As we head into the home straight of another year, a lot of investors inevitably turn their attention more and more to 2024 – and beyond. With the economy looking weak both in the UK and many other countries, one concern is whether we will see a stock market crash.
I do not know whether we will – but I am getting ready anyway! Here’s why.
Markets and rationality
One of the things that suggests we might not be due a crash any time soon is how cheap many British blue-chip shares look.
Yes, we saw the FTSE 100 index of leading companies hit an all-time high earlier this year, although it has since moved lower. But some individual companies trade on what seem like cheap valuations. This year I have been buying shares like Legal & General with single-digit price-to-earnings ratios, for example.
But valuations are not the only thing that drives the stock market.
Sometimes, even though shares look cheap, market sentiment can lead to a correction or even a crash. Just because shares look cheap does not mean they cannot get cheaper still.
Avoiding market timing
That helps explain why I am not gazing into a crystal ball trying to figure out what will happen next and when.
We know there will be another stock market crash at some point. But while that may be days away, it could also be decades away. The truth is nobody ever knows with certainty what will happen tomorrow in the stock market, let alone a year or more from now.
So, rather than spending time trying to guess whether we might see a sudden sharp drop in the markets in 2024, I am getting ready for it regardless of how long it takes to arrive.
What is the point of that?
After all, I could wait until the market crashes to take action.
The issue is that sometimes a stock market crash can be a short-lived affair. While some high-quality shares may plummet in price, that can attract lots of buyers, pushing prices up again.
So time can be of the essence.
Rather than waiting for a stock market crash before figuring out my plan of action, I want to make sure that I am ready to respond immediately to any great investing opportunities such a situation could present, no matter how short-lived they may be.
In practice, what does that mean?
Specifically, it basically means that I am spending time right now to prepare a shopping list of companies I would like to buy shares in – at the right price.
While they may be costlier now, if a stock market crash means I can snap them up at a bargain price, I would be happy to do that.
But that requires preparation, so I know what shares I want to buy when the right opportunity presents itself.
I can do that preparation right now, by identifying exactly the sort of shares I want to own, if a stock market crash means I can buy them at a great price. Why wait?