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MARKET COMMENT
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What a difference a year makes. Between December 15th 1999 and December 30th 1999, the FTSE 100 index turbocharged forward, jumping 4.5% to finish the year at an all-time high of 6930. There really was a Santa Claus! This year has been the reverse, but even worse. The millennium year didn't actually start off on the best of notes, falling 483 points alone in the first three trading days of 2000. Although we didn't realise it at the time, those falls have ended up setting the tone for the entire year. In the relatively few trading days since December 13th 2000, the FTSE 100 has fallen 3.5%. Since January 1, at the time of writing, it has fallen over 11%. With 4 trading days left, this is looking like being a worse year for shares than 1994, when the FTSE 100 fell by 10.3%. The only other down year in the last decade was 1990, when the FTSE 100 fell 11.6%. But each of those down years was followed by an up year -- 1995 rose by a stonking 20.3% and 1991 by an impressive 16.3%. Does that mean it's time to buy? Unfortunately the past is no guide to future performance. Trading on a price to earnings ratio (P/E) of just under 24 and a dividend yield of just over 2%, the FTSE 100 doesn't look particularly cheap. Interest rates are almost certain to fall in 2001. That's usually good news for the stock market. But to counter that positive effect, interest rates are set to fall because the economy is slowing. The upshot is that money gets cheaper but corporate earnings growth slows. Catch 22! Despite their large falls of 2000, many individual companies are still expensive. 2000 has been a tough year, and many investors have learned expensive lessons, one of them being that valuation ultimately does matter. The time to buy is when everyone else is selling. That's now. What's impossible to know is whether they'll also be selling in a month's time, or even this time next year. You can't pick the bottom of the stock market, yet that shouldn't put you off buying. But that's not enough. As ever, selecting the right companies and buying them at the right price remain the vitally important ingredients for a successful stock market investor.
