The global economy does not look in great shape to me. Nor does Britain’s. So although I think the price of many UK shares looks cheap, I would not rule out the possibility of a 2024 stock market crash.
Do I expect one? Not necessarily.
Weakening confidence could trigger a recession and crash. On the other hand, those cheap-looking valuations in some cases could tempt more investors into the market and spark a rally.
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Market timing and its challenges
The reality is that nobody knows what will happen in the stock market on Monday morning, let alone weeks or months from here. If the stock market could be accurately predicted with confidence, everyone would be doing that!
But that does not mean I am ignoring the prospect of a 2024 stock market crash.
Indeed, I am preparing as if one will happen at some point. I am simply not spending time trying to guess if it happens this year, or later.
Why bother acting “as if”?
It may sound odd acting as if something is going to happen without knowing when it will be.
In reality though, we know the market moves in cycles. History teaches that there will definitely be another stock market crash at some point, it is simply that, right now, we do not know when that will happen.
As in many other areas of life, preparation can pay significant rewards.
Understanding the nature of a crash
The reason I want to prepare now instead of waiting is because I believe a stock market crash could offer me some outstanding opportunities to buy into brilliant companies at great prices – but these could be short-lived.
So I want to get my ducks in a row ahead of time. That way I will be ready to seize the opportunity when it comes, even if only briefly.
A stock market crash often has some clear main causes. For example, imagine the price of oil plummets. That could drag share prices down steeply, suddenly. In the case of an oil producer like BP or Shell, that may seem understandable.
Even for them though, as a long-term investor I do not necessarily feel that a short-to-medium-term change in energy prices would significantly alter the investment case for companies I expect to be around for decades.
In such a situation, other companies may also see their prices marked down.
Yet, in some cases, oil costs may make little difference to their businesses. Some may actually benefit from an oil price slump, for example in the form of lower energy bills leading to a bigger bottom line.
Getting ready today!
But in the blind panic of a stock market crash, such nuances might be temporarily forgotten by Mr Market.
That could lead to bargain prices for some outstanding companies. I may well not have time to sift through the opportunities before the market starts to self-correct however.
That is why I am getting ready for a stock market crash now. By building a shopping list of great companies I would like to own, if I can purchase their shares at a good price.
