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February has been an exciting month for UK stock investors. the flagship FTSE 100 The index hit the 8,000 level for the first time and set multiple new all-time highs. Since then, it has calmed down and has fallen back below 8,000, although it is still 9% higher than a year ago.
The recent strong momentum in the FTSE 100 made me wonder. Instead of focusing on getting to 8,000, is it realistic to expect that you can get to 10,000?
long term trend
I think the answer is yes. I think there is a good chance that the FTSE 100 will reach towards the 10,000 level over time.
There are several reasons for that. One is that, in the long term, I expect to see economic growth. That should be good for the earnings of the country’s largest listed companies. Those are the companies that make up the FTSE 100. So I expect the index to continue to grow over time.
But patience may be required. The FTSE 100 reached the 5,000 level in 1997. It took more than a quarter of a century from then to reach the 8,000 level this month.
Another reason I think the FTSE 100 will continue to go higher over the longer term is because its membership is not constant. Companies are promoted or kicked out based on their market capitalization. So often companies that have seen their valuations fall lose their place to fast-growing stock market darlings.
companies like PA, Tescoand Unilever they have survived for decades in the index. But other former members are now largely forgotten, from the Trusthouse Forte to the P&O Steam Navigation Company.
who knows when
After hitting 5,000 for the first time, the FTSE 100 hit 4,000 again well before reaching 8,000.
The same could happen now. The index could spend years in a holding pattern. It could fall and not recover for decades, as happened to the equivalent Japanese index in the late 1980s. Or it could continue to move steadily higher and reach 10,000 in the near term. That seems unlikely to me unless there is a dramatic improvement in the economic outlook, but it is theoretically possible.
So while I’m sure the index will probably hit 10,000 at some point, I have no idea if that could be in 2023, 2033, 2043, or even 2123!
Support the players, not the team
That’s fine by me.
Instead of investing in the index, I am trying to build wealth by investing in a variety of individual companies that I believe combine great deals with attractive valuations.
Instead of putting my faith in a team, in other words, I’m trying to select what I think will be the star players. After all, the stock market is not a team game: each individual stock can perform brilliantly or terribly, regardless of what happens in the market as a whole.
That’s why my goal is to fill my portfolio with winners!
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