Stock market

Will the stock market crash make a difference?

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Will the stock market crash? who knows Or, more accurately, yes it will, but who knows when?

Over time, stock markets rise and fall. But no one knows exactly what will happen next.

At present, the global economy is facing many challenges. Inflation is stubbornly high and many leading economies are experiencing little or no growth.

But what could a stock market crash actually mean for a small private investor like me?

Context and time frame

This may sound perverse, but a stock market crash would sound just fine to me. This will allow me to buy.

The stock market gives investors regular updates of the price at which they can buy or sell shares. This idea is captured in Ben Graham’s concept of Mr. Market.

But, crucially, we don’t have to act. So while the shares we hold may show a paper loss, we can hold them and their value may rise again in the future. Meanwhile, a crash can cause some perfectly good companies to sell for far less than they’re worth.

As always in the market, taking a long-term approach to investing has its advantages.

Bargain detection

But what if a stock market crash reflects a broader problem that actually affects a particular company’s prospects?

For example, think about the financial crisis in 2008. If I had bought the shares Nat West (LSE: NWG) As soon as they fell, thinking I was getting a bargain, I would have been wrong. I too, 16 years later, will be sitting on the shares I paid for them.

This reflects the fact that the 2008 stock market crash was caused by a financial crisis that affected the core business prospects of banks.

So when buying in a crash, it is not necessarily important to look at what is happening in the market as a whole, but to see what is happening with individual stocks and whether the crash can change that.

Preparing now.

In practice, what does this mean? I think I can find value during a stock market crash – but I need to assess whether the crash caused anything to change about the underlying investment. In the heat of the crash, I may not have time to do it all.

So I’m acting. nowHaving a watchlist of shares I think could be attractive to keep in my portfolio, if I can get them at the right price.

At the moment, for example, I think the NatWest share price is quite attractive. The bank saw profits rise last year, has a strong brand with a large customer base – and has a dividend yield of 6.1%.

But one risk I see is an economic downturn that increases loan defaults and hurts profits, as happened in 2008. If the next stock market crash is due to similar circumstances, NatWest’s weak share price might not tempt me either.

But if a crash causes it to drop sharply in value but the bank’s profit outlook seems largely unaffected, that’s the kind of share I’d get.

A stock market crash could present me with attractive buying opportunities – so I’m preparing now.


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