There seems to be an overwhelming belief that the stock market is set for another good year. I hope the optimists are right and must admit that I am on their side. But, perhaps it would be foolish to completely overlook that such a chorus of positivity is no guarantee of fulfilment.
It’s true Britain’s economy is still motoring ahead but there are acute problems elsewhere, particularly in the still moribund eurozone and in some emerging markets. And it is important to realise that investors, after propelling shares higher, expect companies to perform this year, although on some measurements shares in London are not rated expensively. Still, it will not take many more blue chip upsets, such as that provided by Debenhams, to undermine confidence.
Bears are, however, conspicuous by their near absence. The bulls are in full voice. Expectations that the benchmark 100 share Footsie index will achieve new highs are approaching unanimous with forecasts of 7,500 points (against the turn of the century peak of around 6,950). My own guess is it could hit 7,200.
I had hoped that 2013 would see the old record swept away. But the famed Santa-run was far too late and when it materialised could not muster enough strength to seriously challenge the old peak.
Still at least the Santa cheer finally appeared. It is astonishing that the festive upsurge occurs so frequently. Many expected it to be a casualty of this now entrenched internet age but it has shown that widespread instant communication is not necessarily a negative influence.
Footsie is now 30. It succeeded the more narrow FT 0 share index that had been the stock market’s main barometer since 1935. The 30, which in its earliest days excluded banks and oil companies because they were regarded as too risky, was created largely to reflect British commercial life.
When it was launched in January 1984, Footsie was also a reasonable representation of Britain’s economy, but these days it has an international spread, and, with its determination to be composed of the largest players, has clearly lost its original focus. In fact, it is so unrepresentative that there have been calls for a home-grown version. But it should not be ignored that Footsie covers much of the stock market’s capitalisation.
If, as I hope, the stock market continues to advance, there is every possibility that the no pain, no gain portfolio will make headway. As I reported in my last column, it finished 2013 in some style with a number of constituents stretching to all-time peaks. My two star performers, Booker, the cash-and-carry chain, and leisure group Whitbread achieved levels never seen before. And Mears, the support services group, Findel, the mail order group, and the Spirit Pub Co. provided notable “assists”.
A number of other constituents have also notched reasonable gains, including Marston’s, the brewer and pub owner, aircraft leaser Avation and bowling alley group Essendon. I realise that I should probably be more ruthless towards the losers and those that have failed to make much headway. But, I am a long-term investor. Hanging on when a share underperforms can be dangerous although it can also pay off.
I still hope a Russian bid will allow the portfolio to escape from SnackTime with, perhaps, a near-tolerable loss and that TEG will come right.