In nearly four decades as an investor, sometimes I get been seriously worried about full-blown stock-market crashes.
Asset anxiety
My first asset anxiety came in 1999/2000, during the ‘dotcom bubble’. In the late 1990s, share prices of unprofitable internet companies soared. After March 2000, these stocks crashed brutally. The tech-heavy US Nasdaq Composite index then lost 78% of its value before turning the corner in late 2022.
My next crash concerns arrived in mid-2007, after stocks hit record highs during a US housing bubble. Then came the global financial crisis of 2007/09 — among the worst worldwide market meltdowns in history.
My next brush with market madness came at the end of 2019, when I warned widely of a forthcoming correction. This was triggered by the Covid crisis, with the S&P 500 and FTSE 100 plunging 35% by 20 March 2020.
My most recent FOMC (fear of market crashes, not the Federal Open Market Committee!) climaxed in late 2021. As asset prices pushed ever higher, I repeatedly warned that markets were in an ‘everything bubble’. During this period, the Financial Times’ (FT) Alphaville team ran a delightfully snarky blog entitled, This is nuts. When’s the crash? — from which I stole this article’s title.
Volatility creates opportunity
Right now, things look cosy for the US stock market, which accounts for maybe two-thirds of global stock-market capitalisation. Measures of volatility are low, stock markets are at record highs and the bond market is becalmed, while the US dollar’s decline has slowed after its worst first-half start since 1973.
Despite this, I share the recent view of the FT’s Katie Martin, who argues that investors are like frogs boiling in a pot. As this (grossly untrue) analogy goes, frogs will not jump out of boiling water if it heats up slowly. In other words, frogs — and investors — won’t see the dangers until disaster descends.
Then again, I don’t really care if — or rather, when — the next stock-market crash arrives. Looking at my family’s long-term returns, many of our greatest gains have come from buying when prices plummet. What we’ve discovered is to ride out the falls, not panic, and then buy at discounted prices. Simple.
A stock for all seasons?
One stock I’ll aim to buy more of during the next market collapse or correction is Alphabet (NASDAQ: GOOG). While I see most of the so-called Magnificent Seven stocks as overvalued, shares in the owner of Google search look inexpensive to me. Also, buying into Alphabet also gets me stakes in subsidiaries such as Google Cloud, the Android operating system, and Waymo self-driving.
As I write, Alphabet stock trades at $204.55, valuing this tech mega-firm at almost $2.5trn. The shares trade on a multiple of 22.1 times earnings, well below the premium valuations other Mag 7 stocks enjoy. They even offer a dividend yield of 0.4% a year, which we reinvest into more shares.
At their 52-week low, Alphabet shares hit $142.66 on 7 April, before rebounding strongly. However, the group faces a number of anti-trust lawsuits aimed at curbing its supremacy in online search and advertising. Big fines are part and parcel of digital dominance, but an enforced break-up could pull apart its business franchise, synergies and network effects. Hence, let’s see what happens as 2025 draws to a close.
