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There’s an old phrase I always associate with stock market crash predictions: “Even a broken clock is right twice a day“.
In other words, those bears prophesying an impending crash are going to be proved right one day. And then some people will see them as wise investing sages, even if they wrongly predicted a crash many times previously.
Risks galore
That said, I do see a handful of risks swirling around today. One is a protracted war in Iran, with Yemen’s Tehran-backed Houthis recently saying they’ll impose a naval blockade on Saudi Arabia. So the conflict could spread.
In the coming months, this could potentially hit companies and the stock market in a few ways:
- More supply chain disruption.
- Higher fuel prices.
- Higher food prices (fertiliser, etc).
- Weaker consumer spending.
- Corporate margin compression.
- Higher-for-longer interest rates.
- Potential global recession.
Adding fuel to the fire, the US stock market is already highly valued. In theory then, it has further to fall if things come unstuck.
Third, we have trillions yet to be spent on the historic AI infrastructure buildout. But the AI revolution is like an unprecedented experiment happening in real time (an autonomous AI agent from OpenAI recently went rogue and hacked a website).
Also, will AI start leading to mass layoffs? This is a medium-term risk not priced into the stock market.
Finally, there’s also a long history of market bubbles forming around revolutionary new technologies (railroads, the internet, etc). Another one can’t be ruled out.
That thing to do?
Nevertheless, the thing to consider doing during a crash is going against the crowd and buying high-quality stocks. Those that have sold off. History repeatedly shows this to be a smart move.
Indeed, investing legend Warren Buffett summarised this perfectly in his famous quote: “Be fearful when others are greedy, and greedy when others are fearful“.
It’s a fact that the best times to invest in solid businesses are when blind panic causes share prices to tumble. But it’s usually only possible to realise this in hindsight when the dust has settled.
FTSE 100 outperformer
Obviously, most investors don’t have a mountain of cash to invest like Buffett’s Berkshire Hathaway. Therefore, I think it would make sense to consider an ETF or investment trust to get exposure to a basket of different shares.
One I like is Polar Capital Technology Trust (LSE:PCT). As can probably be guessed, this FTSE 100 fund focuses on technology stocks, with large holdings in Alphabet, TSMC, Micron, and ASML.
The trust’s managers are experts in spotting technology trends, which has translated into a market-crushing 185% share price surge over the past three years.
The fact that the portfolio is heavily concentrated in one sector and geography (North America) adds risk. But were it to bomb during a market crash, I think it would be worth considering for the long term.
After all, we’re still early in the AI revolution, as Polar Capital Technology Trust points out: “Three-and-a-half years after ChatGPT launched, it is tempting to assume the AI cycle is well advanced. We believe the opposite. In our view, 2026 looks less like the middle of the cycle than its beginning“.
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Ben McPoland owns shares in TSMC.
This story originally appeared on Motley Fool
