Image source: Getty Images
As a British investor, the first place I think about when buying shares is London Stock Exchange. In the last five years, the flagship FTSE 100 The index is up 12%. Not bad. On the other hand, not so good.
After all, across the pond, the S&P 500 the index has skyrocketed 91% during the same period. Sure, that index has benefited from the strong performance of some specific tech stocks. But even the Dow Jones Industrial Average (a closer equivalent to the Footsie in terms of business mix) is going up 57% in that period.
That gives me pause to think. As a Blighty investor, should I buy more S&P 500 shares? I think there are some good reasons to consider it, but also some counterarguments.
Here's an advantage and a disadvantage I see when it comes to buying S&P 500 stocks.
Go where the big growth opportunities are
This week saw strong results from the UK software group. Sagewhich caused its share price to skyrocket. But that also made me think about how few options there are as an investor looking to buy big tech companies in the London market.
Sage is a technology company, but not exactly at the forefront of market growth opportunities. Provides accounting software to small and medium-sized businesses. Even after its strong performance this week, the company's market capitalization is below £13bn.
Still, an investor who bought Sage five years ago would earn a 74% return.
But compare it to a tech stock I own from the S&P 500, namely Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL).
Its market capitalization is greater than 2 dollars.trn (around £1.6 billion). For five years, Alphabet's performance has outperformed Sage's. Alphabet's stock price has soared 159% in that period.
These are just two examples, but I think they point to a broader conclusion. The S&P 500 is loaded with technology stocks that I believe are at the forefront of innovation.
Alphabet has a revenue stream in its search business, although I see a risk of market share loss for platforms like tiktok as well as regulatory concerns, which may ultimately force a breakup of the group.
But it also participates in many other areas, from its own rival in short videos to tiktok (on YouTube) to autonomous vehicles and balloon-based Internet connectivity.
Such breadth of technological innovation from a large, proven company is simply much easier to find among members of the S&P 500 than on the London Stock Exchange.
Invest like Warren Buffett
But as British retailers tesco to Marks and Spencer They have discovered, at their expense, that the United States can be a difficult market to penetrate.
Companies like Alphabet are multinationals based in the United States. That's why I think investing in them benefits from an understanding of the US market, from its regulatory environment to US accounting principles.
Like Warren Buffett, I like to stick to what I can understand when buying stocks. So while I'm willing to invest in some S&P 500 companies, my comfort zone is looking for bargains in the market I understand best.
Fortunately, at the moment I think many UK stocks have more attractive valuations than their US counterparts.
