After a series of strong rallies in recent months, headlines often suggest that markets are overheated.
Many investors who anchored to lower prices in the past fear buying blue chips at the top.
Others are worried that if they don’t enter now, they might regret it when prices rise further.
However, price alone is not a reliable indicator of whether a stock is worth buying.
Many of the world’s best companies reach new peaks repeatedly.
Today, we explore if buying blue chips at record levels makes sense for long-term investors.
What Actually Drives Blue-Chip Prices Higher
The share price of blue chips is generally underpinned by consistent growth in earnings and profitability.
These companies maintain good balance sheets with disciplined capital allocation.
They are always ready to invest in growth and can better withstand economic downturns.
Blue chips also have long-term competitive advantages.
When coupled with tailwinds in their industries and structural growth catalysts such as technology adoption, they can compound earnings efficiently.
Their record-high prices often reflect the underlying strength and resilience rather than speculation.
What to Check Before Buying at Record Levels
Even when the stocks are at a record high, it does not mean that you cannot enter the market.
Let’s take a look at the long-term revenue and earnings growth of the company.
Companies that continue to grow their earnings tend to sustain their stock prices.
Singapore Technologies Engineering (SGX: S63), or ST Engineering, has seen its stock price more than triple since 2023, proving that a ‘high’ price is often just a stepping stone for a high-quality compounder.
The rally is backed by revenue growth – a 9% year-on-year (YoY) increase in FY2025, as well as sustained demand, as it secured S$18.7 billion in new contracts (a 49% YoY increase).
Investors should also look at the Return on Equity (ROE).
Think of ROE as an efficiency gauge; it measures how much profit a company generates with the money shareholders have invested.
A high ROE, like that of Sheng Siong Group (SGX: OV8) at 28.7%, suggests a business that can compound wealth without needing constant infusions of fresh capital.
Investors should also evaluate free cash flow (FCF), debt levels, and overall balance sheet health.
Companies with robust FCF and low gearing are better equipped to weather downturns, regardless of their share price.
Venture Corporation (SGX: V03) is a prime example; it ended FY2025 with a fortress balance sheet featuring S$1.28 billion in net cash and zero debt.
For income investors, dividend sustainability is a critical filter.
A steady payout history supported by resilient earnings signals underlying financial strength.
Singapore Exchange (SGX: S68), or SGX, has maintained an uninterrupted dividend track record for over two decades, providing a reliable “reinvestment flywheel” for shareholders.
Lastly, record-high prices must be weighed against valuation metrics like price-to-earnings (P/E) and price-to-book (P/B) ratios.
Even high-quality blue chips like DBS Group Holdings (SGX: D05) can be considered “expensive” if they trade significantly above their long-term historical averages.
When Buying at Record Highs Can Make Sense and Doesn’t
Fresh highs often signal elevated valuation, but buying at these levels can be justified if:
- The business is compounding earnings steadily: A company’s intrinsic value increases year after year if it improves margins, making today’s “high” price look reasonable in hindsight.
- Valuation is aligned to growth: If the P/E ratio remains in sync with the company’s growth trajectory, the stock retains long-term potential despite the peak price.
- There is strong pricing power and cash generation: Businesses that can raise prices without losing customers hold a significant competitive advantage and can fund their own innovation.
- You are investing for the long term: The key question is not today’s price, but whether the company can continue compounding value over the next decade.
However, caution is required when the narrative shifts. Investors should think twice if earnings growth begins to slow down while the share price keeps rising. This often indicates that valuations are stretched beyond reason.
Similarly, be wary when market enthusiasm is driven by hype rather than business fundamentals.
Finally, even for the best companies, ensure the stock does not take up an outsized portion of your portfolio – overconcentration can leave you vulnerable when the market eventually corrects.
Practical Strategies for Investors
To navigate record highs effectively, consider adopting a disciplined strategy like Dollar Cost Averaging (DCA).
By investing a fixed amount regularly, you minimise market-timing risks and remove the emotional burden of deciding when to enter.
During market highs, it is also wise to rebalance your portfolio.
This involves pruning overconcentrated positions to lock in some gains and diversifying across different sectors and asset types – such as real estate investment trust (REITs), defensive stocks, and dividend-focused shares – to cushion the impact of potential downturns.
Ultimately, the goal is to focus on long-term compounding rather than trying to time the market’s peaks and troughs.
Staying invested in quality businesses through various market cycles remains the most reliable path to building lasting wealth.
Historical Perspective: Great Companies Often Keep Climbing
High-quality businesses are designed to grow, often reaching multiple all-time highs over several decades.
DBS, for example, has seen its share price rise 292% over the past 10 years, consistently hitting new peaks despite inevitable market corrections.
If an investor had hesitated on 5 December 2016, thinking S$16.21 was too high, he would have missed a 39.3% gain when prices reached S$22.58 just one year later.
Waiting for the “perfect time” often leads to missed opportunities while sitting on the sidelines.
Similarly, ST Engineering has delivered a 245% increase in share price over the last decade.
By waiting for a dip that may never come, investors miss out on the power of compounding and the steady stream of dividends that blue chips provide.
Ultimately, long-term returns depend far more on the quality of the businesses you own than on your ability to buy at the exact market bottom.
Get Smart: Record Highs Are Milestones
As long as the underlying business remains sound and growing, record highs should be viewed as milestones rather than warning signs.
For the long-term investor, business fundamentals – like earnings growth, cash flow, and competitive moats – matter far more than the share price.
Don’t let short-term market noise derail your long-term wealth-building plans.
David Kuo expects many investors will be asking: “What should I invest in if blue chips are too expensive?” The answer lies in his framework for investing. Join his free webinar on 25 March and learn how to evaluate whether any blue chip has crossed the line from solid to overpriced, and what you can do about it. Register free now.
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Disclosure: Wenting A. does not own any of the above-mentioned stocks.
