Will the stock market crash? who knows? Or, more accurately, it will be, but no one knows when that will be.
Over time, stock markets rise and fall. But no one knows exactly what will happen next.
Currently, the global economy continues to face many challenges. Inflation remains high and many major countries are showing little growth.
But what does a stock market crash actually mean for a small individual investor like me?
perspective and period
As cynical as it may sound, a stock market crash is perfect for me. That would give me the opportunity to purchase.
Stock markets provide investors with regular updates of the prices at which stocks can be bought and sold. This idea is reflected in Ben Graham’s concept of Mr. Market.
But the point is, you don’t have to act. Therefore, even if the stocks we own are showing paper losses, we can hold on to them and the price may rise again in the future. On the other hand, if a crash occurs, some perfectly good companies could be sold for far less than their actual value.
As is normal in the markets, there are benefits to taking a long-term approach to investing.
find a bargain
But what if the stock market crash actually reflects a broader issue affecting the prospects of a particular company?
As an example, consider the 2008 financial crisis. natwest (LSE: NWG) I thought I was getting a bargain when they dropped, but I would have been wrong. Also, after 16 years, I will be holding shares worth significantly less than what I paid for them.
This reflects the fact that the 2008 stock market crash was caused by a financial crisis that affected banks’ fundamental business prospects.
So if you’re buying during a crash, don’t necessarily focus on what’s happening to the market as a whole, but rather what’s happening to individual stocks and whether the crash might change that. It is important to do so.
We are currently preparing
What does this mean in practice? You may find value during a stock market crash, but you need to assess whether the reason for the crash has caused any changes in the underlying investments. there is. In the middle of an accident, you may not have time to do that.
that’s why I’m acting nowI maintain a watchlist of stocks that I think would be attractive to have in my portfolio if they were available at the right price.
For example, we feel that NatWest stock is very attractive at the moment. The bank has increased profits in the last year, has a strong brand with a large customer base, and has a dividend yield of 6.1%.
But I think the risk is that an economic downturn could push up loan defaults and squeeze profits, as happened in 2008. If the next stock market crash is due to similar circumstances, I may not find NatWest’s share price attractive.
But if a crash causes prices to fall sharply, but with little impact on the outlook for bank profits, I’d buy the stock.
A stock market crash may present me with an attractive buying opportunity, so I’m preparing now.
The post Will the stock market crash matter? appeared first on The Motley Fool UK.
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C Ruane has no position in any of the stocks mentioned. The Motley Fool has no position in any stocks mentioned. The views expressed on the companies mentioned in this article are those of the writer and may differ from official recommendations we make on subscription services such as Share Advisor, Hidden Winners, or Pro. At The Motley Fool, we believe that considering diverse insights makes us better investors.
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