If the S&P/ASX 200 (Index: ^AXJO)(ASX: XJO) crashes, I'll be standing in line waiting for shares of ARB Corporation Limited (ASX: ARB) and Macquarie Group Ltd (ASX: MQG).
What ASX 200 crash?
I'll be the first to admit that I have no idea when the Australian share market, or ASX 200, will crash. It could be tomorrow, today, this year or next. But it will happen.
Reserved to the fact that the heavens have not blessed me with a crystal ball, I prepare for a market crash the best way I can.
One of the ways I prepare for a market crash is by refusing to pay a high price for a company's shares. To do that, I try my best to understand the value of a company. After all, there is a difference between price and value.
Most of the time, ASX blue chip shares will trade at a price slightly above or below what they are worth — that's one of the share market's 'laws' (read: assumptions), according to academics.
But, when market's crash, babies often get thrown out with the bathwater. And the price of shares deviates significantly from their value.
Two ASX shares (read: babies) that I believe will get thrown out with the bathwater (ASX 200) are ARB Corporation and Macquarie.
At today's prices, shares of ARB, Australia's leading bullbar manufacturer and 4×4 accessories company, are expensive. At its core, ARB sells a very expensive discretionary product (chances are, you don't 'need' an ARB bullbar). That means, when a recession hits, ARB's sales and profits could fall – and investors will panic sell.
At that moment, I'll be waiting to buy shares in a quality company for the long term.
Macquarie is another similar but different example. As a bank, most of its products are cyclical. And investors' emotions are, too. However, Macquarie is a quality bank — probably Australia's best. Therefore, if its shares fall meaningfully below their intrinsic value or 'worth', I'll be ready to buy in.
Foolish Takeaway
In my opinion, good investors only ever concern themselves with very high-quality businesses. The best investors do that, but they'll also use their valuation skills and temperament (patience) to their advantage.
