Is a stock market crash good or bad for investors looking to build long-term wealth?
I think the answer could be either.
Buying high and selling low can be a painful experience. But just because the stock market sinks does not mean investors need to make a loss by selling.
After all, if I own shares in what I think is a great company, movements in its share price do not typically affect my view of the attractiveness of the business.
But what they could do is give me a short-lived and potentially lucrative buying opportunity. If we see a stock market crash in 2024, here is how I plan to react.
Timing the market
Let me start by saying I do not know whether the stock market will crash in 2024. Actually, nobody does.
Rather than trying to time the market, I am considering the prospect of a crash from the perspective of a value hunter. If prices go down far below what I think shares are worth, that could help me buy stakes in quality FTSE 100 companies at bargain-basement prices.
Instead of aiming to guess when that might next happen, I am putting my energy into pulling together an action plan so that I am ready to react when it does.
Value on sale
But if shares really are good, why would they suddenly see a price crash?
Sometimes it can because the City fears a business is worth less in a worsening economy. For example, banks like Lloyds and Barclays currently trade on what seem like cheap valuations.
But if a market crash is part of a wider economic adjustment that leads to higher default rates (as in 2008), those banks could yet turn out to be expensive, even at today’s share prices.
Sometimes in a crash though, high-quality shares tumble simply because fear stalks the City. From M&G to JD Sports, several shares I own have fallen in value at some point in the past few years to well below what I considered to be their real value before rising again.
Exploiting a market crash
Such opportunities can be lucrative – but they may also be short-lived.
Millions of other investors are doing exactly the same as me, namely looking to scoop up shares when their prices have been battered. That could mean those prices rebound.
So I feel my best chance of success will come from being well-prepared ahead of time. That way, no matter when we next see a stock market crash, I will be ready to try and use it to build wealth by snapping up top-grade shares at low prices.
But the time for me to lay the groundwork is right now.
The post Could a 2024 stock market crash offer a golden opportunity? appeared first on The Motley Fool UK.
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C Ruane has positions in JD Sports Fashion and M&g Plc. The Motley Fool UK has recommended Barclays Plc, Lloyds Banking Group Plc, and M&g 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.
