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With the FTSE 100 closing in on a new all-time high already this week, the last thing on some people’s minds may be the prospect of a stock market crash.
But when investing, it pays to be prepared. I have no more idea than anyone else when the stock market will next crash. Sooner or later, though, it will happen – and I want to be prepared.
That is because, although it is easy to focus on the doom and gloom of a crash, it can also offer smart investors brilliant opportunities. But that window of opportunity can be a short one, so I think being ready ahead of time is the name of the game.
Focusing on finding outstanding companies
In practical terms, that means spending time now to look for what I think are great businesses even if their share prices are not currently attractive to me.
That way, I can add them to my watchlist in case a future stock market crash makes them available to me at a price I think looks good.
Yesterday (9 June), for example, saw the Spectris share price soar 70% within a day at one point, following a takeover offer.
While instrument maker Spectris is not currently on my watchlist, it made me think of a company that is: rival Judges Scientific (LSE: JDG).
Judges makes my wishlist because it is a well-run business I think has a sustainable competitive advantage (a string of annual dividend increases of 10% or more does not hurt either, but before I consider dividends I always look at the underlying business).
Its focus on scientific instruments gives it an ongoing source of potential business. As precision matters for such users, they are willing to pay for quality. That gives Judges pricing power.
By taking over small and medium-size competitors at an attractive price (for example, when the company founder retires and wants to sell the business), Judges has been able to build a sizeable operation without spending vast sums of cash.
There are risks. The Spectris deal is a reminder that Judges is not the only company with money to spend and interested in buying up instrument manufacturers. If that pushes up selling prices, it could be hard for Judges to keep growing in the way it has done so far.
Waiting for the right moment
But I do like the Judges business – a lot.
What I like far less, however, is the current share price for Judges. The current price-to-earnings ratio of 51 is far too high for my comfort.
So, I have added the firm to my watchlist of shares that I would like to own if I had an opportunity to buy them at what I see as an attractive price.
The next time the stock market enters one of its periodic sharp downturns, I will immediately get that list out as I see whether I have a rare and potentially very lucrative buying opportunity!
