Sometimes we can take something for granted only for it to suddenly disappear. Take the current buying opportunities in FTSE shares for example. While the FTSE 100 index hit an all-time record high this year, many individual shares within the blue-chip index are currently trading at what I see as bargain levels.
That could continue for years to come, thanks to high interest rates and a sluggish economy. On the other hand, such bargains might suddenly disappear. That is why I am snapping them up now.
Why so cheap?
One question is why FTSE 100 shares such as Lloyds, British American Tobacco and Legal & General trade on single digit price-to-earnings ratios?
That seems very cheap for blue-chip companies with strong businesses.
One explanation could be that investors expect the firms’ earnings to fall. For example, if higher interest rates lead more homeowners to default on their mortgages, that could result in reduced earnings at banks including Lloyds.
An alternative explanation is that prices for UK shares will stay cheap for years to come, as investors have been pulling money out of the market. That can send down the prices of even good FTSE companies – giving long-term investors like me a buying opportunity.
I’m buying
Rather than worrying about where prices might go next, my focus in the stock market remains the same as always. I am looking to build wealth by buying businesses with strong long-term business potential and attractive current valuations.
I see plenty such opportunities in today’s market.
My response to that has been to buy. In the past few months, British American Tobacco and Legal & General are some of the FTSE shares I have added to my portfolio.
Long-term outlook
Many shares look cheap to me. But a cheap share can always get cheaper. Legal & General looked cheap when I bought it a few months ago – but it has since fallen further.
As a long-term investor, such short- and medium-term price movements do not concern me. If my investment thesis about a company is correct, then hopefully the share will do well over a span of years, not weeks or months.
Meanwhile, many FTSE shares are currently paying me to wait for possible future price appreciation. That is through dividends. Some blue-chip names like Legal & General and British American offer yields of 8% or 9%. That is high by historical standards.
Once interest rates go down again, yields could follow. By spending money on FTSE shares today I can hopefully benefit from their current high yields as well as building a portfolio of shares in companies I think are set for success.
Nobody knows how long such prices will hang around, which is why I am wasting no time and acting today.
