A stock market crash can be a disaster or an investing opportunity, depending on someone’s approach to investing and how they react.
Right now, as the annual deadline for contributions to a Stocks and Shares ISA looms in a matter of weeks, many investors are taking stock of their portfolio.
That is a good opportunity to step back and ask the more general question: how well-prepared is your portfolio for a sudden stock market crash?
There are good reasons to believe that there could be a stock market reckoning in the offing.
Oil prices have soared and inflation could follow. That may be bad news for the economy both in the UK and globally.
But the reality is that nobody knows for certain when the market will next crash. It could be this week – but it may be many years from now.
That may seem surprising given current geopolitical uncertainty. But that may already be priced into the market so any positive news that arrives, like an increase in oil supplies or ceasefire in the Middle East, could be greeted with waves of investor enthusiasm.
Just because I am not trying to time the market does not mean I am ignoring the risks. Rather, I aim to get my portfolio into what I think is the right condition, from a long-term perspective.
In practice that means I keep my portfolio under review.
Specifically, although I am willing to take the rough with the smooth as a long-term investor, I consider whether anything has changed that might fundamentally alter the investment case for a share I own.
For example, higher oil prices could feed through to costlier plastic prices for Bunzl. As the company sells lots of plastic catering items, that could eat into profits – but over the long run I do not expect oil to remain at elevated price levels.
By contrast, I think recent events could have long-term impacts on the business prospects for some companies with Middle Eastern exposure. Fortunately I do not currently own any shares in companies that are heavily dependent on the region for their profits.
Another element of reviewing my portfolio is not looking at shares I own – but what I do not own.
There are shares I would like to own but I see as overvalued. If their price plummets, I may have a window of opportunity to buy.
I therefore have a watch list of shares I would like to own if I could buy at the right price – and one of the companies on it is Spirax Group (LSE: SPX).
The share price has tumbled 40% over five years. Despite that, it is still 30 times earnings.
