February has been an exciting month for UK share investors. The flagship FTSE 100 index reached the 8,000 level for the first time ever and set multiple new record highs. It has since eased off and fallen below 8,000 again although it is still 9% higher than it was a year ago.
The recent strong momentum in the FTSE 100 has got me wondering. Rather than focus on it getting to 8,000, is it realistic to hope it can hit 10,000?
Long-term trend
I think the answer is yes. I think there is a fair chance that the FTSE 100 will get to the 10,000 level over time.
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There are several reasons for that. One is that, over the long term, I expect to see economic growth. That should be good for profits at the nation’s largest listed companies. Those are the firms that make up the FTSE 100. So I expect the index to keep growing over the course of time.
But patience may well be required. The FTSE 100 reached the 5,000 level in 1997. It took more than a quarter of a century from that point for it to reach the 8,000 level this month.
Another reason I think the FTSE 100 will keep rising over the long run is because its membership is not constant. Companies are promoted or kicked out based on their market capitalisations. So, often firms that have seen their valuations decline lose their spot in favour of fast-growing stock market darlings.
Companies like BP, Tesco, and Unilever have survived for decades in the index. But other former members are now largely forgotten, from Trusthouse Forte to the P&O Steam Navigation Company.
Who knows when
After reaching 5,000 for the first time, the FTSE 100 hit 4,000 again long before it got to 8,000.
The same could happen now. The index might spend years in a holding pattern. It could fall and not recover for decades, as happened to the equivalent Japanese index at the end of the 1980s. Or it could keep on moving steadily up and hit 10,000 in the short term. That seems unlikely to me unless there is a dramatic improvement in the economic outlook — but it is theoretically possible.
So while I am confident that the index will likely hit 10,000 at some point, I have no clue whether that might be in 2023, 2033, 2043, or even 2123!
Backing players not the team
That is fine by me.
Rather than investing in the index, I am trying to build wealth by investing in a range of individual companies I think combine great businesses with attractive valuations.
Instead of putting my faith in a team, in other words, I am trying to select what I think will be the star players. After all, the stock market is not a team game: each individual share can do brilliantly or terribly, independently of is happening in the wider market.
That is why I aim to stuff my portfolio with winners!
