Few words instill fear in investors’ hearts like “stock market crash”.
In reality, though, a crash can be terrifying for some share owners, but a terrific opportunity for other investors.
Let me explain why.
Just as British people famously love to talk about the weather even with no control over it, some investors love to pontificate on what might happen next in the market despite having no influence over that.
The reality is that nobody knows with certainty when the next stock market crash will be. A lot of time and effort is spent trying to time the market. To my mind it is poorly spent.
While we do not know when the next crash will be, history teaches us that there will be one sooner or later.
That could be tomorrow – or it could be years from now. Either way, I think it pays to be prepared and try to turn a stock market crisis into an investing opportunity.
One reason people fear a stock market crash is because they are worried it could send the value of their share portfolio plummeting.
That is true – and it can be an alarming thing to experience.
But – and this is a crucial point – that is only the paper value. In other words, the market is providing a constant valuation of their shares but they can ignore it if they choose.
It is like owning a home, boat, coin collection, or anything that has some market value. That value may go up and down while you own it. But until you sell, any loss or gain is just on paper.
Some shares go down in a stock market crash and recover only slowly, if at all.
Maybe they were overvalued in a pre-crash bubble. Or perhaps the crash and wider financial shifts have changed their underlying business value.
But as panic grips the market and people start dumping their holdings, sometimes indiscriminately, perfectly good shares can be dramatically marked down in price even though their underlying investment case may not have changed.
That can be an opportunity to scoop up some blue-chip bargains.
Such opportunities, though, can be short-lived. So it makes sense to be ready.
To that end, I make and update a shopping list of shares I would like to own, if only I could buy them at an attractive enough price.
One name on my list is Google and YouTube owner Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL).
The share has been buffeted at points over the past couple of years by concerns about whether AI will hurt its search business. But that seems like ancient history now, given how the Alphabet stock price has been doing. For now, it remains too high for me to buy.
