The FTSE 100 all-time high of 6,930 was recorded as long ago as 31 December 1999. Once again, the index is flirting with the high, being 6,870 at the time of writing. We could see a new record at any time, and a breaching of the psychologically significant 7,000 level.
When it happens, the press will be full of headlines celebrating the landmark. We’ll all feel a warm glow, with confirmation that the market really does rise higher and higher in the long term.
But here’s the thing: unless you’re planning on selling your share portfolio in the near future, the FTSE 100 smashing through 7,000 would be bad news! If, like most investors, you’re in the process of buying shares, it would be a far greater cause for celebration if the Footsie dived below 6,000!
Warren Buffett, probably the world’s best known and most successful investor, explains in characteristically pithy fashion:
“To refer to a personal taste of mine, I’m going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household. When hamburgers go up in price, we weep. For most people, it’s the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don’t like them anymore”.
It’s over two years since the FTSE 100 was below 6,000. And just look at the performance of some of the stocks you could have bought back then: BT has soared by 90%, Next by 94% and Shire by a whopping 170%.
Markets don’t move up in a straight line, and a 13% dip — to take the FTSE 100 below 6,000 — would be nothing out of the ordinary. Equally, of course, the Footsie could burst through 7,000 and we might never see 6,000 again!
Whatever the level of the index, though, there are always some interesting opportunities for investors.
Right now, for example, shares of HSBC (LSE: HSBA), BHP Billiton (LSE: BLT) and Tesco (LSE: TSCO) are all on offer at lower prices than they were when the FTSE was below 6,000! HSBC is 7% lower, BHP Billiton is 26% lower and Tesco is 28% lower.
Of course, there are reasons why these companies’ shares are lower than two years ago. Tesco’s troubles are well-known to everyone, BHP Billiton, like miners generally, is out of favour on account of weak metals prices, and HSBC is suffering not only from uncertainties across the banking sector, but also from concerns about the Chinese economy to which HSBC is significantly exposed.
Tesco’s shares have recovered from a low of 165p to 243p, following the supermarket’s improved trading performance at Christmas. The real bargain-buy opportunity may have passed with this one, as the forward P/E is now 22, which is well above the market average.
BHP Billiton, at 1,572p, looks more attractive on a market-average P/E of around 16 and a dividend yield of 5%.
But HSBC’s value credentials top the lot, as the P/E is not much more than 10 and the yield is 5.5%.
Buying out-of-favour companies, or buying when there’s fear in the market generally (as there would be if the FTSE 100 dived below 6,000) is a good strategy for boosting your long-term wealth.
