It has been a lively year so far for UK investors. The flagship FTSE 100 index broke yet another record last week, hitting a new all-time high.
But is it a case of ‘what goes up must come down’? Should I see the recent run of record highs as a trigger to consider selling some of the FTSE shares in my portfolio?
How markets work
Broadly speaking, markets move up and down. I therefore think there is a fair chance the FTSE 100 will fall back from its current level at some point over the next few months or years. But I also expect that, at some point, (maybe tomorrow!) it will move higher than it is now. Over the long term, the index has grown substantially. From an initial level of 1,000 at launch back in 1984, it stands at around eight times that level now.
What I do not know is when it may rise or fall. In fact, nobody knows. That is what makes the market a market.
Market timing
So does it make sense for me to take some profits off the table and sell the well-performing shares in my portfolio? Or should I let them keep running?
My answer to that question has nothing to do with how the overall FTSE 100 index is performing, for two reasons. First, I own a portfolio of individual shares – I do not own the FTSE 100 directly.
Secondly, a new high point does not necessarily indicate what comes next. Prices that are high can keep getting higher. Conversely, shares that look cheap can keep on looking cheaper. A high price does not necessarily indicate bad value any more than a low price automatically equals good value.
I think it therefore makes sense for me to consider the investment case for each share in my portfolio individually, rather than try to make decisions based on what the index is doing.
For example, when I bought JD Sports I was excited by the prospect of strong profit growth in years to come and felt the share price was attractive.
The investment case remains as attractive to me as it did then. The share price has rallied strongly lately — but I still see them as attractively valued. So I have no intention to sell.
Thinking about buying
In fact, if I had spare money to invest right now, I would be happy to buy more shares in this growing international sportswear retailer for my portfolio.
Record highs can indicate a basket of popular shares may be overvalued. But they can also suggest the exact opposite, that investors are excited about the business prospects and potential value they see in those shares. They buy more, pushing up the price of an index like the FTSE 100.
So I am not rushing to sell – or buy. Instead, whatever is happening with the flagship index, I continue patiently to take the investment approach used by legendary stock pickers like Warren Buffett.
I look for shares in great businesses that currently sell at what I think is an attractive price. Hopefully, doing that can help me build wealth over the long term.
