Surely that can't be right - the FTSE 100 was at its highest at the peak of the technology bubble? Well, yes, but that doesn't paint the full picture.

The FTSE 100 reached 6,930 on December 30, 1999. The index breached 5,800 last week - the first time it had done that since June 2001. However, if we take re-invested dividends into account, then the total return on investment is at an all-time high.

Had anyone invested in the FTSE 100 Index at its millennium peak, they would be sitting on a 16 per cent capital loss. Re-invested dividends over the subsequent six years would have recovered that loss.

As a hypothetical hindsight example, starting at the December 1999 peak, 73 month-end payments of £100 into a FTSE 100 tracker would have grown into a pot worth £9,442, with dividends reinvested, making a £2,142 profit.

Even if dividends had been paid out and spent, the pot would be worth £8,587, making a handsome £1,287 profit.

Most investors are not keyed into the exact fluctuations of the FTSE 100, but the lesson to be learnt is to not to be too frightened by the doommongers and tough things out.

Clearly, though, investors who entered the market in March 2003 or later have done tremendously well, with capital returns, even without dividends, coming in at about 76 per cent.

As always, within an increasing market, some constituents fare better than others, and the skill involved in short-term investment is having more hares than tortoises.

With the market having risen so far so fast, has it gone too far?

Well, the answer is that the stock market still represents the same value that it did in 2003.

Increases in shareholder dividends have driven the prices of shares higher, but on traditional price-earnings ratio measures, the under-valuation is still there.

Clear examples of under-valuation have been seen in the constant series of bids being made for British companies.

The Spanish seem to have rather a fixation on our assets at the moment.

Takeovers in recent years have seen Ferrovial saying "Hola" to Amey in 2003, Abbey National saying "Si" to the attentions of Banco Santander in 2004, and UK investors saying "Adios" to O2 in 2005, following a bid from Telefonica.

Now, BAA, the airports operator, is the target of Ferrovial, and the shares surged in value last week on the back of the suggestion of a takeover.

Rumours abound that Lloyds TSB, the bank that likes to say yes, is the target of a prospective bid from Banco Bilbao Vizcaya Argentaria.

The share price has risen by 25 per cent in the past three months, and has really taken off in the past week.

Investors in Lloyds TSB have mainly been on board for the high dividend yield.

If the rumours come to fruition, lucky shareholders will have a double bagger of super-high dividend payouts and a choice capital return as well.

With interest rates set to stay at relatively low levels for the foreseeable future, the cost of corporate debt in relation to investor returns remains cheap.

Under this background, the recent spate of takeovers could well be set to continue.

The bids for companies would not be being made if the target share price was not deemed to be an under-valuation.

So, the bulls are outnumbering the bears, and we should see continued progress for the FTSE.

* For investment advice contact Anthony Platts on 01642 608855.

Published: 14/02/2006