Shares surge to fresh records: is it too late to get into the market?

Aussie stocks have climbed 7 per cent in a month and would-be investors are wondering whether they’ve missed the boat.

Aussie sharemarket investors are having a profit party right now.

A string of record highs for the All Ordinaries index, and a 7 per cent surge in the past month alone, have given investors great capital gains since Covid caused a 33 per cent plunge in March 2020.

Confidence among shareholders is high, but some analysts and investment specialists are concerned that company valuations are stretched in a market driven more by exuberance than common sense.

That doesn’t mean shares won’t go higher this year – markets are driven by fear and greed – but it’s fair to question whether now is a good time to buy in.

If you’re a long-term investor rather than a short-term trader, and choose your stocks wisely, buying at a record high is not a problem.

A record high is simply a step higher for a good stock on its path to even more record highs.

You could have bought biotechnology giant CSL at a record high $17 a share in late 2001, and by 2005 it had doubled to $35. Then it doubled again to fresh record highs above $70 by 2014, again to $140 by 2017, and then again to more than $300 by 2020.

A strong sharemarket has attracted more investors, but be careful when you buy.

But not every company will follow CSL’s stellar rise over two decades, so it’s worth doing some research or getting help from a broker or investment adviser. Some record-breaking stocks appear overvalued.

Many investors avoid choosing individual stocks and instead target the entire market through exchange traded funds, which own slices of every company listed in a particular index, such as the ASX 200 or ASX 50.

Many ETFs are also at record highs because our market is booming, but its stellar performance should be put into perspective.

The value of our 500 biggest companies, measured by the All Ordinaries index, is just 9.5 per cent higher than it was in November 2007 – almost 14 years ago.

Compare this with the growth of the US S&P 500 index in that same period – up 200 per cent – and you could argue we have some catching up to do.

The US market boomed largely because of the massive growth by technology giants Amazon, Apple, Microsoft and a few others. They dragged the rest of the US market along for the ride.

Australia has a relatively small tech sector in a market dominated by five big banks and five resources giants, which represent about 70 per cent of the market.

But the next 10-20 years have the potential to deliver our own spectacular growth, if we get the right government and public support.

Green hydrogen, renewable energy, zero-carbon steelmaking and fancy metals such as lithium are some of the opportunities for resource-rich Australia.

We have plenty of the stuff needed to grow these businesses – land, sun, wind and minerals – and billionaire entrepreneurs such as Fortescue Metals founder Andrew Forrest who are willing to invest heavily in greener growth industries.

The future could be extremely bright for Aussie companies and investors, but do you wait until the next market drop before buying in.

I don’t think so.

The best bet for most investors is to buy in bits – a practice known as dollar cost averaging. Add some money to your share portfolio monthly or quarterly to avoid being caught out by purchasing at the peak.

This reduces risk and enables investors to share in future successes.