The bull market gathers pace. The stage is set for more gains.
The bulls are continuing to roar. The FTSE 100 hit another high yesterday, this time a 21-month high, closing at 5,640. *
Journalists love it when shares and indices reach milestones. They get especially infatuated when the FTSE 100 breaks through, or plunges below, a nice round number, like 5,000 or 6,000, for example.
Right now, FTSE 6,000 is in sight. Who would have thought it possible, when a year ago many were predicting it would plunge through 3,000 on its way to oblivion?
A year can seem like a long time in the frenetic investing world of day-traders and the proprietary trading desks of investment bankers. For them, a week is an eternity. Months and years don't even exist in their vocabulary.
What a year it has been. FTSE up over 60%, and some shares up over 1,100%. It will likely be the best 12-month period any of us will experience in our investing lifetimes.
More Bull To Come
And there may be more bull to come…
Right now, the only way for work stock markets appears to be up. Even though the markets are up over 60% in the past 12 months, the bulls remain in the ascendancy.
Just yesterday, for example, I found all these quotes on Bloomberg.com…
"The bias for stocks is higher. The economic readings have surprised and will continue to surprise given the strength of the profit cycle."
"Markets seem to have weathered the Greece storm. Many of the problems are still there but are abating."
"There's enough momentum to push the stock market to a new high."
"We have been very encouraged by recent news on corporate profitability." We are "optimistic on the outlook for equity markets over the year despite the clear political and economic headwinds."
The Only Way Is Up
The contrarian in me thinks these are classic sell signals. But the optimist in me thinks now is not the time to sell, and that further gains are probable in the months and years ahead.
One thing 22 years of investing has taught me is that markets can and do overshoot on the upside, and the downside. There are seemingly no obvious catalysts for the market to correct, so in the absence of them, it has a better than even chance of continuing this purple patch.
Having said that, I'd like to make it clear I'm not a market timer. I truly don't know what the future holds for the FTSE tomorrow, next week or even next year.
But I am an optimist, and I am confident world economies, including the basket-case that is the UK, will grow at a steady rate in the years and decades ahead.
The Tortoise & The Hare
I know that sort of timescale is incredibly dull and boring for all the active traders out there, but I'll take steady long-term returns over fast and furious profits and losses any day. As the tortoise proved, slow and steady wins the race.
When I look at the valuations of blue chip FTSE 100 shares, I see plenty of opportunities to buy decent businesses at good prices.
For example…
| Company | Market Cap | Forecast
P/E | Forecast
Dividend
Yield |
|---|
| Shell (LSE: RDSB) | £117 bn | 9.7 | 5.9% |
| GlaxoSmithKline (LSE: GSK) | £65 bn | 10.4 | 5.2% |
| Br Am Tobacco (LSE: BATS) | £46 bn | 13.2 | 4.9% |
| Tesco (LSE: TSCO) | £35 bn | 13.4 | 3.2% |
Second The Best
I'd much prefer to buy great businesses at cheap prices, but the time for that was 12 months ago. In this instance, settling for second best still has its benefits, and these 4 large companies should provide investors with good returns in the years ahead. If nothing else, compared to base interest rates at 0.5%, the dividend yields alone are attractive.
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The Hardest Part Now
The key to investing in today's market is to buy good, undervalued companies, and then wait. It's the key to investing in any market. The waiting is the hardest part, but also the most rewarding part.
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> Of the companies mentioned in this article, Bruce Jackson has an interest in GlaxoSmithKline.
> * Of course, FTSE 5,640 is not an all-time high. That came at the end of 1999, 10 long years ago, when the leading index closed at 6,930. My theory is that you should never let the truth get in the way of a good story, and I'm sticking to it.
