Stock market crash: time to get ready!

Our writer freely admits he doesn’t know when the next stock market crash will come. That’s precisely why he’s getting ready right now!

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As an investor, some of the most alarming combination of words are “stock market crash”.

I do not try to time the market. Like everyone else, I do not know when the next stock market crash will come. I simply know that, at some point, the market will crash again as it has done many times in history.

With a weak economic backdrop globally, I would not be surprised to see a crash over the next several years. Whether or not that happens, I am getting ready now.

Quality on sale

What do I mean by getting ready? Specifically, I am making a list of companies I would like to own in my portfolio – if they were available at the right price.

When the market crashes, a lot of people focus on the paper loss they have made as well-known shares suddenly tumble in value.

That is understandable but I do not think it is useful. After all, a paper loss is just that. If the value of my shares falls below what I paid for them, I do not lose anything unless I choose to sell them.

By contrast, I could use a stock market crash as an opportunity to scoop up shares in what I see as great companies at bargain prices. In fact, that is my plan!

Finding brilliant shares to buy

But how could I find such shares? Waiting until a crash does not seem like the right approach to me. Sometimes, share prices plummet, but only briefly. So I feel I need to be ready in advance so I can seize the moment when it comes. It may be short-lived.

It means that, right now, I am looking for businesses I think would make a good long-term investment.

I want to buy into businesses I think have a competitive advantage in a market likely to experience substantial demand for a long time to come. I also consider factors like their financial health. Too much debt on the balance sheet can be a red flag for me, for example.

Getting ready to seize the moment

There are quite a few such companies on my radar, from Judges Scientific to Spirax-Sarco.

Their share prices are too high for me to add them to my portfolio today. But if a stock market crash sent their shares plummeting, I want to be ready to pounce while I can.

To do that, I need to be ready ahead of time. That means making a wishlist of companies I would like to own – at the right price – today.

If there is a stock market crash, before buying, I would also want to judge whether those shares were still as attractive as they seem now. Has a crash led to indiscriminate falls in share prices, or is the market turbulence caused by an underlying reason that could affect the business outlook for the firms I am eyeing?

Being able to seize what could be a short-lived but massively rewarding opportunity requires preparation.

That is why, rather than trying to guess when the next stock market crash might happen, I am identifying shares to buy when it does!

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.

C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Judges Scientific Plc. 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.

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