Will the stock market crash or not?
That is the question on many people’s minds these days.
I can say with confidence that yes, it will. But the kicker is that – like everybody else – I have no definite idea when that will happen. It could be tomorrow – or it could be decades from now.
Indeed, that combination of a certain event and uncertain timing is why I am spending time now thinking about how best to prepare for a crash, whenever it comes.
Separating emotions from rational action
Part of that – sometimes a difficult part – involves trying to stay on top of one’s emotions. A stock market crash can potentially be an alarming and fast-moving thing.
Even seeing a portfolio shed 10% of its value in short order – commonly defined as a stock market correction rather than crash – can be nerve-racking.
The 20%+ fall in a short timeframe that constitutes a crash can be much worse to experience.
But what if the crash is even worse than that?
In the 1987 crash, from peak to trough the FTSE 100 index fell 36%.
If you think that sounds scary, what about the US Dow Jones Industrial Average in the aftermath of the famous crash of 1929? After an initial recovery, from April 1930 until July 1932 the index lost a staggering 89% of its value!
Different investors have different ways to plan for such events. Some set stop loss orders to try and contain their losses (though in a rapid stock market crash where sellers far outnumber buyers, prices can quickly tumble below a pre-set level without necessarily finding buyers).
Others make sure they only invest in businesses with what they see as a compelling investment case and margin of safety when it comes to valuation, then tend to sit tight during a crash based on their long-term approach.
Glass half full
That actually describes fairly well the approach of billionaire Warren Buffett.
Indeed, the legendary investor has often used stock market crashes as an opportunity to invest in brilliant companies at unusually attractive prices. As he says, “be fearful when others are greedy, and greedy when others are fearful”.
I am spending time now looking for great companies I would like to invest in if I could buy their shares at a much lower price – for example if a crash pushes them down.
One on my list is Cranswick (LSE: CWK).
The share hit an all-time high today (19 May) following the release of preliminary results showing revenue up 10%, pre-tax profit up 19%, and an 11% increase in the dividend per share. That is the 36th year in a row of dividend growth.
Can the food supplier keep it up?
Inflation in the supply chain could be hard to pass on to customers as consumer sentiment weakens. Another risk is reputational damage from accusations about maltreatment of swine at the company’s piggeries in recent years.
Hopefully Cranswick will treat animals better – a consistent theme in the results.
Meanwhile, booming sales reflect a finely tuned business model, with proven operational capabilities and a large customer base.
But at 20 times earnings, the Cranswick share price is not tasty enough for me to buy. The share is on my watchlist, though — along with some other hidden gems!
The author has no positions in any of the shares mentioned.
