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Undoubtedly the stock market is going to crash again at some point. But the question is: when will it happen?
Market timing is notoriously difficult. Still, I am preparing ‘as if’ the stock market will crash in 2025. Here is my rationale – and what I am doing.
Nobody knows the future
The argument for a crash happening soon looks strong to me. US stocks look expensive – and some big names look very expensive. There is a high level of geopolitical uncertainty in key global markets. Government debt is high but in many large economies, growth prospects for 2025 look weak or non-existent.
Then again, I can see arguments in the other direction too. Some of the factors above have already been present in recent years, yet key US indices have moved higher nonetheless. The S&P 500, for example, is up 28% this year, meaning it is now 93% higher than it was five years ago.
While geopolitical risks remain elevated, that could also mean the market will reward any significant improvement in that area. I also think it is worth highlighting that not all stock markets are the same.
While the New York exchange has been performing strongly, London’s market has seen much more modest growth. Looking not at the index but at individual shares, many look like good value to me even now.
Here’s what I’m doing in practical terms
That helps explain my approach. I think there may be a crash in 2025, but like everyone else I do not yet know. But I am acting “as if” there will be one, by getting my ducks in a row.
There are two key components to that – managing the shares I own now and also considering which ones I want to buy if a crash makes their prices attractive.
In terms of managing what I own already, I have lately taken profits by selling some shares. I also continue to reassess the investment case for shares I own in case something changes that makes me decide to sell.
Secondly, I am updating my watchlist of shares I would like to buy if a stock market crash meant I could do so for a good price. After all, a crash can be a great opportunity for long-term investors to go bargain hunting.
As an example, consider Games Workshop (LSE: GAW). In many ways the company is going from strength to strength.
It has a strong set of games franchises thanks to its intellectual property rights. The business model is compelling in my view, as once gamers get into a game they may well buy more and more products related to it, giving Games Workshop pricing power.
I do see a risk though, that concentrated manufacturing makes the company vulnerable if its main factory has to stop production for any reason.
The Games Workshop share price is up 149% in five years. But if I had pounced in the March 2020 stock market crash, I would be 260% up (and currently enjoying a 7.5% dividend yield versus the 2.9% if I buy today).
But the price-to-earnings ratio of 31 is too high for my tastes – so I am waiting for a potential buying opportunity in a crash!
