The S&P/ASX 200 Index (ASX: XJO) has hit yet another new all-time high this July. Just last week, the US markets followed suit, with the flagship US S&P 500 Index reaching a new record. Are these harbingers of an incoming stock market crash? And if so, should investors be selling out of their ASX shares before it happens?
Most stock market crashes seem to occur following periods of strong optimism. There are currently signs that the US economy is slowing, thanks to the heavy tariffs that the current administration is imposing. But even so, I think investors who may be considering selling their ASX shares today in anticipation of a crash have their eyes on the wrong ball.
It might be tempting to think that trying to time the market's swings is a good idea. After all, the media and popular culture constantly tell us that successful investing rests on the idea of 'buying low, selling high'.
However, that view is woefully misguided, at least in my opinion. No one, not you, me, nor Warren Buffett, knows what the markets might do at any given point in the future.
That's not to say that timing the market can't work. It certainly can. But this almost always comes down to luck, not accurate foresight or some other skill. As such, it rarely works consistently. And certainly not consistently enough to make it a reliable strategy. More often than not, buying in the expectation of market-wide booms or busts usually results in permanent capital losses.
Worried about a stock market crash? Focus on the ASX shares instead
So no, I do not believe any ASX investors should be considering selling their shares today just because they think that there might be a stock market crash coming.
Instead, investors should examine each of the individual ASX shares in their portfolios and analyse whether the current valuation makes sense in today's environment.
To illustrate, earlier today, I wrote about how I still believe the Commonwealth Bank of Australia (ASX: CBA) share price is overvalued. If an investor reaches that same conclusion, they might want to think about selling. Not because there is a crash coming, but because CBA's projected profits going forward don't indicate that today's share price represents good value.
Conversely, I think other ASX shares, such as MFF Capital Investments Ltd (ASX: MFF) or Endeavour Group Ltd (ASX: EDV), look relatively cheap today and might represent a buying opportunity. Again, that's not due to any views I have regarding whether the entire stock market is heading for even more record highs, but because the fundamentals of these businesses look healthy relative to the valuations they are trading at.
Investors should never base decisions on what they think might happen to the entire market. A better approach is to focus on the trees, not the forest.
