With the final month of the year just days away, it could be a good moment to look to 2024 – and beyond. For now, I think a number of FTSE 100 shares offer deep value. But that might not continue to be the case: they could move upwards in price.
Rather than trying to time the market by guessing when that might happen, I would be happy to spend spare cash next month scooping up some FTSE 100 shares I think look like bargains from a long-term investing perspective.
Here is why.
Going for proven businesses
Some investors like to invest in small businesses they hope might be the next Amazon or Tesla.
When that approach works well, it can be massively lucrative. But for every Amazon or Tesla, there are lots of small, promising companies that end up going down the drain. Often there is nothing left for shareholders.
That is why a lot (though not all) of my portfolio is invested in FTSE 100 shares.
Some FTSE 100 companies, like loss-making Ocado, have business models I consider as essentially unproven when it comes to turning a profit year after year. But the majority have businesses that have proven over the long term they are able to make a profit.
Going for great quality
Still, not all FTSE 100 shares are created equal. After all, proof of past business success does not guarantee there will be more in future.
On top of that, even a great business is only worth so much. Overpaying for shares in a business, no matter how brilliant its prospects, can mean an investor actually ends up losing money even if the company churns out huge profits.
Right now, a range of FSTE 100 shares trade on cheap-seeming valuations. Shares from Lloyds to Legal & General have price-to-earnings (P/E) ratios in single digits.
On its own, though, a low a low P/E ratio does not necessarily mean a share is cheap. Earnings might be set to fall, for example, or high debt could mean earnings do not necessarily translate into free cash flows.
So the question I ask when looking at cheap-seeming FTSE 100 shares is whether they offer me what seems like great value.
In other words, can I buy a slice of what I think is a great business for markedly less than I expect it to be worth down the line?
Buy or wait?
Still, some FTSE 100 shares have already looked cheap for a while – yet their price has continued to fall.
So, would it make sense for me to buy now?
With shares like Legal & General yielding over 8%, I am getting paid handsomely to own the shares instead of not owning them.
I also think trying to time the market is a fool’s errand. Rather than trying to guess whether a particular share will fall in price in future (which nobody knows for sure) or benefit from a stock market rally, I prefer to ask whether the current price offers me good value compared to what I see as its worth. If it does, I am happy to buy!
