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Over recent years, there have been times when the FTSE 100 index of leading UK shares has looked cheap to me.
During sudden market turbulence, like we saw in 2020, the leading share index has suddenly looked like potentially great value. Such an opportunity may only come around once a decade, or even less often.
This year, the FTSE 100 has put in a strong performance. Indeed the blue-chip index has repeatedly set new all-time highs.
So, might the opportunity for some real bargain-hunting have passed?
I continue to see opportunities!
I do not think so.
Partly that is because I take a long-term approach to investing. So I am not comparing stock prices today with what they were a month ago or a year ago.
Rather, I compare a share price with what I think the business will be worth decades for now, once allowing for the opportunity cost of tying up my money in the interim.
On top of that, I am not buying the index, for example, by investing in an index tracker fund.
Instead, I own a portfolio of individual shares. I buy or sell each based on my assessment of the long-term prospects for the business concerned.
While the FTSE 100 index has had a strong year, that does not mean all the companies in it have had a good 2025. Some have seen their share prices drop sharply.
Looking to the long term
Take Diageo (LSE: DGE) as an example.
For years I had liked this business. Owning beers such as Kilkenny and a broad portfolio of premium spirits such as Smirnoff, Diageo has had large revenues, attractive profit margins, and unique assets.
That in turn helped it fund a growing dividend. Diageo’s track record of annual increases in its dividend per share stretches back decades.
For a long time, though, I liked this FTSE 100 business – but not its share price.
That changed this year. A falling Diageo share price gave me an opportunity to add the company to my portfolio.
Was that a smart move? Only time will tell.
I am upbeat about the long-term outlook for the business. But the share price fall reflects Diageo’s changing business environment. Younger consumers are less interested in alcohol, posing a risk to future sales volumes and revenues.
More immediately, Diageo is battling other risks including tariffs eating into profits and economic weakness hurting demand for expensive white spirits brands.
Brilliant opportunities in the stock market can arise when different investors have a very different view about a business’s long-term prospects. Crucially, that does not mean that every such situation is a brilliant opportunity.
It could be that Diageo’s marketplace has fundamentally changed and its glory days are behind it. In that case, my purchase of the FTSE 100 share might not be the great bargain I think it is.
Hopefully, though, the drinks giant can successfully navigate a changing market. I plan to hang onto my Diageo shares for the long term on that basis.
