No Pain, No Gain: Is my 5,000 Footise forecast just too cautious?

Evidence is growing that shares are in the mood to enjoy a high-spirited run. For much of this year, we have witnessed a stock market of two halves.

Evidence is growing that shares are in the mood to enjoy a high-spirited run. For much of this year, we have witnessed a stock market of two halves. Blue chips have dillied and dallied and small-caps have continued to turn in rousing displays. Now top shares, despite the occasional hiccup, seem keen to join in the fun. And when the upper echelons start to throw their weight around, the investment world becomes a much happier place.

It could, of course, be argued that blue chips have been on the rise since the Footsie index slumped to 3,277.5 last March. But the recovery has often lacked conviction, although the index ended last year up 36 per cent from its traumatic low point. But, in the first six weeks of this year progress was non-existent. Now we know why.

Standard Life, the mutual insurer, has admitted unloading £7.5bn worth of shares. It had to sell to meet new solvency requirements. The insurance giant was among the few to remain faithful to equities during the three-year bear run, which more than halved stock market values. It is a pity Standard's dedication was not more handsomely rewarded. If it had been able to hang on a little longer, or spread its selling over a longer period, it would clearly have enjoyed richer pickings.

Still, Standard may embrace the stock market in another sense. The Edinburgh-based mutual, which has encountered a multitude of problems, is now contemplating becoming a listed company and giving up the protection of its mutual status.

Other insurance groups have also cut back on their equity investments because of the new rules. One estimate is that they have dumped at least a further £10bn worth of shares this year. They have dribbled out stock quietly and slowly, avoiding the publicity fund managers hate when they are dealing. Even Standard managed to keep the lid on its substantial sales while they were on. I would be surprised if the insurance industry's selling has finished. But if the stock market can hold its own while Standard (and others) are spraying around shares like confetti then it is clear other investors are recapturing their appetites for equities.

At the start of the year, I suggested Footsie would end 2004 above 5,000. I am not changing my stance. Forecasting is a hazardous occupation as I have discovered to my cost. Yet even with 10 months to go before judgement day I am wondering if I am being over-cautious.

Although Footsie attracts the headlines (and its progress engenders feelings of well-being) it is down among the small-caps where the real action is. There have been truly remarkable individual performances. But progress has been wide, reaching with the FTSE smallcap index up nearly 60 per cent in the past year. The no pain, no gain portfolio has always enjoyed investing on the undercard and its most rewarding shareholdings are tucked away among the smaller players.

It is much more risky playing with the little 'uns. Price movements are often uncomfortably volatile and it is easy, in effect, to get trapped in an investment. Information about companies is often inadequate and old-fashioned ramps can entice victims. Not many analysts can bother themselves with the undercard although, I suspect, their absence may not be much of a loss. For the brave, the rewards can be exceptional. By the same token, so can losses.

In the heady smallcap atmosphere, it is tempting to throw caution to the winds, particularly when dealing with exploration shares. With commodity prices strong, the miners and oilmen are enjoying spectacular gains. But do not forget, a great many exploration companies fizzle out, victims of hope and greed over reality.

To sell an exploration story is still relatively easy. After all, a hole can go everywhere and nowhere; produce everything and nothing. But danger lurks not just among the minnows; there have been heavyweight disasters as well.

Rewarding plays do exist. But the no pain, no gain portfolio is unlikely to invest in an exploration company. I like constituents to have rather more visibility and perceivable structures than blue-sky resource shares. I am not suggesting the exploration boom even approaches the dotcom madness, but there are frightening similarities.

I am still hunting for additions to the portfolio. I have yet to make my mind up about Urbium, the bars chain. But soaking up a few gins during my holiday in Lanzarote should help my deliberations.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Sport
Luis Suarez and Lionel Messi during Barcelona training in August
footballPete Jenson co-ghost wrote Suarez’s autobiography and reveals how desperate he's been to return
News
newsMcKamey Manor says 'there is no escape until the tour is completed'
Voices
Hunted: A stag lies dead on Jura, where David Cameron holidays and has himself stalked deer
voicesThe Scotland I know is becoming a playground for the rich
News
people
PROMOTED VIDEO
Arts and Entertainment
Architect Frank Gehry is regarded by many as the most important architect of the modern era
arts + entsGehry has declared that 98 per cent of modern architecture is "s**t"
Money
Welcome to tinsel town: retailers such as Selfridges will be Santa's little helpers this Christmas, working hard to persuade shoppers to stock up on gifts
news
Arts and Entertainment
Soul singer Sam Smith cleared up at the Mobo awards this week
newsSam Smith’s Mobo triumph is just the latest example of a trend
News
Laurence Easeman and Russell Brand
people
Sport
Fans of Dulwich Hamlet FC at their ground Champion Hill
footballFans are rejecting the £2,000 season tickets, officious stewarding, and airline-stadium sponsorship
News
Shami Chakrabarti
people
Arts and Entertainment
Benedict Cumberbatch has refused to deny his involvement in the upcoming new Star Wars film
filmBenedict Cumberbatch reignites Star Wars 7 rumours
Sport
football
News
news
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Compensation and Benefits Manager - Brentwood - Circa £60,000

    £60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

    Data Analyst/Planning and Performance – Surrey – Up to £35k

    £30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

    IT Systems Business Analyst - Watford - £28k + bonus + benefits

    £24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

    Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Day In a Page

    Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

    Wilko Johnson, now the bad news

    Former Dr Feelgood splits with manager after police investigate assault claims
    Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

    Mark Udall: The Democrat Senator with a fight on his hands

    The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
    New discoveries show more contact between far-flung prehistoric humans than had been thought

    New discoveries show more contact between far-flung prehistoric humans than had been thought

    Evidence found of contact between Easter Islanders and South America
    Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

    Cerys Matthews on Dylan Thomas

    The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
    DIY is not fun and we've finally realised this as a nation

    Homebase closures: 'DIY is not fun'

    Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
    The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

    Air New Zealand's wizard in-flight video

    The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
    Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

    Pumpkin spice is the flavour of the month

    The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
    11 best sonic skincare brushes

    11 best sonic skincare brushes

    Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
    Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

    Paul Scholes column

    I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
    Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

    Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

    While other sports are stalked by corruption, we are an easy target for the critics
    Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

    Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

    Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

    A crime that reveals London's dark heart

    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
    Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

    Lost in translation: Western monikers

    Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
    Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

    Handy hacks that make life easier

    New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
    KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

    KidZania: It's a small world

    The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker