Is now the best time to invest in the FTSE 100?

The FTSE 100 is on the rise! Is it too late to grab bargains, or is the recent growth just the tip of the iceberg? Zaven Boyrazian investigates.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

A young Asian woman holding up her index finger

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The FTSE 100 has climbed almost 5% over the last 12 months, including dividends. Considering the current state of the financial markets, that certainly signals resilience to the ongoing economic challenges plaguing Britain.

However, because the index is weighted by market capitalisation, this performance is somewhat misleading. A closer inspection of its constituents reveals plenty of businesses that have yet to recover from the 2022 correction.

Some 45 of the 100 stocks in the UK’s flagship index are currently in the red over the last 12 months. And this number increases to 64 over the last two years. But as bleak as this sounds, it might actually signal that now’s a terrific time to be buying British shares.

Buy low, sell high

Snapping up stocks at bargain prices is how investors like Warren Buffett made their fortune. During a bull market, when growth stocks are reigning supreme, this can be a bit tricky to pull off. Why? Because determining whether a stock is cheap is virtually impossible using traditional metrics like the price-to-earnings (P/E) or price-to-sales (P/S) ratio.

But when stocks are in the gutter, these ratios become far more powerful. With most investors concerned with protecting their wealth and minimising losses, these metrics can easily get ignored, allowing for obvious discounts to be spotted.

Of course, in some cases, a tumbling share price may well be justified. Not every company, even those in the FTSE 100, are going to emerge from this current storm unscathed. And we’ve already seen some like Johnson Matthey and Persimmon tumble into the FTSE 250.

Yet, every so often, an exception emerges where investors have ended up panic-selling an enterprise that’s fundamentally sound. There are undoubtedly multiple businesses within the FTSE 100 today where this applies. And adding them to a portfolio today at an undervalued price could unlock substantial long-term gains.

Best opportunity in a decade?

There are new buying opportunities emerging in the stock market every day. But finding them can be tricky when most investors are thinking logically rather than emotionally. Fortunately, most are operating in the latter state right now and emotionally driven selling means there are plenty of bargains. And while investing during a severe stock market correction or crash is a volatile experience, it’s also proven to be one of the best periods to make the biggest returns during the eventual recovery.

As Sir John Templeton put it: “The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell”. And this isn’t dissimilar to Buffett’s advice of “be fearful when others are greedy and to be greedy only when others are fearful”.

Yet, while these famous investors have made their fortunes by capitalising on fearful investors, such opportunities are actually quite rare. We haven’t experienced a severe market drawback like this in over a decade, excluding the Covid-Crash in 2020, which lasted only a couple of months.

That’s why right now might be one of the best times to start investing.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

The BT share price has surged! Did I leave it too late to buy?

The BT share price has surged since I last covered it. So what's happened and am I too late to…

Read more »

artificial intelligence investing algorithms
Investing Articles

Should I buy Tesla stock for its ‘unused computing power’ and not the EVs?

At 71 times forward earnings, Tesla stock's valued like a technology or AI company. So why is this, and should…

Read more »

Man smiling and working on laptop
Investing Articles

These FTSE 100 shares could rise 15% to 36% in the next year!

Is the market underestimating these top FTSE 100 stocks? Royston Wild explains why analysts expect these two blue-chip shares to…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Should I be watching the Greatland Gold (LSE: GGP) share price?

Recent rallies in valuable metal prices has boosted the Greatland Gold share price, but is there still an opportunity for…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

The abrdn share price is down 23% in the last year, should I buy?

Asset management firms have had a rough time lately, but with the abrdn share price down heavily, is now the…

Read more »

Hand of a mature man opening a safety deposit box.
Investing Articles

If I’d invested £5k in red hot BAE Systems shares 5 years ago here’s what I’d have today

BAE Systems shares have smashed the FTSE 100 for years and Harvey Jones is keen to buy more as they…

Read more »

Investing Articles

How I’d aim to earn £16,100 in passive income a year by investing £20k in a Stocks and Shares ISA

Harvey Jones is building a portfolio of high-yielding FTSE 100 dividend stocks that should give him a high and rising…

Read more »

Investing Articles

Down 8% in a month! The BP share price is screaming ‘buy, buy, buy’ at me right now 

When crude oil falls, the BP share price invariably follows. Harvey Jones is wondering whether this is the right point…

Read more »