 Good day fellow investors! A few days ago I made a video about what can happen and what can trigger a stock market crash. However, the interesting thing is that all the things that I said have been true 3-5 years ago. Nothing really changed in that period of time and we haven't seen a stock market crash. This means that perhaps the stock market will continue rising for the next 5-10 years. Nobody can know that. Therefore, as it is impossible to time the market, the only smart thing an intelligent investor can do is to prepare for a stock market crash. So, whether it happens or no, you are good. You do well. That's the most important thing. So, in this video I will discuss five ways how to prepare your portfolio for a stock market crash. Number one, buy defensive stocks. You know, the market is expensive. You think stocks are overvalued and then you think, okay, let me position myself into defensive stocks so that if there is a crash, I stay protected. That might be a strategy. However, also defensive stocks, they fare a little bit better in a crash, but not that good. If we take a look at Johnson & Johnson, Fitzer and the SAP 500 from August 2008 to November 2010, we can see that the two pharmaceutical stocks did crash a little bit less, 30-30 something percent in comparison to the 40-something percent of the SAP 500 from August 2008 till March 2009. However, by November 2010, the SAP 500 had already outperformed both defensive stocks. So, going into defensive stocks might make you sleep a little bit better. However, over the last eight years, there has been so much index institutional buying, passive investment vehicles, ETFs, so that in case of a crash and the panic selling, as the buying pushed up the stock market, panic selling could push down the stock market. So, all the stocks, especially the defensive stocks that are widely held, would really go down. So, there is not much protection there. However, as I mentioned in my book value video, if you buy book value, and there you have to be careful to buy tangible book value, real book value. One is the book value on a balance sheet, and something completely different is the real book value. Because if a building was bought 20-30 years ago, not revalued, the book value is much, much higher now than what is on the books. Similarly, there are plenty of companies that need a lot of takeovers, a lot of goodwill, and that goodwill usually is impaired in a crash, and makes the company look even worse. So, if you want book value protection, really be careful at what companies you are selecting, and if the book value of the company is real. Nevertheless, if you can choose between two stocks, one with strong book value, one with little book value, I would always choose the one with strong book value, if all the other parameters are equal. However, let's see what the SAP 500 offers as book value protection. Price to book value and goodwill as a percentage of assets. Apple, price to book value 6.63, no goodwill. Microsoft 7.2, Amazon 22 price to book value, Facebook 7.42 price to book value, of that 31% is goodwill, mostly coming from the WhatsApp acquisition. Johnson and Johnson, not so defensive here, 5 is the price to book value and 34% is goodwill. Berkshire, 20% goodwill, however, the price to book value is very, very low, 1.47. JP Morgan, 1.48, however, the question mark is always, what are the financial assets creating that book value? Will they crash and fall alongside the stock market crash or not? ExxonMobil, 1.88 price to book value, however, they have never impaired their oil investments, even as oil fell from 100 and above to the current price. So, there is again the question if they can sell what they own for the price on their balance sheet. So, always look beyond what is calculated as the book value. Nevertheless, on the aggregate, the book values, price to book values, as an investment indicator, look really terrible in this bunch of stocks. These stocks make 20% of the SAP 500, so really not defensive and the SAP 500 is also really not defensive. So, we have really to look elsewhere than the top SAP 500 companies to find companies that have strong book values, are able to transfer prices to customers in case of inflation, and will perform equally in a recession, no matter what happens, the companies that do good. Sounds impossible. One company that we discussed yesterday in our free stocks to watch for December is the Andersons. That is in the business of grain and has much, much better fundamentals than all the other companies we discussed in the top 10 SAP 500. So, take a look also at that video. Now, cash. Cash has always an opportunity cost. You can have a lot of cash, but if stocks go up, you will lose on the upside trajectory. So, it is now a question more of where you are in your life. If you are 20, 30, you can risk, you practically don't have that much cash. If you have to retire in five years, in 10 years, then I would go not so much into cash, but mostly into Treasury Inflation Protected Securities, because if you own cash and there is inflation, that cash loses value. However, if retirement is closed, you cannot risk your retirement on the stock market, especially at these levels. So, really think about how much cash you should own now in relation to your age and your financial position and the relation between your financial position and your life and what would happen in a stock market crash and how would that affect your life. So, the cash question is really personal. It is a matter of personal finance. Number three, gold hedges. As I always say, each portfolio has to have a gold hedge, because gold is fixed, offered protection from whatever happens. And now the question is how to hedge a portfolio with gold. If you own physical gold, then you need to own a lot of it to be protected and the risk is high. Therefore, I always prefer to own gold miners. For example, if gold prices double and the SAP 500 crashes 50%, you need to own 50% gold in your portfolio and 50% stocks. And that's too much exposure to gold. On the other hand, if gold prices drop 50%, you lose 25% of your portfolio in order to protect yourself. So, that's a little bit too risky as a hedge. Therefore, I always prefer gold miners because if gold prices double, gold miners, they have their costs relatively fixed with profit taxes, of course. And those stocks, gold mining stocks, really explode when gold prices go up. They also fall significantly when gold prices go down. But if you invest 10% in gold miners, gold prices, let's say fall 50%, you lose 90% of your 10% portfolio hedge, that's 9%. But if gold prices double, most gold miners will increase 5 to 10 times. So, on one side, you can lose only 9% of your portfolio, not 25% as physical gold. And you can gain 50 to 100% of your portfolio if gold prices double. Just a quick example here. This is from Barrick Gold. Revenue, if gold prices double, it doubles. Cost of revenue remains the same, assuming it remains the same. The gross profit increases almost four times. We pay taxes, so net income goes from 2.5 billion to 7 billion. Add the additional value of the gold, the future, the exuberance that will be related to gold if there is more quantitative easing and who knows what will happen. And you immediately get the stock price to increase 3, 4, 5 times at least. 10% in such a company if there is financial turmoil covers you from a 50% loss of the SAP 500. At much less risk than owning physical gold. Number four, protection. Always, you can protect your portfolio by buying put options on what you own. However, that has to be part of a long-term strategy where you always hatched by owning put options. And I will dedicate a special video for that. So, please subscribe if you haven't yet to get to the video in your feed when it comes out. Number five, I have already made a video two months ago. Here it is. It's also in the description below about how a stock market crash would be good. And a stock market crash would be good for most people that don't own stocks, that don't invest in stocks, but they invest in the businesses behind those stocks. Rich people invest in businesses. What creates wealth is owning businesses, not stocks. Stocks go up and down, businesses slowly grow over time. And the more you accumulate businesses, the better you will fare in the long term. And then you don't care if the stock market crashes or not. If you accumulate businesses, stock prices drop. You simply buy more. You use your dividends to buy more, to grow your wealth, to grow your portfolio with healthy businesses, then you do fine. So, if you can switch your mentality from stock market investing to business investing, then you don't have to care about stock market crashes. Thank you for watching and I'll see you in the next video.