MARKET COMMENT
Investing Lessons From 2003

By Cliff D'Arcy
December 31, 2003

2003 will go down in stock-market history as a right royal roller coaster of a year! The FTSE 100 started the year at 3,940, but fell 9.5% during January alone. In fact, it produced an unprecedented eleven-day losing streak, shedding close to 500 points (12.4%) in the process.

However, the worst was yet to come: the blue-chip index crashed to a nine-year low of 3,287 on 12 March, having lost a sixth of its value in just ten weeks. Having bottomed out, the Footsie hasn't looked back. Indeed, at yesterday's close, it was up a stonking 36% from this low.

If the FTSE 100 closes at around 4,490 today, this year's return, including dividends, will be over 17%. That's the first positive return in four years - and it should beat returns from property, currently running at around the 14%-16% mark.

Here are five lessons that smart investors learned during 2003:

1. Shares can go up as well as down

Since this Millennium began, the hot topic around dinner tables across the UK has been rising house prices. That's hardly surprising, given that the average house price has roughly doubled over the last five years.

In contrast, three years of falling stock markets has discouraged many consumers from putting money into shares. However, the UK stock market has only fallen four years in a row once in history, and it duly rewarded us with a double-digit rise this year. Perhaps more private investors will return to the stock market next year, as house-price rises continue to slow?

2. It's always darkest before the dawn

Nervous investors bailing out on 12 March - when the Footsie hit an eight-year low - would have missed out on a spectacular recovery. Indeed, the main index recorded one of its biggest-ever jumps the following day, rising over 6%.

So far, 12 March has proved to be the turning point - and may well prove to be the last gasp of the severe bear market that began in early 2000. It remains to be seen whether the last nine months are the beginning of another bull run of rising share prices!

3. Small companies were the flavour of the year

Although blue-chip shares have done well this year, smaller companies came back into fashion in a big way. As this article shows, the FTSE Small-Cap index has risen by over a third, with the techMARK index up by more than half.

Bombed-out dotcoms and recovering technology companies also put in a strong performance. The star performers were these ten shares, which produced returns of between 305% and 500% for their owners!

And next year's investment fad will be... who can say?!!!

4. The importance of dividends

After a serious of damaging accounting scandals in the US, investors demanded, "Show Us The Money!" In an uncertain world, many investors look to dividends - payouts in hard cash - to justify their decision to hold shares. As this article demonstrates, dividend increases were widespread during 2003.

What's more, these thirteen blue-chip businesses are expected to raise next year's dividends by 10% or more. Also, if you're looking for blue-chip companies with attractive dividends and decent growth prospects, here are six cheap shares for 2004.

5. The market is often a scary place to be

The market's performance this year demonstrated just how volatile shares can be. Take a look at these two periods:

FTSE 100 jumps
Date	FTSE 100 level
1 January 2003	3,940.4
31 January	3,567.4 (down 9.5% in one month)
11 March	3,452.7
12 March	3,287.0 (down 4.8% in just one day)
13 March	3,486.9 (up 6.1% the next day)

Markets - and individual shares - can behave like pendulums, swinging wildly in one direction or another. The thing to remember is that, as a long-term investor, you're in for the long haul. Don't worry too much about individual days, weeks, months or even years. Just make sure you invest as much money as you can to meet your future goals!

Happy New Year to our readers from all at the Motley Fool!

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