A stock market crash is coming! Here’s what I’m doing
According to one piece of analysis Iâve seen, there’s been 19 US stock market crashes over the past 150 years. Even those investors predominantly exposed to UK shares should take note. After all, as we’re regularly reminded, when America sneezes, the rest of the world catches a cold.
However, while itâs impossible to predict when the next crash will occur, thereâs some evidence to suggest that market valuations are becoming stretched. But what can be done to prepare for the next big drop? Letâs take a closer look.
Getting jittery
Weâve seen in recent weeks a degree of nervousness among investors about the potential impact of artificial intelligence (AI) on software companies, data providers, and wealth managers. The possibility that cheap AI tools will reduce the scope for these businesses to charge premium prices for their services is clearly playing on peopleâs minds.
Indeed, the Financial Times reported on Wednesday (25 February), that âasset-heavyâ stocks are becoming fashionable again. The rationale is that itâs harder to disrupt these types of businesses.
Taking two FTSE 100 companies an as example, both easyJet and Rightmove currently (27 February) have similar market-caps of over £3bn. But their latest balance sheets disclose net assets of £3.5bn and less than £100m respectively.
I canât see AI disrupting easyJetâs business model that involves flying 355 aircraft on 1,207 routes to 164 different airports in 38 countries. However, Rightmove’s website looks vulnerable to me.
Patience is key
Another lesson of history is that even after the most severe of crashes, the market will eventually recover. It might take a decade or more â as with the Great Depression and the bursting of the dotcom bubble â but taking a long-term view is likely to yield better results than trying to time the market.
What I’m doing
With this in mind, Iâve recently taken a position in Airtel Africa (LSE:AAF). Itâs invested heavily in telecoms infrastructure, which should give it some protection against newcomers.
And itâs 100% exposed to a continent that, according to the World Bank, will see its population grow by 1bn by 2050. This can only be a good thing for the groupâs telecoms and mobile money services.
But Africaâs currencies can be highly volatile and its significant debt pile will become more expensive to service should interest rates rise.
However, on balance, I think Airtel Africaâs the sort of stock that could emerge relatively unscathed from a stock market crash. Itâs the second largest telecoms operator on the continent and itâs active in 14 markets. And since the end of 2020, the groupâs increased its customer numbers by 51%. Itâs also looking to list its money business separately, which could be worth more than $4bn.
A final thought
Of course, a stock market crash could be bad news for many investors. Some may never recover the losses they suffer, especially those that have invested heavily in some pre-revenue US tech startups.
Thatâs why itâs important to hold a diversified portfolio with exposure to different sectors. However, a crash also presents opportunities for those with some spare cash. As billionaire investor Warren Buffett wrote in 1986: “Be fearful when others are greedy, and greedy when others are fearful“.
In other words, it could be a chance to buy some great companies at bargain prices.
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James Beard has positions in Airtel Africa Plc. The Motley Fool UK has recommended Airtel Africa Plc and Rightmove 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.
