The recent stock market crash has been devastating, especially to growth investors. In recent weeks, the FTSE 100 has shed nearly 10% of its value. And across the pond, the S&P 500 hasn’t fared better, with a near 15% decline since the start of 2022.
But as unpleasant as it is to watch my portfolio suffer, I’m not worried. Why? Because I’m following a tried and tested strategy that, over the long-term, transforms these periods of increased volatility into potential gold mines. Let’s explore.
The key to beating a stock market crash
Buying shares is not a risk-free endeavour. Even some of the most mature businesses considered ‘safe’ can be vulnerable to external factors. Investors in travel stocks know this all too well after the pandemic decimated even the strongest firms in this industry.
But if I thoroughly research a business before buying any shares, finding weaknesses is pretty straightforward. And this is the strategy to beat a stock market crash. By knowing the weak points of the companies in my portfolio, I can make smarter decisions when a downturn inevitably rears its ugly head.
The current situation is undoubtedly being fuelled by multiple factors. But the three biggest ones that I can see are inflation, rising interest rates, and the tragic geopolitical crisis in Ukraine. The latter took many investors by surprise. So, I’m not shocked to see the knee jerk reaction of a market-wide sell-off.
But while the world panics, the trick is to remain calm. Looking at the companies in my portfolio, despite several suffering pretty impressive drops, none appear to be directly affected by the catalysts of the ongoing stock market crash. And that’s a buying opportunity in my opinion. Let’s take a look at an example.
Buying when others are selling
One stock from my portfolio that recently got caught in the crossfire is Anglo Pacific Group (LSE:APF). I’ve explored this business before. But as a quick summary, this is a royalties company. It provides mining firms like Rio Tinto and BHP the necessary funding to establish drilling sites in exchange for a portion of the materials dug up from the ground throughout the life of the mine.
The stock market crash intensified when the Russian invasion began, and shares tumbled as much as 10% within a few days. But here’s the thing. Anglo Pacific doesn’t have any operations in Eastern Europe. What about rising interest rates and inflation?
There’s currently around $124m (£94m) of debt on the balance sheet that’s getting more expensive because of higher interest charges. However, with substantial cash flows, Anglo Pacific should have no trouble paying a higher rate. Meanwhile, inflation is actually pushing up commodity prices, which is beneficial to the group’s bottom line.
In other words, the main factors pushing the market down are either irrelevant or beneficial to this business. So, when the stock started tumbling, that looked like a buying opportunity in my eyes. And it seems others agree because the shares have since surged 18% despite no official announcements from management.
The bottom line
Finding buying opportunities in high-quality businesses that are seemingly unaffected by the catalysts behind a stock market crash is the best way to beat it, in my opinion. And while it does involve taking risks, the potential returns for my portfolio are well worth it.