1 proven strategy to beat the stock market crash

A stock market crash can be pretty unpleasant, but those who play their cards right can reap enormous profits. Zaven Boyrazian explains how.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

A beach at sunset where there is an inscription on the sand "Breathe Deeeply".

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The recent stock market crash has been devastating, especially to growth investors. In recent weeks, the FTSE 100 has shed nearly 10% of its value. And across the pond, the S&P 500 hasn’t fared better, with a near 15% decline since the start of 2022.

But as unpleasant as it is to watch my portfolio suffer, I’m not worried. Why? Because I’m following a tried and tested strategy that, over the long-term, transforms these periods of increased volatility into potential gold mines. Let’s explore.

The key to beating a stock market crash

Buying shares is not a risk-free endeavour. Even some of the most mature businesses considered ‘safe’ can be vulnerable to external factors. Investors in travel stocks know this all too well after the pandemic decimated even the strongest firms in this industry.

But if I thoroughly research a business before buying any shares, finding weaknesses is pretty straightforward. And this is the strategy to beat a stock market crash. By knowing the weak points of the companies in my portfolio, I can make smarter decisions when a downturn inevitably rears its ugly head.

The current situation is undoubtedly being fuelled by multiple factors. But the three biggest ones that I can see are inflation, rising interest rates, and the tragic geopolitical crisis in Ukraine. The latter took many investors by surprise. So, I’m not shocked to see the knee jerk reaction of a market-wide sell-off.

But while the world panics, the trick is to remain calm. Looking at the companies in my portfolio, despite several suffering pretty impressive drops, none appear to be directly affected by the catalysts of the ongoing stock market crash. And that’s a buying opportunity in my opinion. Let’s take a look at an example.

Buying when others are selling

One stock from my portfolio that recently got caught in the crossfire is Anglo Pacific Group (LSE:APF). I’ve explored this business before. But as a quick summary, this is a royalties company. It provides mining firms like Rio Tinto and BHP the necessary funding to establish drilling sites in exchange for a portion of the materials dug up from the ground throughout the life of the mine.

The stock market crash intensified when the Russian invasion began, and shares tumbled as much as 10% within a few days. But here’s the thing. Anglo Pacific doesn’t have any operations in Eastern Europe. What about rising interest rates and inflation?

There’s currently around $124m (£94m) of debt on the balance sheet that’s getting more expensive because of higher interest charges. However, with substantial cash flows, Anglo Pacific should have no trouble paying a higher rate. Meanwhile, inflation is actually pushing up commodity prices, which is beneficial to the group’s bottom line.

In other words, the main factors pushing the market down are either irrelevant or beneficial to this business. So, when the stock started tumbling, that looked like a buying opportunity in my eyes. And it seems others agree because the shares have since surged 18% despite no official announcements from management.

The bottom line

Finding buying opportunities in high-quality businesses that are seemingly unaffected by the catalysts behind a stock market crash is the best way to beat it, in my opinion. And while it does involve taking risks, the potential returns for my portfolio are well worth it.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Zaven Boyrazian owns Anglo Pacific. The Motley Fool UK has recommended Anglo Pacific. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Growth Shares

3 things I learnt from Warren Buffett’s annual shareholder letter

Jon Smith reads the letter Warren Buffett just put out and provides his key thoughts and summary of the investing…

Read more »

View over Old Man Of Storr, Isle Of Skye, Scotland
Investing Articles

2 high-yield FTSE 250 shares I’d buy now – and 1 that I wouldn’t

This writer considers a trio of FTSE 250 shares with attractive dividend yields and explains which two he would buy…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

In a cyclical downturn, is there a buying opportunity in Croda shares?

With a positive sales outlook for 2024, is there a buying opportunity in Croda shares ahead of a potential recovery…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

£20,000 in savings? Here’s how I’d aim for £14,710 a year in passive income

With spare savings, this Fool would start generating passive income for a more comfortable retirement. Here he details how he'd…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£9,000 in savings? Here’s how I’d try to turn that into £581 a month of passive income

Relatively small investments in high-yielding stocks can grow through the power of dividend compounding into significant passive income.

Read more »

Photo of a man going through financial problems
Investing Articles

These are the FTSE’s biggest dogs over the last year!

The FTSE 100 has fallen far behind other major market indices over the past 12 months. However, these three sliding…

Read more »

Investing Articles

My top 3 stock market lessons from the Nvidia volcano eruption

Can we learn anything from the explosive rise in Nvidia's share price? Here are three Foolish reflections from this stock…

Read more »

Abstract 3d arrows with rocket
Investing Articles

Is boohoo the best near-penny stock to buy today?

This Fool asks why the boohoo share price has collapsed and whether now might be a good time to invest…

Read more »