Don’t worry, every stock market crash or sharp correction in history has proved to be an opportunity. Here’s where to invest smartly.
Ready or not, a stock market crash is coming. While we will never know exactly when an anomalous sell-off will occur, how long it will last, how steep the decline will be, or (in many cases) what the catalyst will be, history shows that an anomalous collapse and corrections are a normal occurrence. The story is also pretty clear on the general time frame these dips occur, and knowing this, as well as not getting caught unprepared, you should be ready to take advantage of the opportunities.
Indicators say a stock market crash is coming
The S&P 500 Shiller price-to-earnings (P / E) ratio, a measure of inflation-adjusted earnings over the previous 10 years, closed last week at 37.28. For reference, it’s more than double the S&P 500 Shiller P / E average dating back to 1,870.
The concern is that in the previous four cases where the S&P 500’s P / E Shiller ratio exceeded and held 30, the index continued to lose at least 20% not long after. The precedent suggests that valuations like the ones we are seeing now are not well tolerated for long periods of time.
The story also sheds light on how markets typically respond to a market downturn. At no time in the past 60 years has there been a bear market that has not corrected between 10% and 19.9% at least once within three years of bottoming out. We are now more than 14 months away from the March 2020 bottom and have not yet seen a double-digit percentage retracement in the S&P 500 benchmark.
Also, stock market crashes and sharp corrections are the order of the day on Wall Street. Since 1950, we’ve seen 38 double-digit declines, or one every 1.87 years, on average. Wall Street will never accurately track averages, but it does offer a benchmark that declines are normal.
Here’s where to invest $ 10,000 when the next stock market crash occurs
Just because a stock market crash is inevitable doesn’t mean you need to be afraid or divest your money from the market. Conversely, every sharp drop or correction in history has proved to be a tremendous buying opportunity for long-term investors. If you have € 10,000 ready that won’t be needed to cover emergencies or pay bills, that’s more than enough capital to put to good use in these winning stocks when the next crash occurs.
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Although advertising-driven companies typically struggle during times of panic, the social media giant Facebook (NASDAQ: FB) has proven time and again to be the exception. When the next big drop occurs, it would be a brilliant addition to your portfolio.
At the end of March, Facebook’s eponymous site brought in 2.85 billion people on a monthly basis, with another 600 million unique visitors from WhatsApp and Instagram, which it owns. That’s 3.45 billion people, or 44% of the world’s population, who visit at least one of its properties every month. With figures like these, it’s no wonder advertisers are clamoring for placement on the platform and paying sequentially higher prices to do so.
Furthermore, Facebook hasn’t even significantly monetized Messenger or WhatsApp, which are two of the leading social platforms in the world. The company is on track to generate more than $ 100 billion in sales this year, almost all of which came from its namesake site and Instagram. Once Facebook starts monetizing its key assets, the company’s cash flow is expected to expand significantly.
Could it be interesting for you: How to invest in Facebook shares
Innovative Industrial Properties
Do you know what behaves like a packaged good during times of recession and panic? Cannabis. When the next stock market crash occurs, consider investing part of your $ 10,000 in a cannabis-focused real estate investment fund (REIT) Innovative Industrial Properties (NYSE:IIPR).
Put simply, Innovative Industrial Properties, as the company is known, buys marijuana growing and processing facilities with the aim of leasing these assets for very long periods of time (10 to 20 years). At the end of May, IIP owned 72 properties on an area of 6.6 million square feet (in total) in 18 states. All 72 of these properties are leased, with a weighted average duration of 16.8 years. It will take much less than 16.8 years for Innovative Industrial Properties to receive a full refund of the invested capital.
The company is also thriving thanks to its sales and leasing program. Since marijuana is illegal in the United States, not all banks are willing to offer basic stock banking services. To solve this problem, IIP acquires facilities for cash and immediately returns the asset to the seller. This allows marijuana companies to bolster their balance sheets with cash by giving Innovative Industrial Properties a long-term tenant.
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While it may not be the fastest growing opportunity, cybersecurity is arguably the safest double-digit growth trend of this decade. That’s why a stock market crash would be the perfect time to buy or add cybersecurity stocks CrowdStrike Holdings (NASDAQ:CRWD).
What makes CrowdStrike stand out from the crowd is the company’s cloud-native Falcon platform. Built entirely in the cloud and powered by artificial intelligence, Falcon oversees approximately 5 trillion events on a weekly basis. It is becoming smarter at identifying and responding to threats over time and should be able to do so at a lower cost than on-premise security solutions.
The proof is in the pudding that CrowdStrike customers love its services. It has been able to retain 98% of its customers over consecutive years, with 63% of its customers purchasing four or more cloud module subscriptions in the last quarter.
For some contexts, this is up from just 9% who bought four or more cloud subscriptions less than four years ago. Because cloud subscriptions produce exceptionally high margins, CrowdStrike has already met its long-term goal of 75% to 80% + for subscription gross margin.
One last smart way to invest $ 10,000 during a stock market crash is to buy the tech-based real estate company Redfin (NASDAQ: RDFN).
Even though Redfin is benefiting from seemingly perfect real estate market conditions, this is a company that has legs far beyond the current housing boom.
One of the biggest lures for Redfin is the cost savings it can provide to sellers. While traditional real estate companies charge a 3% agent fee, Redfin charges either 1% or 1.5%, depending on how much business a homeowner has made with the company. Considering how quickly house prices are rising, the savings Redfin is providing are amplified over time.
Redfin also stands out for its customization. The company’s RedfinNow service, available in some cities, aims to buy homes from sellers for cash, thereby removing the less desirable parts of the sales process. Additionally, the concierge service charges a fee of up to 2.5% off the sale price to help with outfitting and other upgrades to maximize a home’s sale value.
This personalization likely played a major role in helping Redfin move from managing a 0.44% share of the US existing home sales market in 2015 to 1.14% in the first quarter of 2021.
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