Mistakes to avoid when investing in the FTSE 100!

Anyone who follows the stock market and market commentary will know that many major banks and institutions currently prefer i FTSE 100 noting attractive share prices compared to the US and a stronger macroeconomic environment than Europe.

However, the UK index still suffers from negative sentiment, a lack of momentum, and a lack of tangible growth factors. So, let’s look at the mistakes to avoid when investing in an index.

Avoid negative pressure

Some of the best value investing models put too much emphasis on stock price momentum. If a stock is rising and valuation and growth metrics are positive, it will likely continue to rise.

A closer look at the FTSE 100 reveals that many stocks are treading water or falling despite positive valuations. Therefore, investors should be aware that their investment may fluctuate or lose money even if the underlying metrics appear attractive.

Companies like Phoenix Group, Legal & Generalagain Diageo – all of which have been part of my portfolio for the past ten years – have of course underperformed despite attractive valuations.

In addition, I have learned not to try to catch falling knives. And I always need to be reminded of that. Earlier this year I made very little money Burberry – it ended badly.

Stocks need Catalysts

In this type of market, stocks need catalysts. Catalysts can appear anywhere. It could be successive wage beats or it could be an election or planned tax cuts. As it turns out, I don’t see a lot of catalysts for the FTSE 100 as a whole, but a more focused study may reveal strong investment ideas.

Although Artificial intelligence (AI) has not had a significant impact on the index (especially compared to the US), some stocks such as The Sage Group they get benefits. Congratulations to our colleague Edward Sheldon for picking the stock ahead of its recent rally.

On the other hand, a lack of catalysts could mean that the stock will continue to tread water visibly.

The danger of concentration

Around 70% of the sales of FTSE 100 companies come from outside the UK. But that doesn’t mean the index won’t fall if economic or political events in the UK start to look bleak. This leads me to the risk of concentration. It is important to spread investment across different sectors and areas. Although the US stock market may look expensive, we can still find excellent investment opportunities.

My FTSE 100 pick

My favorite stocks in the index right now Scottish Mortgage Investment Trust (LSE:SMT) and International Consolidated Airlines Group. Both have a strong momentum backed by an attractive repetition of balance.

The former invests heavily in US-listed technology stocks and offers the best exposure to AI and new technologies in the FTSE 100. That’s because the trust invests in companies like Nvidia, Teslaand unlisted pioneers like SpaceX.

Furthermore, it is currently trading at a 10% discount to its net asset value, suggesting that I am buying Nvidia exposure at a 10% discount.

However, this technical space can be volatile, especially if we see Tesla trading at 100 times the forward. In addition, investors may also be wary of private equity holdings – which comprise about 25% of the fund.

However, I cannot find such exposure elsewhere in the index. And stock pickers have a good track record. It’s worth considering, I feel.