With the stock market reaching record highs despite growing economic concerns, fears of a potential correction, or even full-blown crash, are on the rise. That understandably sounds like a scary prospect. Yet for my ISA, it could be exceptionally exciting.
While short-term dips are unpleasant, as a long-term investor they can create phenomenal buying opportunities. In fact, some of my best investments have been made during market meltdowns like in March 2020, the whole of 2022 and, more recently, in April, unlocking some triple-digit returns in the process.
So with prospects of another potential downturn on the horizon, I’ve been getting my ISA ready for another shopping spree. Here’s what I’m doing right now.
Capitalising on volatility
Firstly, I’m not panic-selling any of my positions. Rising unemployment, stubborn inflation, and weaker consumer spending across the UK and US are all troubling early signs of a looming recession. But they’re not guarantees. And, so far, both economies, especially the US, have proven to be far more resilient than most expected.
Therefore, despite the rising pessimism from industry experts, a stock market tumble isn’t set in stone for 2026. And outright selling my stocks could backfire spectacularly if the high-quality shares in my portfolio continue to outperform next year.
Having said that, I nonetheless think a more selective and cautious approach is warranted. As such, I’ve been trimming some of my more aggressive positions to build some cash. This includes Shopify (NASDAQ:SHOP) which, thanks to the phenomenal outperformance of my 2022 investments (up 350%!), had grown to almost 30% of my entire portfolio.
By doing a bit of rebalancing, this concentration risk has been drastically reduced. I’ve now got a chunky 20% cash position, giving my ISA a nice hedge against potential stock market volatility next year. But it also means I can continue enjoying gains if shares continue to climb.
But let’s assume the worst and stocks suddenly freefall. What’s my next move?
Buy, buy, buy!
When almost everyone else is panic-selling, I’ll be busy buying and enjoying the marvellous discounts being offered. And Shopify’s already on my volatility shopping list.
Even with free alternatives, Shopify’s technological advantages have lured millions of merchants worldwide. In fact, close to 10% of all online stores are now powered by Shopify.
Beyond enabling merchants to quickly set up an online store, the platform also handles inventory management, financial reporting, tax filings, payment processing, logistics, analytics, digital marketing, and even financing.
The company’s transformed itself into a one-stop shop for merchants. And with it taking a small fee on each transaction moving through its platform, the business is a cash-generating machine.
However, even with a cheaper valuation, there are still some prominent risks to consider. The platform’s recent outage during Cyber Monday this year proved quite disruptive to the merchants that rely on its system. And unreliability only creates opportunities for rivals to take market share.
What’s more, the platform’s predominantly used by small- and medium-sized businesses. These companies are far more sensitive to a recession than large-scale enterprises. And subsequently, Shopify’s financials could suffer significantly if economic conditions, particularly in North America, suddenly take a turn for the worse.
Nevertheless, for the right price, Shopify’s long-term potential makes these risks worth me taking, in my opinion.
