A stock market crash is coming! Here’s what I’m doing

According to one piece of analysis I’ve seen, there’s been 19 US stock market crashes over the past 150 years. Even those investors predominantly exposed to UK shares should take note. After all, as we’re regularly reminded, when America sneezes, the rest of the world catches a cold.

However, while it’s impossible to predict when the next crash will occur, there’s some evidence to suggest that market valuations are becoming stretched. But what can be done to prepare for the next big drop? Let’s take a closer look.

We’ve seen in recent weeks a degree of nervousness among investors about the potential impact of artificial intelligence (AI) on software companies, data providers, and wealth managers. The possibility that cheap AI tools will reduce the scope for these businesses to charge premium prices for their services is clearly playing on people’s minds.

Indeed, the Financial Times reported on Wednesday (25 February), that “asset-heavy” stocks are becoming fashionable again. The rationale is that it’s harder to disrupt these types of businesses.

Taking two FTSE 100 companies an as example, both easyJet and Rightmove currently (27 February) have similar market-caps of over £3bn. But their latest balance sheets disclose net assets of £3.5bn and less than £100m respectively.

I can’t see AI disrupting easyJet’s business model that involves flying 355 aircraft on 1,207 routes to 164 different airports in 38 countries. However, Rightmove’s website looks vulnerable to me.

Another lesson of history is that even after the most severe of crashes, the market will eventually recover. It might take a decade or more – as with the Great Depression and the bursting of the dotcom bubble – but taking a long-term view is likely to yield better results than trying to time the market.