The markets could crash again
Given the recent risky market behaviour, I think that investors should start to hear Mr. Grantham’s concerns. The fact is, there are still significant risks that are likely to solve the markets.
There are risks surrounding a peak in COVID-19, U.S./China trade tensions, massive unemployment, and especially, the UNITED states of the upcoming election. With all of this, it is not unreasonable that the S&P/TSX Index might take a backseat again in the course of this year.
Here are a few tips that can help you position your investment portfolio both defensively and offensively for the next stock market crash.
Increase your cash stash
First of all, the investors can hold a little extra money than normal. The equity markets just seem to be expensive, considering the circumstances. Therefore, if you believe that the TSX could be detrimental, then maybe it is time to build your cash stash. Personally, I am increasing my cash between 10% to 15% of my portfolio.
If you need the money, then maybe take a little profit from your big March market crash winners. Stocks, as Shopify, Real Questions, Doceboand Kinaxis all have +70% gains for the year and over 100% gains since the month of March. Although each of these are very good companies, they all trade at very high valuations. Taking a quarter or a third of the position of the table could be a way to increase your cash flow.
Increase your weight in the security
Secondly, if you are concerned about another crash in the stock market, and then grow your portfolio weighting, low beta dividend stocks. These actions and their payments can be a good way to earn safe returns through the volatility of the market.
A solid stock to hold in a market crash is Algonquin Power. It is a very safe place to invest your money. It is a regulated utility and renewable energy operator, which is a constant growth in its cash flows by 9% to 11% per year. Now, it pays a well-covered 4.6 percent dividend. This stock gives you the defence and the offence, irrespective of any of the market risks mentioned above.
Prepare your market-crash plan
Finally, now is the time to prepare for the next stock market crash. If you are looking to take advantage of the future of the market fear, and then start drawing up your shopping list now. Look for companies that have significant growth tailwinds, strong balance sheets, and the ability to grow, even through the pandemic.
Some of the titles that I have on my market collapse in the buy list include Enghouse Systems, Richards Packagingand Viemed Health Care. Although I love these companies today, I would be happy to add to my position at better prices or yields.
Stick to the plan and to take advantage of the chaos
In the end, the best way to avoid emotional and irrational investment decisions is to have your investment plan ready before the stock markets turn ugly. When the stock market does crash, remember to think long-term. Your portfolio could very well turn red, but remember to stick to the plan and don’t forget the elements of the business (not stock), so that you invest in the first place.
By being prepared for the collapse of the stock market, investors are better equipped to maintain their mental health and still shoot in the middle of the chaos of the market.
Fool contributor Robin Brown owns shares of Algonquin Power & Utilities., RICHARDS PACKAGING INCOME FUND, and Viemed Health care Inc. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of, and recommends Shopify, and Viemed Health care Inc. The Motley Fool recommends Enghouse Systems Ltd., KINAXIS INC., and RICHARDS PACKAGING INCOME FUND.