Despite inflation slowly moving in the right direction, some famous investors are still predicting a stock market crash.
One of the most famous of these doomsayers is Jeremy Grantham, who estimates there’s a 70% chance of things getting turned upside down. And some of his concerns seem fairly justified.
In particular, he’s highlights various mini-asset bubbles forming in areas such as artificial intelligence that could trigger a sudden downturn in the market if, or when, they burst. The fear is that just a single bubble going pop could trigger a chain reaction, especially if a recession comes along.
Will there be a crash this year?
Given Grantham’s impressive track record, it’s understandable that many investors are putting a lot of weight behind his forecast.
However, it’s worth pointing out that his prediction was recently revised down from an initial 85% chance. Therefore, it suggests that Grantham’s view, while still negative, is steadily improving.
And while I wouldn’t be surprised to see many overpriced stocks having their valuations slashed in the coming weeks or months, I remain unconvinced that a stock market crash is on the horizon.
There are always high-profile investors predicting an end time for equity markets. In fact, such calls have been fairly common throughout the last decade, with the majority proven wrong time and time again. And for those who listened, they missed out on one of the best bull markets in recent history.
All this shows is that trying to predict what the stock market will do in the short term is virtually impossible, even for the most qualified investors in the world. That’s why I’m not hanging around for a potential stock market crash to start capitalising on cheap UK shares.
Investing during volatility
While a crash may not seem likely, that doesn’t mean investors should just stick their heads in the sand. There are several valid concerns to be had about the state of the British economy, and some cracks have started to appear. For example, the number of corporate bankruptcies has been quietly rising due to the recent interest rate hikes.
Financial institutions such as the International Monetary Fund (IMF) expect the UK to avoid a recession. But it’s still a possibility. And depending on its severity, investors could see their portfolios take a significant hit. Therefore, it seems only prudent to introduce some risk management strategies.
One of the simplest ways is to spread buying activity over the course of several months rather than investing capital in one giant lump sum.
This means that should the financial markets take a turn for the worse, investors will still have capital at hand to take advantage of terrific companies trading at even cheaper valuations.
