Additionally, a range of stocks continue to trade at very modest valuations. Industries that have been hit hardest by the pandemic, or that have not been the obvious beneficiaries of a shift towards online growth and sustainability trends, could see recoveries in the months to come.
As a result, it is impossible to predict with any degree of certainty whether the stock market will collapse, soar, or stand still next year or any year. Instead, focusing on buying stocks when opportunities arise, rather than trying to guess if the current bull market will hold up for another day, might be a more efficient use of investor time.
In Questor’s opinion, such buying opportunities are much more likely to occur during a stock market crash. More high quality companies could be undervalued as stock prices fall rapidly. More importantly, companies’ stock prices can deviate significantly from their underlying value under extreme market conditions.
This can be a range of excellent buying opportunities that allow investors to realize the first part of a long term âbuy low, sell highâ strategy.
Clearly, a decline in the stock market in 2022 could create significant paper losses that would confuse investors when they return home for Christmas. However, a large portion of investors are likely to be net buyers of stocks in the coming year.
Even retirees for whom a portfolio of stocks provides regular income may find that they buy more stocks than they sell due to the lack of opportunities in other asset classes and their partial reinvestment of dividend income.
Therefore, a stock market crash next year could be of great benefit to a large part of long-term investors.
Obviously, many investors will instinctively think, âAll I want for Christmas is a continuation of the current bull market. However, for net buyers at least, there may only be one thing they need. A stock market crash could offer stronger and more abundant buying opportunities that will ultimately allow it to make long-term profits.
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