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It has been a banner year for Britain’s index of leading blue-chip companies, the FTSE 100.
During today’s (6 October) market session, the index hit a new all-time high. It has done that repeatedly this year. In fact, the sometimes staid-seeming FTSE 100 now stands 58% higher than five years ago.
What might happen from here – and how can I try and use it to my advantage as a small private investor?
Market predictions can be tempting – but dangerous
In fact, nobody knows what will happen from here for sure. We can only speculate at best.
An all-time high while the economy looks increasingly fragile may seem incongruous. Taken together with wider geopolitical risks and signs of an AI bubble in the US stock market, it has led some investors to fear the prospect of a stock market crash.
On the other hand, while the US market has been racing ahead, the London market looks less expensively priced.
The price-to-earnings ratio of the FTSE 100 is well below its US equivalent. Maybe the upwards momentum can continue!
Hunting for long-term value
So, rather than spending lots of time trying to time the market – something I see as ultimately pointless – I am instead getting back to brass tacks.
My approach to investing is trying to find great businesses that have attractive share prices.
If I invest in a diversified mix of such firms, I hope that over time I can aim to build wealth thanks to a combination of dividends and share price growth. That, at least, is the aspiration!
In practice, dividends are not assured. While the FTSE 100 has been on fire lately, it is always worth remembering that share prices can fall as well as rise.
That is sometimes the case even when a company is doing well. Its share price could be affected by wider negative market sentiment, for example, or it may be that a company’s share was simply overpriced before.
But taking a long-term approach to investing helps, in my opinion. I believe that, over the long run, great businesses ought to create substantial value – and hopefully that will be reflected in their share price.
Beaten down, but with promising signs
As an example of such an approach, for a while I owned FTSE 100 fashion house Burberry (LSE: BRBY). Last year, its share price fell a long way – and came back a long way too. This year, it did the same.
What has been going on?
With luxury goods markets wrestling with weak demand in many areas, Burberry’s economics began to look less attractive. Weak sales performance did not reassure the City and the company’s management changed last year.
But over the long term, I see a lot to like. The company has a unique brand that has proven its appeal to many customers again and again. It has a proven business model and, while the high-end rag trade can be cyclical, sooner or later demand usually bounces back once the economy does well enough.
Burberry shares – up 91% since April — soared after I bought them. I decided to take that profit off the table and hunt for other FTSE 100 shares I thought could be long-term bargains. If the Burberry share price falls down again, though, it is on my shopping list.
