Is a booming stock market a good time to start buying shares?

Back in 1984, the FTSE 100 leading stock index launched, at the level of 1,000. This week, the stock market bellwether hit a new record and hit 8,000 for the first time in history.

Many investors follow the approach of buying low and selling high. So if I haven’t invested before, should I start buying stocks in booming markets?

What does a high stock market mean?

The FTSE 100 hit a new high meaning that the 100 stocks in the index, in aggregate, hit record highs. However, things are a bit more complicated than this summary suggests.

The index is a bit like a sports league – on a regular basis, some companies are relegated to it FTSE 250 index, while other companies make the step up to the big leagues. That is based on market capitalization.

In that sense, arguably there is a predisposition to increase the index over time. Companies that perform poorly and see their stock prices fall off the index. Shares that have performed very well change.

There is also survivorship bias. The current level reflects the performance of companies currently in the FTSE 100. But along the way since its inception in 1984, dozens of companies have disappeared from the index or stopped altogether.

So saying that the FTSE 100 is at 8,000 today does not mean that buying a stock that was in 1984 and holding it today would have made eight times the profit.

Are we in a boom?

On top of that, while the FTSE100 has reached a new high, it is only 6% higher than a year ago. It’s a welcome gain, but not outlandish.

It is the flagship index, but only represents one part of the market. Over the same period, the FTSE 250 the index of small and medium stocks has shed 7% of its value.

So it is not accurate to say that, overall, the stock market is booming. But even if there is, I will definitely buy it. Stock prices may rise. But if the earning potential has increased even more, I can actually offer more value than before.

Since I don’t buy indexes but individual stocks, what matters to me is the price of a particular stock. Whether it’s a period of stock market volatility or a record breaking record, there are still bargains to be had.

When starting to invest

In fact, that’s why I think anytime can be a good time to buy stocks for the first time.

I have been buying stocks lately even though the major stock market indices are rising. Indeed, this week I bought more shares in a pub chain JD Wetherspoon. The FTSE 250 company has seen its shares fall by 42% in the past year.

As a new or experienced investor, I don’t think the key factor determines the outcome when to buy about how the broader market. That what to buy and what price.