Private Investor: Why the magic 5,000 doesn't add up to much

I have found myself, as no doubt did many of you, playing footsie with the FTSE again. Like a temptress flirting with my tender affections, the index has been hovering around the 5,000 mark this week. The market even closed at dead on 5,000.0 on Thursday.

I have found myself, as no doubt did many of you, playing footsie with the FTSE again. Like a temptress flirting with my tender affections, the index has been hovering around the 5,000 mark this week. The market even closed at dead on 5,000.0 on Thursday.

I know it's a pretty meaningless number, and that "bursting through" the 5,000 mark (or any other millennial mark) might actually mean a tiny percentage increase at the end of a rotten market. Just like now.

Dragging itself above the 5,000 "magic number" certainly doesn't feel the same as it did on 12 October 1998. Then, the FTSE 100 leapt 214.2 points, or 4.4 per cent, to close at 5,037.6, triumphantly regaining the losses after the great Asian financial crisis (remember that?). It really did seem as though a psychological barrier had been breached, although the true import was not be known for a year or two after, in the TMT bubble.

The psychological barrier we broke through in the late 1990s was called "sanity". We're a much more world-weary lot now, after the bubble went pop. If, like me, you carried on buying after the market plumbed the depths at about 3,400, you might have made up a bit of your losses on large-cap companies, but I didn't buy big or bravely enough. The profits are there, but they're small.

The FTSE 100 looks all the more sickly when you consider the performance of the FTSE 250. The mid-caps have virtually doubled in a few years. That's been reflected in the performance of my own stocks, with archetypal mid-cappers such as AG Barr, Belhaven Breweries (both still holds for me) and DFS (since taken private) doing superbly well. The bigger stuff, such as Vodafone and Shell, has been very sluggish, and any gains in these stocks are certainly not down to careful purchases made in the late 1990s, but to the much more flighty and cheap purchases I made in more troubled times recently. Paper profits in Vodafone (bought at 88p, now 140p) and Shell (purchased at 368p, now 472p) merely make up for the sorry earlier performance.

So now I'm looking to the larger-cap stocks to play catch-up. I'm buoyed by prospects for GlaxoSmithKline, and one drug, Cervarix. This is a vaccine against cervical cancer, the second-biggest cause of cancer in women. All the signs are that it has an excellent chance of commercial success. A dispute with US rival Merck on a similar drug has been settled on decent terms (GSK will receive a 10 per cent royalty on Merck's sales) and the possibility of the drug becoming mandatory offers secure returns for both companies.

Big Pharma, much maligned for profitability and sheer size, does seem adept at finding cures to the world's health problems. I concede that developing-world illnesses claim too small a slice of research budgets compared to Western diseases of affluence, such as obesity, but that is not the companies' fault. They are not moral agents.

Were the developed world's governments to offer substantial funds for them to fight malaria, no doubt Big Pharma would oblige. But that would mean democratic governments having the pressure to do so exercised on them by voters; and that means voters being willing to stump up the money. Curiously, it has never been a big election issue in any major nation, so the lobbying remains weak. But it is easier to blame companies and greedy managers and get government to expropriate their intellectual property than to look into our own consciences and pay for publicly funded R&D programmes. If you invest in GSK, at least you're funding the research, admittedly with the hope of reaping a reasonable return. There are many worse things to do with your money.

s.o'grady@independent.co.uk

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