With the FTSE 100 setting a new record high in July, it’s hardly surprising that there’s little talk of an imminent stock market crash.
And this is precisely why I’m preparing for one.
Getting too comfortable?
Without wishing to state the obvious, the reason why crashes occur is that they’re unexpected. Investors get comfortable, even in the face of consistently bad news. Indeed, geopolitical tensions, armed conflict and social unrest dominate the headlines right now. At an economic level, the cost-of-living crisis shows no sign of abating and prices are on the rise again.
Despite all this, the UK’s top tier has never been higher in terms of valuation. Across the pond, the S&P 500 continues to smash records too. My point is that the market is prepared to look past misery, so long as it’s predictable misery.
But this could easily be the calm before the storm.
The snag is that we won’t know what sort of storm it is until it’s already here.
I’m building a buy list
Now, I don’t know when markets will next crash. But nor does this bother me. Rather than ruminate over what I can’t control, I’ve learned to adopt a different strategy, namely creating a wishlist of stocks I’ve love to buy at a lower price.
One example is fantasy figurine and Warhammer 40K owner Games Workshop (LSE: GAW).
I struggle to see how anyone could label this as anything other than a superb company. We’re talking about a leader in a very lucrative niche market that generates incredible margins year after year. Games Workshop is also in rude financial health, with more cash than debt on its balance sheet.
Quality rarely comes cheap
The trouble is that a stock like this is rarely unpopular, evidenced by the ascent of the share price over the last 10 years or so.
This helps to explain why the shares now trade on a price-to-earnings (P/E) ratio of 30. That’s expensive relative to most UK shares. It could also be risky if the firm encounters problems with its supply chain or discretionary spending continues to fall.
However, there’s no rule to say that the share price can’t keep climbing, especially if the £5.4bn cap is able to continue pushing its IP into new formats such as TV and film and building its presence in relatively untapped parts of the world.
It isn’t immune
Even so, it’s worth noting that the stock nearly halved in value between September 2021 and September 2022. Stakes bought at the low would now be worth roughly 180% more.
This example is precisely why I look forward to the market crashing (or at least wobbling). Being armed with a list prior to a major sell-off means the most essential research is done and dusted. I know what I want, why and what I think a fair price should be.
Whether I get my chance to buy Games Workshop shares in next fire sale remains to be seen. But history tells me I can be fairly confident that opportunities to load up on high-quality UK (and international) stocks will come at some point for anyone comfortable with investing for the long term.
I’m gearing up for the next market crash. Are you?
