The past decade has not been an easy one for the British economy. That has had an impact on FTSE shares.
While the FTSE 100 index of leading British shares hit new highs last year, a lot of companies have not fared so well over the past decade. Blue-chip firms like Barclays and Lloyds have seen their share prices fall significantly over the past 10 years.
But I reckon the weakness of some leading shares could now offer me a good opportunity to try and build wealth.
Winners and losers
To start, it is helpful to try and understand why some shares have done worse than others over the past decade.
Winners like Shell and AstraZeneca have seen their shares go up in that period, thanks to factors like high oil prices and vaccine demand.
What about those underwhelming bank shares then? Have they been doing badly because of poor business performance? I do not think so.
In its most recent statement (for the first nine months of last year), Lloyds reported earnings per share of 5.9p. At the same point a decade before, that number was 0.4p. So while the share price is weaker than a decade ago, the bank’s financial performance is far stronger.
Out of fashion
What explains that apparent paradox? Partly, I think the current battered price of many bank shares reflects investors concerns about the risk that a weak economy could push up loan defaults and hurt profits. Indeed, that is one reason I currently hold no bank shares in my portfolio.
But I also think there may be a broader story, namely that many well-known FTSE shares in a variety of business sectors are currently priced much lower than has often been the case historically. UK shares have fallen out of fashion with many investors.
Cheapness and value
Just because a share has a low price does not on its own make it cheap. Value is about the difference between what you pay and what something is worth. If I buy a share I think is worth a lot more than its current price, I think I am getting value.
I could make mistakes, of course. Valuing shares always involves some judgment. But if I apply careful selection criteria and diversify my portfolio of FTSE shares rather than putting too much money into just one or two, I think I could lay the foundations for more wealth in future.
What I’m doing about it
Simply spotting a potential bargain is not enough. Without taking action, it would not be of any use to me no matter how great a bargain it may seem.
That is why, as we start a new year, I am looking for bargain FTSE shares to add to my shopping list when I have spare money to invest.
They may not be cheap forever, so I want to strike while the iron is hot!
