A market crash could be on the way, and one expert thinks the time to prepare is now.
“Jeremy Grantham has made a science of studying asset bubbles, correctly predicting the path of the Japanese, dot-com and housing overvaluations,” reported Advisor Perspectives. “Today’s bubble in U.S. equities is unlike any other, he says, but it will burst in months, if not weeks.”
Is it time to take cover? If so, what must you do to prepare?
The market never sees a crash coming
When markets are rising, no one likes a naysayer. Long known as a perma-bear, Grantham has correctly predict several sizable asset crashes. But that doesn’t mean people are listening this time.
To be fair, it’s incredibly difficult to buck market sentiment, especially during periods of euphoria.
“They’re leaping around with great energy, comparing notes,” Grantham said, describing money managers during an upswing. “They simply can’t stand that one or two of their rivals are playing the game and making a lot of money and making them look bad.”
In Grantham’s case, there’s a reason why people ignore his calls for an impending crash: he’s often years too early. As early as 2018, for example, he began warning others about frothy valuations. Nearly three years later, stocks are setting record highs.
To be fair, Grantham concedes that asset price usually swell dramatically even after a bubble is identified.
“The market, instead of going down, not only goes up, but goes up at a faster rate than normal,” he explained. “You’re going to feel dreadful.”
If timing is always uncertain, how do when know when the next crash will occur?
Here’s what to look for
Do you want to know when the next crash is coming? Watch for stories, not just valuations.
“The stories are more important than the price,” Grantham stressed. “Be prepared for the fact that the market can break your heart on the upside.”
With stock markets roaring, you’d expect leveraged bets to rise even faster. That’s not the case. RBC stock is up just 1% this year, lagging the market overall. If a crash is on the way, bank stocks will be the first to be hit, and it seems like the market is valuing shares with that risk in mind.
This year, Shopify stock is up 177%. Shares even outperformed during the dramatic crash when the pandemic first set in.
“The traditional retail model is dying. It’ll take years for this story to play out,” I recently explained. “Meanwhile, e-commerce sales still represent a small fraction of total consumer spending. It may be hard to believe, but this $100 billion company could triple in size several times over the next decade.”
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Shopify and Shopify. Fool contributor Ryan Vanzo has no position in any stocks mentioned.