So far, November has been a great month for ASX shares and our share market, despite the mild selling pressure we have seen over the past two days. Over the eleventh month of 2023 so far, the S&P/ASX 200 Index (ASX: XJO) remains up a rosy 3.9%.
But let's think about the unthinkable for a moment – what happens if there is a stock market crash next week?
Now, of course, a stock market crash on Monday would be highly improbable. For that to happen, the markets would need to plunge by almost 20% – the official threshold for a market crash. We would have to see something akin to the 1987 Black Monday market crash for that to happen.
Nothing is impossible in the share market. However, barring some sort of global catastrophe, that's about as close as you can get, in my view.
But let's, for argument's sake, assume that a market crash indeed happens next Monday. What would I do?
Two things I would do if the markets crash next week
Sell US dollars
I have many shares in my portfolio that are housed in the US markets. Because many of these shares pay dividends, I typically have a stash of US dollars in my brokerage account. Normally, I like to keep it that way, as it adds a little diversity to my overall wealth.
But if the market crashed on Monday, I would probably sell some. Why? Well, because the US dollar has historically gained a lot of value relative to other currencies during market crashes, recessions and other times of panic.
The US dollar is seen as a safe haven in the global financial system. Conversely, the Australian dollar is often viewed as a 'risk-on' currency, thanks to the large presence of mining exports in our economic output. Not to mention our economic dependence on China.
As such, we usually see a big drop in the Australian dollar/US dollar exchange rate during a stock market crash. When this occurs, it makes US dollars far more valuable in Australian dollar terms. So I would probably convert some US dollars back to the local currency in order to increase my financial firepower. And that brings us to my next potential move…
Buy up my favourite ASX shares
Many investors react to a market crash by selling their shares out of fear. But legendary investor Warren Buffett tells us that we should be doing the exact opposite by being "greedy when others are fearful". As such, I'll be spending whatever capital I have at my disposal to pick up shares of my favourite ASX companies for the bargain basement prices that a market crash will probably offer up.
Some of the best ASX shares usually only see big drops in their value during times of total investor panic. So I'd be keeping a close eye on the likes of Washington H. Soul Pattinson and Co Ltd (ASX: SOL), Cochlear Limited (ASX: COH), Brickworks Ltd (ASX: BKW) and Wesfarmers Ltd (ASX: WES) for some compelling buying opportunities.
