Stock market crashes can be scary for investors. No one wants to see a quarter (or more) of the value of their ASX shares wiped off rapidly.
Although bear markets are tough, they can also be opportunities to invest. Legendary investor Warren Buffett said:
If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period?
Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall.
Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.
But, what if we could find some investments that may be more resilient during times of economic uncertainty?
There's no certainty that a defensive business would fall less, but if its profit generation is resilient, then perhaps the share price will be more sturdy as well.
A few businesses could see higher profits, such as share trading platforms, which often see more trading during periods of volatility. But, there aren't any sizeable players where we can get large exposure on the ASX.
Hence, here are three ASX shares that I believe could help hedge against a stock market crash.
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Woolworths Group Ltd (ASX: WOW)
Everyone needs to eat, that doesn't change during a downturn or during a pandemic. The supermarket company has shown impressive and resilient defensive earnings during the last three years.
The Woolworths share price does go up and down, but I think it has demonstrated stronger resilience (and fallen less) during both the GFC and COVID-19 compared to the S&P/ASX 200 Index (ASX: XJO).
Over time, its sales volume can keep rising as Australia's population increases. It's also working on diversifying its earnings, such as the recent acquisition of a controlling stake in the business that owns PETstock.
In FY23, Woolworths' sales grew 5.7%, while net profit after tax (NPAT) before 'significant items' increased 13.7% to $1.7 billion.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Soul Pattinson is an investment house that is invested in a variety of different sectors including telecommunications, resources, agriculture, swimming schools and so on. It has designed the portfolio with a long-term view, with a focus toward "robust, defensible business models and uncorrelated asset classes."
The company said that volatile markets "will favour profitable assets with robust cash flows."
In the 20 years to 31 January 2023, the All Ordinaries Accumulation Index (ASX: XAOA) had a negative return in one-third of the months. During those down months, the Soul Pattinson share price outperformed the market by an average of 2% per month.
Of course, there's no guarantee in future down months it will continue its outperformance.
Telstra Group Ltd (ASX: TLS)
Telstra is the largest ASX telco share in Australia, with an impressive market share of mobile subscribers.
I believe that most households and businesses would continue to pay for their connection to the internet over most other expenses. People use it for a variety of things like work, education, entertainment, connecting with others and so on.
Its consistent profit may mean that it's able to handle future stock market crashes fairly well. It's also benefiting from Australia's growing population. In FY23, the business delivered net profit growth of 13.1% to $2.1 billion.
