Are we heading for a stock market crash? Are we already in one that is building momentum?
Ask a dozen different investors and you may get a dozen different answers – or even more! This is an area that can both be emotive and also highly contested.
In reality, nobody knows for sure when the next crash will be. But history tells us that there will be one, sooner or later.
It can be helpful to know what a stock market can look like up close.
Slow Build Up or Sudden Plummet
A stock market crash is commonly understood to mean a decline of 20% or more in short order.
Sometimes, that can come more or less out of the blue. The pandemic was an example – even in February 2020 the market seemed to be absorbing news of its growing threat without too much impact, then in March there was a sudden crash.
But sometimes a crash can follow a bubble that builds up over years. In the end, few people deny that there is a bubble (though some always do), but they disagree about when and how it will burst.
Meanwhile, it can keep going for years. The Japanese property boom in the 1980s that fuelled a rampant stock market and subsequent crash is an example.
When people – including some very smart people – say that you cannot time the market, this can be the sort of situation they are talking about. You may have lots of rational arguments as to why a market is overvalued and you may ultimately be proven right. But trying to time when the drop starts is a mug’s game.
As the Michael Burry character in The Big Short said, “I may be early but I’m not wrong” – to which the response was, “it’s the same thing”.
Not everything moves at once
Typically, even in a sudden crash, not all shares fall as fast or as far.
Some have stronger fundamentals, while some may benefit from investors trying to fish for bargains.
But ultimately, a stock market crash can mean sizeable falls for many companies, even well run ones. For people who have not witnessed a crash before, being involved in it can be scary. That is why having a plan of action can help.
Here’s my approach
The current market looks frothy in some parts to me. But I am not trying to time the next crash.
However, I am not sitting on my hands. Rather, I am making and updating a list of shares I would like to own if sudden market turbulence makes their price more attractive.
One on my list is Intuitive Surgical (NASDAQ: ISRG).
The robotic surgery specialist has seen its share price fall 26% so far this year. Still, it continues to trade for 51 times earnings.
That is too expensive for me. Although it continues to grow, the company’s strong market position makes it a prime candidate for smaller, newer firms to try and attack.
Still, Intuitive’s proven business appeals to me. Its market is large and resilient. Thanks to its proprietary technology and deep library of past surgical procedures, it has a strong advantage over rivals.
Plus, not only does it make money from machines, but each operation also involves it selling peripherals like sterile attachments.
Should you invest £5,000 in Intuitive Surgical right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Intuitive Surgical made the list?
Christopher Ruane does not hold positions in any of the companies mentioned.
