3 charts every investor needs to see before the next stock market crash
Stock market crashes are inevitable. And itâs basically impossible to predict when the next one is coming.
The best thing to do is to be prepared. And the latest Guide to the Markets from JP Morgan has some useful advice for doing this.
Staying the course
The way to lose money in a stock market crash is to sell when prices are low. It sounds obvious, but itâs more common than you might think.
Source: JP Morgan Guide to the Markets UK Q2 2026
Downturns in the stock market typically coincide with heavy selling from funds. So just avoiding this is actually a big advantage.
Selling during a downturn doesnât just realise losses. It also leads to missing out on subsequent returns.
Source: JP Morgan Guide to the Markets UK Q2 2026
While one-year returns vary, the long-term picture is clear. Lower valuations â such as during a crash â lead to higher returns.
Investors shouldnât take the prospect of a crash lightly. But despite the volatility, stocks do tend to outperform over time.
Source: JP Morgan Guide to the Markets UK Q2 2026
Selling in a crash feels like the natural thing to do. From a long-term perspective, though, holding cash hasnât been a winning strategy.
Antifragility
I think the case against selling in crash is clear. But investors need to make sure theyâre ready to deal with one when it comes.
This involves thinking about portfolio construction. And one idea is to include shares in companies that are antifragile.
That means they get stronger when things get tough. In the context of geopolitical shocks, defence stocks can fit the bill. The obvious name frome the FTSE 100 is BAE Systems. Demand for the firmâs products tend to be higher in times of conflict.
The downside is that growth prospects can be limited in normal times. Between 2016 and 2022, the firmâs revenues grew 3% a year.
There is, however, another name that I think is worth considering. Itâs much smaller, but that doesnât make it any less interesting.
Small-cap defence
Cohort (LSE:CHRT) is a supplier of defence systems. It doesnât make planes or submarines, but it makes the tech that goes into them.
The company is much smaller than BAE Systems. And that means thereâs a risk of losing key personnel to more lucrative posts elsewhere.
Despite this, the stock is up 39% since the start of the year. But its growth prospects donât just depend on conflicts lasting longer than people might hope.
Cohort looks to use acquisitions to boost its growth. This can be risky, but it has a good reputation for doing this well. New subsidiaries benefit from the firmâs financial backing. But a decentralised approach allows them to operate autonomously.
Thatâs a business model I like a lot. And thatâs why Iâm keeping it on my radar for when the geopolitical situation becomes a bit more stable.
Investing success
The best investors donât succeed by getting out of the way of stock market crashes. They do well by going through them.
Most of all that means avoiding selling when prices are low. Itâs not just the cost of realising losses that makes this important. The missed future returns are also huge. And this means investors can get a huge advantage just by staying the course.
The post 3 charts every investor needs to see before the next stock market crash appeared first on The Motley Fool UK.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended BAE Systems and Cohort 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.
