The Inevitable Stock Market Crash And How To Avoid it

Jace Goudreau, Contributor

The stock market has been on a crazy rally since the crash caused by the pandemic. It began in late March 2020 after the insane pandemic sell off, and has not seemed to slow down at all. Even before the pandemic sell off the stock market was at all time highs and seeming to hold pretty well. With all the hype behind the stock market and retail investing rapidly growing, why would it ever slow down? There are a few reasons why another crash may be approaching and the pandemic is to blame once again.

Jerome Powell and the Federal Reserve have been printing money through monetary policies such as decreasing interest rates as well as quantitative easing since the start of the pandemic. It is only a matter of time until interest rates begin to rise and the market starts to correct itself. Whether this is in a month or a year, the market will more than likely crash when rates increase. Sadly, the bull market will get hit the hardest as there will no longer be a safety net for them to fall on. Therefore you can expect many spec plays and innovative companies to fall like no other.

On the bright side, there is still light at the other end of the tunnel. There has been a warning issued by the CEO of ARK Investment Management and 2020’s “best stock picker” as named by Bloomberg News, Cathie Wood. She claims that the “innovative market will likely be hit the hardest and that this is next to certain.” That being said, this will offer an amazing opportunity for people to buy back in at an extreme discount, and the potential buying frenzy that would take over could be similar to what we saw following the pandemic crash. 

innovative market will likely be hit the hardest and that this is next to certain

— Cathie Wood

If you know who Cathie Wood is, you know to never doubt her. She has not been wrong many times. In fact, she was never wrong through all of 2020, one of the hardest years to predict the market. What is difficult about this situation is that it may take place at any time. There is no real indication as to when this crash will happen. All we know is that it is inevitable. Cathie has laid out her plan to avoid the correction as much as possible and maintain a positive trajectory through what may be the biggest crash in history.

Cathie’s plan involves selling off select high growth stocks and purchasing what she calls “deep value” stocks. Deep value stocks are stocks that are currently undervalued and have the potential for future growth. The idea here is that these deep-value companies won’t be affected by the crash nearly as much as the bull market will. Once the crash dies down, Cathie and ARK will sell off their deep value stocks and buy back into their high growth stocks. Hoping to avoid the correction as much as possible. If you monitor ARK Invest’s day to day you can see that they are already buying into these deep value stocks. I believe this to be an indication that the crash is coming up sooner than we expect.

Respected analyst and host of Mad Money on CNBC, Jim Cramer, had a lot to say regarding Cathie’s plan. Cramer was not a fan of Cathie’s deep value ideology at all. He believes ARK should pull their funds off the market altogether and just wait out the correction. He claims that there should be a focus on performance right now, not the deployment of capital in hopes you can avoid what is to come. If she were to pull the funds in their entirety, they would avoid any potential losses altogether. There would also be no potential upside. Cramer believes taking the safe route in this situation is what everyone should do in order to maximize buying power at the end of the crash.