Does investing in the FTSE 100 today risk paying too much?

What does an all-time excessive sign a few inventory market index? Some buyers could also be asking themselves that, because the FTSE 100 at this time (29 October) hit a brand new all-time excessive.

On one hand, it is likely to be an indication of robust efficiency, suggesting that FTSE 100 shares may probably hold driving excessive.

However alternatively, there could possibly be a threat {that a} new all-time file is a warning sign that an more and more frothy market is getting overvalued.

Desirous about worth in essentially the most useful manner

In a single sense, it may not matter.

In spite of everything, a inventory market index can transfer round – generally dramatically – however over sufficient time, fundamentals are inclined to prevail.

So, even when somebody did put cash into the FTSE 100 at this time and it then fell, if the investor’s long-term confidence within the index was justified such a fall could not make a lot distinction to them. In spite of everything, share costs are solely an indicator of what a share could be bought (or purchased) for: there isn’t a obligation to behave on them.

However there may be one other sense by which I feel the value of the FTSE 100 could not matter to an investor like me.

Fairly than shopping for the index total, I choose to purchase particular person shares inside it. Regardless of how properly or badly the general index could also be doing at any given time limit, there’ll probably be some member shares which might be overpriced and others that probably provide long-term worth.

Attempting to find bargains

So, quite than fretting about what the FTSE 100 is doing at this time or this week and even this yr, I proceed to hunt for particular person shares in it that will provide worth over the long term.

For instance, one defensive share some buyers could eye in the event that they assume a record-setting index degree suggests market froth is utility community supplier Nationwide Grid (LSE: NG).

Demand for shifting energy round from the place it’s produced to the place it’s saved or used is excessive – and I feel it’s prone to stay that manner.

Nationwide Grid additionally advantages from regulated pricing. Mixed with its goal of rising the dividend per share consistent with a number one inflation measure, its defensive attraction is comprehensible to me.

However the firm is closely indebted. Sustaining its community would require heavy ongoing capital expenditure.

Over time, to maintain elevating its dividend it could have to dilute shareholders by promoting extra shares and reducing its dividend per share, because it did this yr. I cannot contact the share with a bargepole.

One presumably undervalued share

In contrast, one FTSE 100 share I feel could presumably provide good worth at this time from the attitude of a long-term investor is JD Sports activities (LSE: JD). Certainly, I see it as a share buyers ought to take into account.

The JD Sports activities share value chart of current years will not be a factor of magnificence.

A number of revenue warnings have dented investor confidence and I see a threat that demand for pricy footwear and sportswear may undergo amid ongoing financial weak spot in lots of markets.

Nonetheless, the corporate is massively worthwhile, has a strong model, and has established a cult-like following amongst some prospects throughout many markets globally.

Its present share value appears to be like low-cost to me when contemplating the long-term potential of such a enterprise.