The market is cyclical and will move up and down over time. Many investors live in fear of a stock market crash and seem to spend half their lives hoping for it. So some people make jokes about investors who have predicted eight of the last two stock market crashes.
But crashes are a serious problem. I can be scared. It can also offer incredible opportunities. Here are four ways I can try to profit from a stock market crash.
1. Buy quality for sale
One of the most appealing things to me about the stock market crash is that you can buy what I consider to be a good quality company, despite the unusually low prices. It gives me more value for my money.
Take a company like Legal & General, for example. I like its established business, its iconic brand, and the cash-generating nature of that business. This allows you to pay dividends with a yield of 5.9%.
However, if you bought the stock in March 2020, you should have been able to buy it at 51% of your current trading at the time of writing this article yesterday. As a result, legal and general stocks in your portfolio can be nearly double what you would buy for the same money today.
Crashes often result in very cheap prices in a short amount of time. What if I wasn’t ready to buy when Legal & General crashed in March 2020? After all, insurers face risks such as price competition and unexpected payments due to new circumstances. Therefore, we would not have been able to imagine Legal & General in March 2020 without a more thorough investigation of the risks.
Well, I think I could have bought it in September 2020, half a year later. The price was higher than in March. However, it was still only 58% of the current level. Crashes often work that way. Like an earthquake, there are tremors in advance and aftershocks later. So even if you can’t get the stock you want at the cheapest time, Crash has a more attractive rating than before, throwing many good opportunities to buy them in the next few months or years. There is a possibility.
But some crashes are very short. Therefore, I think it is useful to create a shopping list of companies that you think are good to add to your portfolio in advance. In the midst of a crash, we don’t have enough time to do the research properly.
2. Stock market plunge may offer higher yields
There’s something else I missed because I didn’t buy Legal & General at the low price in March 2020.Not only did you miss the rise in stock prices, but you lost Opportunity to get double digit yields..
Today’s yield of 5.9% fascinates me, but if I buy it back in March 2020, the same stock will yield 11.5% today based on my purchase price. This is because the dividend yield is a percentage of the price you pay to buy the stock. So the cheaper I can buy stock, the higher the yield on future dividend payments.
There was also another double-digit yield opportunity that I missed in the crash.For example, Asset Manager M & G Yield of 8.9%. However, if purchased on March 20, 2020, the current yield is 16.6%, which is very attractive.
3. Learn your own investment psychology
What many people underestimate about investment is how much it is about temperament. In fact, legendary investor Warren Buffett said:The most important quality for investors is temperament, not intelligence.You need a temperament that doesn’t bring great joy either from being with the crowd or against it.“.
Many investors think they know their temperament.But as a poem by Rudyard Kipling If It reminds me that it’s easier to stay calm and act rationally when everyone else is doing the same thing. In contrast, market meltdowns can confuse behavioral clues. Fear plagues many investors as the value of their portfolios declines rapidly and sometimes dramatically.
Anyone who invests long enough will experience a market crash. I think it helps to understand my psychology. It’s not necessarily the crash itself that makes someone work or bad in such a situation. Rather, it’s how they react to it.
To Understand investment sentiment and prepare for future stock market crashes It doesn’t just happen. It requires an honest and disciplined analysis of what worked and what didn’t.
4. Go to the recovery theme
Crash can offer me another opportunity. It’s about moving to an investment theme that you think will work after the crash.
Much of the economy is somewhat cyclical. This can mean that the economic factors that cause the accident can lay the foundation for the recovery of the accident. Consider oil and gas as an example. In 2020, energy inventories plummeted. To reduce costs, companies have reduced their capital investment plans by tens of billions of pounds. However, less spending on oil exploration today means less oil is available in the future. If supply declines while demand remains the same, it can push up prices.When doing so Exon The last crash reduced spending and considered it a portfolio purchase signal. That’s been a good result for me, but there are risks in buying a company with questionable plans. Sometimes their business never recovers. The reduction in capital spending may simply reflect a reduction in future customer demand.
After the event, it’s easy to understand what the investment theme was. For example, shortly after being blocked, a surge in parcel delivery seemed inevitable. However, it can be difficult to identify before such a theme occurs. That’s what I’m trying to do and buy it when the winner after the crash is significantly reduced in price.
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Christopher Luang owns a stake in ExxonMobil. The Motley Fool UK does not have a position in any of the shares mentioned. The views expressed about the companies mentioned in this article are those of the author and may differ from the official recommendations made by subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, given the various insights, A better investor than us.
4 Practical Ways to Benefit From Stock Market Crash
https://www.fool.co.uk/2022/01/08/4-practical-ways-to-profit-from-a-stock-market-crash/ 4 Practical Ways to Benefit From Stock Market Crash