It seems like every day, someone is predicting the next market crash.
Of course, no one can say exactly when – or if – it will happen. But I believe that if it does, it will be unlike any of the historic crashes that have preceded it.
The reason is that the way many professionals invest has changed. Often much of the decision-making is now done by computer software. Through algorithms, the computer crunches balance sheet data, making a judgement based on predetermined risk tolerance levels. How does this affect what will happen during a market crash?
Who knows. It could mean that a sell-off would be more widespread if the data shows the stock will not return the required amount in a reasonable time limit. On the other hand, the opposite might happen, as there will be no emotional input into decision-making.
As individual investors, I believe we have the upper hand. We can pick stocks based upon the tangible, without the thought of angry bosses and customers breathing down our necks if the required returns are not reached. The only people we have to answer to are ourselves.
If there is a market crash, I will be watching these three stocks very closely.
Historically, banks have taken a battering during market crashes. Investors might fear that loans will not be repaid and that customers will refrain from taking out mortgages. Taking on Warren Buffett’s advice to “be greedy when others are fearful”, I think a bear market might present a perfect opportunity to buy some banking shares.
I particularly like HSBC (LSE: HSBA), due to its international diversity.
Admittedly, this has not always worked in the investor’s favour. Geopolitical tensions – such as the US-China trade war, and the Hong Kong protests – being among some of the reasons the HSBC share price has slumped recently. But for buyers, I believe the HSBC stock price is trading at a good value. It currently has a price-to-earnings ratio of 12, and a prospective dividend yield of 6%. Over the next two years, HSBC is targeting cost cuts of around £3.5bn, due to falling profits.
I believe that taking on an element of international exposure could help balance an investment portfolio, and might limit the damage caused by localised market crashes or recessions.
Another banking stock I am starting to like is Lloyds Banking Group. Of late, the bank has renewed its focus and has taken on cost-cutting measures. Lloyds’ revenue predominantly emanates from the UK. I expect that during a market crash, the stock price might tumble, enabling investors to pick up a bargain.
In a bear market, I will also be watching the Unilever share price very closely. In the past, I have pointed out that it might just be a wonderful company trading at a fair price.
I think consumable companies could perform well during a market crash, as investors will hope that customers won’t change their spending habits on low-cost items. It might be wishful thinking, but imagine if Unilever was trading in the bargain buy category.
T Sligo has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended HSBC Holdings and Lloyds Banking Group. 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.