I’m optimistic about how the stock market will perform in 2024. This is not to say I’m busy dreaming about how to spend any profits I might make. Quite the reverse — I’m planning on being hopelessly wrong.
Confused? Let me explain.
No crystal ball
If there’s something I’m constantly reminding myself, it’s that reams of data and commentary and predictions and hopes and prayers matter not one jot.
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I might believe that a cut to interest rates in 2024 will mean a good year for growth stocks. As a result, I might think that several of the UK’s high-quality companies may be great buys right now.
In reality, no one knows where stocks are going next.
We might not see a cut at all this year. Even if one does come, it might be later than anticipated, or lower than desired. That could be bad news for investors.
In the short term, expectations and emotions move share prices, not fundamentals and sober reasoning.
What’s a Fool like me to do?
Be prepared
My preparations for The Great Stock Market Crash of 2024 — just in case it happens — are the same as they are for any other year.
First, I brush up on a bit of history. Whether we like it or not, big market falls happen every few years, albeit for different reasons. As someone investing for my retirement, this means I’m extremely likely to encounter a few more wobbles in the interim.
Sure, that’s frustrating. But if I want a nice nest egg to enjoy at the end, this is the price of admission.
Playing it safe
I’d then check the stocks I own are spread around the market. For example, I hold shares in housebuilder Persimmon. I also own a slice of Greggs.
I’m satisfied these are good companies and possess adequate financial firepower to make it through a(nother) tricky period. But, importantly, they operate in completely different sectors.
This doesn’t mean their share prices won’t go down together. But I’d be far more on edge if I owned a stake in a second firm whose fortunes depended on demand for new homes rather than a sausage roll seller.
Ready to shop
The last step I’d take is far more fun. It involves making a list of stocks I’d buy if allowed to pick them up at (temporarily) depressed valuations.
Just like Warren Buffett, I’d be looking for wonderful companies with competitive advantages, robust balance sheets, and a record of compounding value for their shareholders.
How will I know when to buy? I won’t! No one rings a bell when we’ve hit the bottom. Precise market timing’s impossible.
But a strategy of buying when few people will has the potential to generate remarkable profits once confidence returns.
And confidence has always rebounded, to date.
In my hands
All of the above are firmly within my control. Anything that’s out of my control isn’t worth thinking about.
As a one-time Fool contributor and best-selling writer Morgan Housel noted: “Risk is what we don’t see.”
So rather than worry about the actual cause of the next crash, I’m just accepting that it’s inevitable and trying to build up cash to take advantage.
It remains to be seen if that opportunity will arise in 2024.
