The best ASX shares to buy during a market crash

What are the best ASX 200 shares to buy in a market crash, such as the one we saw in March? The answer might surprise you!

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

They say that more millionaires are minted during share market crashes than at any other time. But why is that the case? Most of us think of share market crashes as times where our personal wealth takes a big (but hopefully temporary) dive, at least on paper. It's a much-dreaded event, to be sure, and one that every ASX investor thinks about quite a lot, I'd wager.

But the reason market crashes can be so lucrative is this very fear itself. See, as value investing legend Benjamin Graham once said, markets are sometimes driven by one of 2 emotions: fear and greed. It's these emotions that cause markets to become temporarily irrational. And in the case of fear, this is what you see during a market crash. Think back to the nasty crash we saw in March.

Did the intrinsic and rational value of S&P/ASX 200 Index (ASX: XJO) companies really fall 36.5% between 20 February and 23 March? I don't think so. And yet that's exactly what the ASX 200 did, which was of course followed by a rapid recovery.

Friends, this temporary divorce from rationality is something we can all exploit. It's why the most millionaires are minted in these times. That's why I think all investors should have a small percentage of their portfolios in cash, so you can take advantage of these situations.

But which shares to buy in a crash? Well, that's a good question.

What are the best ASX shares to buy in a market crash?

You could always simply stick with index funds, like those tracking the ASX 200 for instance. As an example, the iShares Core S&P/ASX 200 (ASX: IOZ) rose around 33% in value between 23 March and 10 June. Not a bad return for 2½ months.

But, after looking at the performance of various ASX shares in March and April, I have concluded that the best area to focus on are cyclical growth shares, in particular, those involved in the tech space.

ASX growth shares are funny things. They tend to outperform the broader share market during bull markets, but underperform during bear markets. That's because, due to their smaller natures, growth shares don't tend to be as financially resilient as larger companies in times of trouble. However, because tech companies tend to have fixed costs that are relatively low, tech shares tend to be able to weather these storms far better than others, say a small mining exploration company.

If we look at the companies that have performed the best since 23 March, the list is dominated by tech. We have Afterpay Ltd (ASX: APT), up more than 1,000% going off today's share prices. Xero Limited (ASX: XRO) is up nearly 100%, Zip Co Ltd (ASX: Z1P) is up 480%, while Sezzle Inc (ASX: SZL) is up a mind-blowing 2,000%.

In fact, the entire S&P/ASX All Technology Index (ASX: XTX) is up 130% since 23 March.

Foolish takeaway

Now I'm not advocating that anyone should start trying to 'time the market' here. However, next time a market crash comes around, I am suggesting that the first ASX shares on your watchlist should be growth shares. Especially those in the tech space. Obviously, if a particular company is being disproportionally affected by the cause of the market crash (eg Webjet Limited (ASX: WEB) in March), it might be better to sit on the sidelines.

I made the mistake of buying some value plays in March, instead of focusing on the companies with the biggest upside potential (first world problems). I won't be making the same mistake again, and I don't think you should either!

Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Xero and ZIPCOLTD FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Sezzle Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on How to invest

A worried woman sits at her computer with her hands clutched at the bottom of her face.
How to invest

What should I do if my ASX stock falls by more than 10% this earnings season?

Selling isn't always the best solution to a big drop.

Read more »

A happy elderly man wearing a red cape smiles as he jumps up like a hero from a massage table.
How to invest

How to keep investing simple (and fun!) with this timeless strategy

There’s a smarter, simpler way to invest that’s caught the attention of beginners and pros alike.

Read more »

Man puts arm around woman and kisses her cheek outside their new home
How to invest

How to build a $100,000 ASX share portfolio from scratch

You may be surprised how quickly you could reach this goal.

Read more »

asx share price fall represented by investor with head in hands
How to invest

Should you sell you ASX shares if you think a stock market crash is coming?

Can we ever predict a market crash?

Read more »

A happy young couple lie on a wooden deck using a skateboard for a pillow.
How to invest

How to build wealth with ASX shares without taking big risks

Many investors believe they need to chase high-risk, speculative ASX shares to grow their wealth quickly. But in reality, most…

Read more »

Happy man holding Australian dollar notes, representing dividends.
How to invest

How $500 a month in ASX shares could become $1 million

It might not be as hard as you think to become a millionaire through the share market.

Read more »

Man pointing an upward line on a bar graph symbolising a rising share price.
How to invest

How to invest when the ASX hits a record high

Worried about buying at today's prices? Here's why you shouldn't be concerned.

Read more »

A man wearing glasses sits back in his desk chair with his hands behind his head staring smiling at his computer screens as the ASX share prices keep rising
How to invest

Lessons from a self-made ASX millionaire

Here's how he did it.

Read more »