Famous investor Michael Burry has announced that he’s expecting a stock market crash. Burry’s idea is that high inflation and rising interest rates will weigh on corporate earnings, causing share prices to fall.
I don’t know whether Burry is right or not. But he’s a thoughtful and intelligent operator, so when he makes a case for a dramatic market movement, I take notice.
As a result, I’m making plans for a stock market crash. This involves identifying the shares that I’d like to buy for my portfolio if the stock market drops suddenly.
New opportunities
The first thing I’d do in a stock market crash is use the opportunity to buy shares in great businesses that I don’t currently have investments in. There are two that have been catching my eye lately.
The first is Halma and the second is Diploma. In my view, these are two of the highest-quality UK stocks.
Both Halma and Diploma are conglomerates made up of smaller businesses. Those businesses focus on specialist niche markets.
In Halma’s case, these are businesses involved in life-saving technologies. This includes fire detection, medical equipment, and environmental safety.
Unlike Halma, Diploma’s businesses focus on distribution, rather than manufacturing. Seals, life sciences, and controls are the sectors that Diploma’s businesses focus on.
Focusing on niche markets gives both Halma and Diploma a degree of protection from competitors and allows them to produce plenty of cash for investors. The downside is that growth opportunities can be limited.
In a stock market crash, though, I think that the price might fall far enough to offset the risk of the limited growth. As a result, I’d buy both Halma and Diploma in a stock market crash.
Existing positions
A stock market crash might also give me an opportunity to add to existing investments. I own three UK stocks that I’d look to buy more shares of if prices suddenly drop.
The first stock I’d like to increase my investment in is Experian. The company’s huge database is difficult to replicate and its report is essential for US mortgage applications.
I’d also like to invest more in Games Workshop. Strong intellectual property rights protect the company’s core business and allow it to generate huge profits for a company of its size.
Lastly, I’d like to own more Rightmove shares. The UK’s leading property platform has very low costs and its size gives it an advantage over its competitors.
At the moment, each of these stocks is risky. They all trade at prices that I think are too optimistic about the prospects for the underlying businesses.
That’s why these are the stocks that I’d look to buy in a stock market crash, rather than at today’s prices. I’ve owned the shares for a while and I’m prepared to be patient in waiting for the right opportunity.