Image source: Getty Images
A lot of time and energy is spent predicting when the next stock market crash will occur.
The reality is that no one knows when.
But what we do What we know is that there will be another collapse, sooner or later.
So instead of wasting time looking into a crystal ball, I'd rather take practical steps now to prepare for a crash when it arrives. After all, what we call a crisis can also be seen as a sale (sometimes the sale of the century!).
1. Understand how the stock market works
My first step is to learn more and more about how the stock market really works.
This may seem obvious. But when stock prices are stable or rising, some people buy them without really caring to understand how the market really works. That means they are not investing but simply speculating.
When there is a stock market crash, I don't lose money just because of that. I only lose money once I sell a stock for less than what I paid for it (and even then I may not have lost money overall, if the stock had paid me dividends while I owned it).
However, a crisis could affect my investments, even if I don't sell immediately. It could depress economic confidence, for example, damaging the prospects of companies in which I have invested. The more I can learn about how the stock market works, the more able I feel to prepare for a crisis.
2. Design my portfolio
Buy and sell, buy and sell.
Doing that without a broader plan – even if one holds the stock for a long time – can lead to a confusing portfolio.
For example, a stock in my portfolio that far outperforms others could turn an initially diversified ISA into one with concentrated risk.
That's why I try to “design my portfolio.” In other words, deciding things like how I want to diversify, what weighting I could aim for between different types of companies, whether I want to hold an amount in cash and, if so, how much.
Doing that could help me not be surprised by a stock market crash.
Would I like to have shares in Scientific Judges (LSE: JDG)?
Absolutely!
It has what I think is a great business model. Judges purchase specialized manufacturers of equipment such as precise measuring tools. These are important for customers such as laboratories, who are willing to pay for quality. By not overpaying, Judges is creating a very profitable set of businesses. You can then add economies of scale that those companies couldn't achieve independently. This same month he hired a Swiss specialist in fiber optic property measurement.
In fact, I find the business model attractive and simple; One risk I see is that a copycat company will drive up the price of potential acquisition targets.
Revenue grew 15% last year even ignoring new acquisitions. The dividend was more than double what it had been just four years earlier.
But the judges' rating is too high for my taste.
I maintain a list of similar stocks that I would like to buy Yeah A stock market crash suddenly made them look like a good value.
