Talks of a stock market crash have grown in recent times. The last time we saw share prices come tumbling down was back in March 2020, following the onset of the Covid pandemic and the fears of a global recession that followed. Of late, red-hot inflation and geopolitical tensions have been the source of concern.
As we head towards 2024, the potential for a crash remains. So, if the market is going to see a dramatic decline, should I wait until then to add to my portfolio?
Time to buy?
I could argue that a crash is worth waiting for. Crashes present a unique opportunity for investors to purchase shares in companies for significantly reduced prices as traders rush to panic sell and exit their positions. Take HSBC as an example. It fell by around 30% from the middle of February to the beginning of April 2020. If I’d bought some shares back then, my investment would have returned 54% by today.
However, there’s a caveat. Stock market crashes are difficult to predict. And there’s a mix of factors that go into creating a crash. Waiting on the sidelines may seem tempting, but by waiting around I may miss out on opportunities along the way. In fact, I think a host of stocks are already on sale. And by trying to hold out for the bottom, I could potentially pass on some attractive valuations.
No need to wait
An example of this is Safestore (LSE: SAFE). The business is the largest provider of self-storage units in the UK. Its share price has fallen 18.3% in the last 12 months. In 2023, it’s down 20.8%.
With this fall, the stock looks cheap, trading on a price-to-earnings ratio of just 5.8.
Now, there’s a reason for this decline. Hiked interest rates mean purchasing facilities will be more expensive. Additionally, net debt of over £750m will become more expensive to pay off.
Despite this, the firm has ambitious plans for expansion in the future. With it leading the UK market, it’s now looking overseas.
What’s more, with a 4% dividend yield, I can earn extra income on the side. If I were to wait for a potential crash, I’d miss out on this. By instead collecting these dividends and reinvesting them, I’d be able to benefit from compounding.
Lesson to be learned
I think stocks like Safestore are proof that there’s no need to wait for a crash. I could stick it out and try to buy when its share price declines sharply, but this may never come. Or I might mess up the timing if it does.
Instead, I’d much rather drip-feed my spare cash into the stock market and think of the bigger picture. Any dividends I collect along the way will also go back into my investment pot.
Even if its share price takes time to recover, I feel that in the years ahead I’ll see some healthy gains. After all, that’s why I recently topped up my position in Safestore.
The post Should I wait for a stock market crash to buy shares? appeared first on The Motley Fool UK.
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HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Charlie Keough has positions in Safestore Plc. The Motley Fool UK has recommended HSBC Holdings and Safestore Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
