focus. On the other hand, a much nimbler ICI could become an acquisition target itself. Given the relative uncertainty about ICI's future direction and with the prospect of a major acquisition certainly one option we believed it was time to lock in some healthy profits. As such, we advised Members to sell half their holdings around 416p, whilst maintaining some exposure for longer-term gains.

The retail sector is one that we have generally avoided except in cases where we believed turnaround potential offered the promise of a re-rating. As value investors this is a characteristic we are always on the look out for. In such cases, patience is often rewarded as the broader market is attracted to the ensuing recovery.

One should never get too emotional with investing but if we had to pick our sentimental favourite amongst our defensive recommendations, supermarket retailer would be up there. Why? Well mainly because the stock had been fully intact in the Fat Prophets Portfolio for over three years.

There have been many twists and turns in the J Sainsbury (SBRY). Investor disenchantment had persisted for several years as the shares languished. However, a glimmer of greater things to come appeared in 2005, helped along of course by fresh-faced CEO Justin King. A sales led recovery plan was announced in March of that year targeting £2.5 billion in additional sales in three years. Encouragingly by the halfway stage incremental turnover was up £1.3 billion.

Other improvements added to the improving picture as well, such as a successful cost saving programme to compliment seven consecutive quarters of sales and market share growth. In fact the previously much maligned retailer took the mantle of 'Supermarket of the Year' at the Retail Industry Awards in September. The market has reacted in turn positively. So much so the prospective price earnings multiple rose to around 30 times. While the premium in Sainsbury's case reflects both the anticipation of a possible takeover and the group's undervalued property portfolio, as value investors we believed it prudent to lock in some profits. We recommended Members take the opportunity to sell half of their holdings in Sainsbury. At the same time we maintained some exposure to further long-term gains on the back of either a bid or break up of the property portfolio.

In our view the key attractions of Pittsburgh based Duquesne Light Holdings (NYSE, DQE) were management's resolute commitment to the core electricity business and the utility's solid financial foundations. We believed a 'Back to Basics' business strategy would provide the foundation for enhanced earnings growth for years to come. In addition, within the consolidating US electricity industry, Duquesne was an attractive takeover target. Such was proven the case. In July 2006 a consortium led by Macquarie, an Australian securities firm, agreed to buy the company. With rival bids unlikely and the share price 'capped', we judged it prudent to take profits and invest the funds elsewhere.

Operationally and earnings wise Wellington Underwriting (WUN) has been a solid performer. However another factor, industry consolidation, in our original recommendation had been slow to fire. However, that looks to have changed in October when the company announced that it was in discussions with fellow Lloyd's insurer Caitlin. The revelation was greeted warmly by investors, with Wellington's shares climbing to a five year high. The combination certainly looks like a solid proposition. Wellington and Catlin will create an insurance company with a combined market cap of over £1.3 billion and the largest underwriting capacity of any Lloyd's syndicate.

A concern though is the softening impact that greenback weakness is having on earnings. As such and given that nothing is certain when it comes to takeovers, we took the opportunity to crystallise some profits by issuing a sell half recommendation in October. We maintain a longer term position in what will in all likelihood be an enlarged group.

When pub operator Regent Inns (REG) began trading below liquidation value we took the opportunity to advise Members to double up on their original exposure. As value investors, stocks trading below net tangible asset backing can be nearly irresistible. The market slowly came around to our analysis as a successful turnaround was implemented. However, while significant progress was being made, we became concerned that much good work may be undone by management overpaying for an acquisition. So in 2005 we advised Members to bank some profits. In light of further belt tightening by consumers and the impact of late licensing laws, our concerns continued to grow throughout the year. As such, and with upward momentum also waning on the charts, we took the decision to exit Regent completely for an average gain of 74 percent.

The start of 2006 saw both of the printers in our Portfolio become subjects of takeovers. The first to go was Wyndeham Press Group (WDSW). We were impressed by Wyndeham's fight to remain competitive through a series of actions ranging from bolt-on acquisitions to internal restructuring. The initiatives were generating promising results in the face of difficult market conditions. Not surprisingly, this success attracted the attention of prospective buyer Dagsbrun, the Icelandic media and telecommunications group. We believed the group's 155p all cash offer represented fair value given market conditions. With the board unanimously behind the offer, we recommended Members sell half in FAT128 locking in initial profits before fully exiting the position two weeks later. 

At around the same time, the second printer, south London based Fulmar (FMR), also became the subject of foreign interest. With the market still characterised by high levels of competition, rising energy costs and overcapacity, we believed the takeover came as a welcome opportunity to crystallise value. Particularly as the cash offer was pitched at a 30 percent premium on Fulmar's share price during the six months prior to the announcement. The company in question was the privately held Cameron CPI UK. With shareholders and the entire Fulmar board (particularly Mike Taylor, Fulmar's Chief Executive and major shareholder) representing nearly 70 percent of the share register agreeing to the acquisition, we were confident the deal would occur. As such, we recommended Members return their acceptances and take profits.

The lacklustre UK home improvement market proved to be the undoing of the UK's largest DIY retailer, Kingfisher (KGF). Despite buoyant trading conditions elsewhere in Europe and in Asia, after two and a half years our patience with the retailer wore thin. In the UK, Kingfisher's flagship B&Q chain was under pressure from the weakest home improvement market in a decade. Mounting concerns over cash flow and debt levels plus a weakening technical picture was also added to our negativity. In all, the promise of growth from expansion abroad and persistent speculation regarding a possible takeover were not in our view sufficient to keep Kingfisher in the Portfolio. The potential benefits of holding Kingfisher no longer outweighed the risks. Accordingly, we realised a modest loss in April when we issued a mid-week sell alert followed by a full report in FAT130.

Given our overall upbeat view of Japan, one of the more surprising sell recommendations we made in 2006 was the Martin Currie Japan Fund (MCJF). Three factors contributed to our decision to sell the Japan Fund. The first occurred the prior year. Underperformance by the fund manager resulted in a corporate action converting our original Martin Currie investment trust purchase into a unit trust. (At the time of the conversion, we took the opportunity to lock-in some profits by selling half, citing concerns over management and an anticipated period of consolidation.) The Fund's technical picture was the second factor. A break below initial support suggested to us further weakness in the near term. Finally the Japan Fund's primary focus on large more export oriented companies meant it was less likely to partake in the domestically led recovery we were attempting to get exposure to.

We remain steadfast in our positive long-term view of the Japanese economy. However, given the Japan Fund's fading technical picture at the time, management under-performance and portfolio construction, we recommended Members lock in profits just under 60 percent in FAT134.