From rising inflation to the underlying ridicule of non-disguised tokens, it is not difficult to find indicators that could cause the stock market to crash. And even if it doesn’t come next week, or next month, it does Willpower Come here how I am preparing for this.
Avoid irritating sectors
No one wants to buy just before the stock sinks. It is in my interest to stop risk / reward trading, so I am careful not to lose money in stock trading. Lots S&P 500Listed companies now seem to be to blame for this, especially those who are not yet profitable. Renewable energy stocks also look valuable for perfection.
This does not mean that an expensive stock cannot be more expensive. Nevertheless, the more detached stocks are available from the fundamentals of the company, the lower my ‘security margin’ will be. This is why, from a risk perspective, investing will always be an investment during a market crash when someone is toasting their portfolio.
Make a wish list
Since no one rings the bell before the market crash, I think it’s always a good idea to have a wish list of my favorite stocks, but currently very expensive. That way, I know exactly which companies should be targeted when stocks break down (temporarily) and emotions are high. I would be less prone to be distracted by something moderate. It’s surprisingly easy to do when everything suddenly seems so cheap.
Naturally, the companies that are featured will be determined by the underlying strategy. At this stage of my life, I am more interested in growth than in making income. I am a sucker for quality stock. These are companies that generate high returns on ROCE or huge profit margins. A leader in a niche market with high barriers to entry is equally desirable.
There is a cash reserve
Making a list of stocks to buy when the market crashes is all well and good. However, all this work would be wasted if I didn’t actually have the cash.
Of course, there are disadvantages to not fully investing. Earns very little in cash interest. This means that its value erodes due to inflation as long as I do nothing with it. It is also mentally difficult to save money when the value of other assets continues to rise.
So, how much is enough? Personally, I avoid getting stuck in a certain percentage. Instead, I take the simpler litmus test. If my cash / equity balance allows me to sleep at night, I’m probably on the verge of a good thing.
This final point may seem hypocritical, given above. However, I think it is important to strike a balance between preparing for the market crash and being extra vigilant. As a master investor, Peter Lynch once said: “Investors have lost more money than they themselves have lost in the correction by trying to predict the correction.”
Due to the lack of my crystal ball, I am still paying for drip-feeding in a position where I still have a small amount. Again, the risk / return must be attractive. Until I find a good opportunity, I’m not even selling anything on my own.
Adopting a humble mindset and accepting what I know for sure means that I am better prepared for anything that may happen.
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Paul Summers has no position on any of the shares mentioned. Motley Flower UK has no position on any of the shares mentioned. The opinions expressed in the companies mentioned in this article may differ from those of the authors and therefore the official recommendations we make on our subscription services such as Share Advisors, Hidden Winners and Pro. Here at The Motley Flower we believe that considering a variety of insights makes us a better investor.