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With many global stocks trading at historically high multiples and speculation about the existence of an artificial intelligence (AI) bubble, some believe equity markets are over-heating.
For many investors, a crash would be bad news. However, for others, it could be an opportunity to dramatically improve their long-term wealth.
Panic!
Full of human frailties, investors are no different to the population at large. A stock market crash is often triggered by an irrational reaction to an individual event, resulting in a strong desire to escape the chaos by selling shares.
Eventually, a feeling of calm will return and, although it might take a while, a recovery will get underway. That’s what history tells us, anyway. This can be seen from the chart below which tracks the performance of the UK stock market following five famous crashes.
And for those with a bit of spare cash, an over-reaction brings about an opportunity to go shopping for bargains. That’s why I think it’s always a good idea to maintain a watchlist of shares.
A look back in time
For example, those who were keeping an eye on Scottish Mortgage Investment Trust (LSE:SMT) — and bought the stock after the bursting of the dot com bubble — have been handsomely rewarded.
From March 2000 to October 2022, the trust’s share price fell 46%. Just over three years later, it had recovered all of its losses. Today (13 February), the shares are changing hands for around 22 times more than their 2022 low.
Of course, it’s impossible to time the market as precisely as this. But it does show the potential benefits of taking a long-term view.
History repeating itself
And if, as some predict, there’s an artificial intelligence (AI) meltdown, it’s likely to suffer more than most. That’s because it invests in high-growth stocks, predominantly in the tech sector. But it has a good track record. From 2016-2025, its share price increased 351%, comfortably beating the performance of the FTSE All-Share index.
One concern that’s been expressed is the trust’s heavy exposure to private companies (35.1% of assets at 31 December 2025). This creates two potential problems. Firstly, it’s difficult to accurately value these shares. Secondly, it’s hard to quickly turn these shareholdings into cash, which could be a problem if there’s an urgent need for liquidity.
Having said that, the group’s most valuable holding is SpaceX. It seems likely that Elon Musk’s group will IPO in the summer. If it does, SMT could be a major winner.
Final thought
For more risk-averse investors who would like to get a piece of the AI action, I think the stock’s worth considering. With around 100 positions, it has a well-diversified portfolio, although the tech bias means it’s vulnerable to a market meltdown. If you think a stock market crash is coming and are tempted to take a position, I would start saving now, ready to consider making a move should the worst happen.
If you have a more positive mindset, it could still be a stock to consider now. Nobody knows for sure how AI will affect our lives, other than it will. By investing in a wide cross-section of the sector, Scottish Mortgage Investment Trust’s covering all bases. It only takes a few of these to succeed for shareholders to enjoy some impressive gains.
