Guessing the exact timing of the next stock market crash is futile, in my opinion. Nobody knows when it will come.
What we do know, however, is that sooner or later, there will be a crash. Over the long run, history teaches us that the market crashes from time to time.
I am getting a bit nervous about some corners of the stock market at the moment, as it happens.
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The optimism around AI stocks that helped push up the US market is fading. Sure, the NASDAQ is still up 26% over the past year (and the S&P 500 is not far behind it). But the economic environment feels uncertain to me. This month’s stock market wobble suggested that many investors are nervous. That is not encouraging for me.
So, rather than spending time trying to guess when the stock market might next crash, here are some practical steps I am taking now to try and treat it as an opportunity, not a threat!
Reassessing the investment case for each share I own
Billionaire investor Warren Buffett has been selling significant chunks of some of his holdings, such as Apple (NASDAQ: AAPL).
We do not know why. But, even for a great investment, the argument for buying is not always the same as that for holding – and I say that as a buy-and-hold investor myself.
That is because share price appreciation can mean that the investment case for a share at its current valuation is no longer as compelling as it once was. Apple, for example, has more than quadrupled in the past five years.
So I am continuing to consider whether the investment case for shares in my portfolio makes sense at their current price.
In some cases, that means I have sold shares I think have potentially become overvalued.
Preparing a shopping list of great companies
Buffett has been selling Apple shares to someone – but not me!
I reckon the company looks overvalued. Its current price-to-earnings ratio is 35, which even for a high growth company seems expensive to me. But at this point, Apple is not what I would call a growth company. It is massive — but last year both revenues and net income declined.
With a strong brand, large user base, and pricing power many rivals can only dream of, I think Apple can continue to be a hugely successful business. But a great business does not necessarily make for a rewarding investment.
With increasingly sophisticated competitive products available at low prices, I see a risk to Apple’s profit margins as well as its sales volumes. So at the current share price, I would not buy.
However, if a stock market crash brought the valuation down enough, I would be happy to add the tech giant I once owned back into my portfolio.
Such a window of opportunity could be short. That is why I am getting ready for a market crash now, by updating my list of shares I would like to own if I could buy them at the right price.
