With the FTSE 100 at record highs, is now a good time to buy UK shares?

At FTSE 100 close to the current record high. On the face of it, that makes it a strange time to be looking to buy shares in UK businesses.

A higher stock price means the stock is more expensive to buy. And that means lower returns for investors – there’s nothing you can do about it.

However, I don’t let the FTSE 100 go up so I don’t invest in UK stocks. While I will not buy the entire index at today’s prices, there is certainly a part of it that I offer a good value at the moment.

FTSE 100 shares

Over the last decade, the FTSE 100 has returned an average of 6% per year. Some stocks, though, have done better than others.

Croda International has returned 11% per year on average, compared to only 3.5% of British American Tobacco. Over time, that makes quite a difference.

If I invest £1,000 at 11% per annum, my investment will be £2,839 after ten years. In contrast, if I only got 3.5%, I would only have £1,410.

The lesson here is pretty clear. A number of individual stocks in the FTSE 100 have produced outstanding results despite the returns of the total index being less.

I take this to show that there are individual stocks that could do well, even if the current high price of the index means that returns will be lower. The question is how to find winning stocks.

Warren Buffett

Warren Buffett has been very successful at finding stocks that outperform the broader average. At Berkshire Hathaway Being a CEO is someone you should look to for advice.

According to Buffett, what makes a winning investment is a business that will grow in the future. Stock prices rise because the company’s profits rise.

This is borne out by the FTSE 100 stocks above. Croda International’s earnings have grown by an average of 7% per year over the last decade, driving its share price up by around 9% per year.

British American Tobacco, on the other hand, only increased earnings per share by 3.5%. As a result, the price is falling on average by 1% per year.

So the key is to identify a business that can continue to grow its income. But finding this is not easy.

Should I buy Croda shares?

Often, companies that have generated impressive earnings have little to keep their competitors at bay. This allows them to continue to grow in the future.

Given his past performance, it is reasonable to wonder if Croda has something like this. I think this is a difficult question for specialty chemical companies.

A proper view of Croda’s prospects includes understanding how the market it sells to will develop. It also includes evaluating the possibility of competitors changing their position in the market.

I don’t feel qualified to make a judgment on the matter yet, but it’s a business I’d like to learn more about. In the meantime, I’m looking for a growing business in a more familiar sector.