There’s been a lot of talk about a potential stock market crash recently, with more investors sounding the alarm around a potential AI bubble and high US market valuations.
While the FTSE 100 doesn’t look overvalued, or have much exposure to AI, it would be unlikely to emerge totally unscathed from a meltdown. “When the US sneezes, the world catches a cold“, as the old saying goes.
I don’t spend much time worrying about a crash, but one can’t be ruled out. So here are five things to consider doing (or not) during a market meltdown
Don’t panic sell
I think the first and most important thing is not to panic. Easier said than done at the time, I know, but panicking clouds judgement and that’s obviously not ideal for making sound decisions.
Taking the long view can help, in that there have been multiple crashes throughout history. And every single time the market has recovered (eventually) to go on to new record highs.
Stop refreshing the portfolio
Linked to this first point, I would not constantly refresh one’s portfolio of stocks. During a meltdown, looking at a sea of red on the screen — with massive individual drops like -11% and -17% — is not going to help.
In fact, it’s just emotionally draining!
When the market tanks, I tend to focus on something else rather than constantly check my stocks. I run through the local forest, take a swim, or check out that Netflix series I’ve been meaning to watch.
Anything other than the stock market.
Don’t lose sight of the bigger picture
Crucially, it’s important to remember why you’re invested in the first place. As a long-term investor, my goal is to try and create wealth across time.
Sadly, it’s not possible to do this without experiencing a couple of crashes (or more) along the way. It’s the price of admission to the stock market.
Use leverage
Another thing I avoid doing is using leverage. That is, using debt as a tool to magnify returns.
The reason, of course, is simple: this might increase losses.
I always remember an old work colleague who lost money when a very risky penny stock crashed. Still convinced about the merits of the investment, he borrowed money to double down.
Needless to say, that didn’t end well for him.
Look for bargains
That said, a market crash is absolutely the ideal time to go bargain-hunting, assuming the shares are high quality (which is certainly not the case with most penny stocks).
One FTSE 100 share worth considering on significant weakness is Scottish Mortgage Investment Trust (LSE:SMT). This fund has had great success finding and investing in transformative growth companies.
