MARKET COMMENT
Is This A New Bull Market Or What?

By Maynard Paton (TMFMayn)
August 27, 2003

The FTSE 100 has surged 27% since its March low and there's only one question on everybody's lips: Is this a new bull market or what?

Well, I don't know. And more importantly, nor does anybody else.

You see, the FTSE's in no-man's land at present. Looking at the market's current valuation, it appears neither too expensive nor too cheap. That's unlike the end of 1999 of course, when a P/E of 30 (well above the long-term average) was reported as the FTSE peaked. And when the market's dividend yield topped the return from gilts at the March low (for the first time since 1959), shares did look like bargains:

Date             FTSE 100     FTSE 100        10-year
                   P/E         Yield           Gilts
                                (%)             (%)

30/12/1999         30.5         2.04            5.48

12/03/2003         14.4         4.24            4.06

26/08/2003         17.2         3.40            4.59

Short term at least, the market could very well go up, down or sideways. Still, many commentators continue to churn out their views on the end of the bear/the latest suckers' rally. Consumer spending, pension deficits, government borrowing and all the rest are used to try and form some sort of sophisticated -- but ultimately vague -- conclusion. Without the help of an extreme valuation (either way), 'uncertainty' is the pundits' watchword.

But to be frank, who cares whether this really is the start of a new bull market? The active share picker thinks not for what the market will do, but focuses instead on how his individual shares will fare. The passive investor, with his index tracker, will be investing over decades hence and should have few concerns over what the market will do this year or next.

In fact, such long-term views reveal an investment paradox. Given the history of mainstream stock markets, it's fair to say the longer the projection timescale, the more likely the prediction -- of the FTSE going up -- will be correct. That's something those trying to assess the market's next move ought to bear in mind.

More: Index Trackers | Communion Of Bulls | Communion Of Bears