Should I sell my FTSE 100 shares and bank profits?

London’s blue-chip index broke an all-time high last week, nudging past the previous record of 7,903.5 set in May 2018. In a few weeks the Footsie has now quadrupled 0.9% gain for the whole of last year. Nearly half of my overall portfolio is invested in indexes. So, I had to follow the mantra of ‘buy low, sell high’ and money FTSE 100 show when it’s going well?

Is the FTSE 100 currently overpriced?

Answer: The first thing that can lead me to sell my shares (or at least some of them) is that the UK market becomes as overvalued as the US market 18 months ago. There, valuations become irrelevant for software and meme stocks.

For me, the symbol of speculative excess is the space tourism company Virgin Galacticwhich is worth more than $ 15bn in the summer of 2021. This is despite not generating profits and nowhere near commercial operations.

There are dozens of similar examples, before the sharp pin of rising interest rates burst the bubble. Virgin Galactic shares have fallen 90% since 2021.

However, I don’t see anything like that at the moment in the FTSE 100. The index looks reasonably valued, with a market price-to-earnings (P/E) ratio of 14.2. That is slightly below the historical average, even after the recent rise.

International index

If the revenue of the FTSE 100 comes mainly from the UK, then I would be careful with the index trading near all-time highs. This is because the outlook for the UK economy is still not good, although the Bank of England is now predicting a milder recession than previously feared.

However, around 75% of the profits of FTSE 100 companies come from outside the UK, making the composition of the index truly multinational. So, as China reopens and global inflation appears to cool, I think the index is doing well.

Really, I wouldn’t be surprised if it hits new heights in a few months.

Buy low, sell high?

Charlie Munger famously said that the first rule of compounding is not to interfere. And because FTSE 100 dividend payers such as Legal & General and National Grid form an important part of the long-term compounding strategy, I certainly will not sell them.

In general, I don’t believe anyone can consistently predict market movements. That’s because buying low and selling high is a very difficult thing to do in real life. Share prices fluctuate every day, so unless I have a crystal ball, it is impossible to know where prices will go next.

Besides, I have to be right twice. I need time when selling. Then I have to correctly judge the near-bottom market point to buy back at. Compounding this difficulty is the fact that the biggest increases in the market happen in a small number of days in any given year. Therefore, if I miss one or two of these beneficial days, I will be sabotaging my own performance.

For me, the solution is simple. I just stay invested regardless of market fluctuations. This way, I don’t have to worry about timing the market, and can take advantage of the compounding power over time.