For an investor who has been tracking the market in the past four months, you would probably be feeling confused.
We are, after all, mired in the worst pandemic in a century.
The Singapore government has downgraded this year’s GDP forecast to -4% to -7%, making this the worst recession our country has witnessed since independence.
Lives have been lost, jobs have been shed, and the economy is shuddering under the weight of lockdowns and air travel bans as governments struggle to contain the spread of this contagious virus.
Many businesses and industries continue to be badly affected, with demand still at a low and supply chains disrupted.
However, the market has staged a stunning recovery, just three months after the fastest bear market in history.
From the low in late-March, the rebound has been swift and surprising.
The Singapore stock market is up nearly 26% from the low, possibly signalling the start of a new bull market.
How could the stock market still be doing so well?
How should you react to these developments?
Is it still possible to make money in this market?
What kind of an investor are you?
Perhaps, the first question you should be asking yourself is — what type of investor are you?
Do you seek growth, income or a combination of both?
The answer will determine how you should position yourself in these uncertain times.
If you are a growth investor, it makes sense to gun for fast-growth companies that may not pay a dividend at all, as they will be investing their earnings to grow their business further.
However, if you are predominantly an income investor, you should focus on dividend-paying businesses and the sustainability of that dividend stream.
Finally, if you prefer to be a mix of both, then watch out for companies that still possess growth but also pay out part of their earnings as dividends as well.
But at the heart of it, you are buying a piece of a business.
Zooming in on the right companies
No matter which type of investor you may be, there are suitable companies out there that will fit your investment profile.
It’s important to remember, though, that the focus here is on the business.
Whether it is income or growth, you should invest in businesses that have a strong competitive edge, are growing and are conservatively managed.
By doing so, you can minimise the chances of a blow-up should COVID-19 rear its ugly head again.
Growth investors may wish to turn their attention to the US market, where companies such as Alphabet (NASDAQ: GOOGL), Facebook (NASDAQ: FB) and Mastercard (NYSE: MA) continue to post decent growth numbers and remain highly profitable.
For yield-seeking investors, choosing strong income-generating businesses should be a core pillar of your investment philosophy.
Local REITs such as Mapletree Industrial Trust (SGX: ME8U), Parkway Life REIT (SGX: C2PU) and Keppel DC REIT (SGX: AJBU) can offer investors a sustainable dividend, though some may face short-term pressure on their distribution per unit due to tenant support measures being doled out.
Investors who seek a combination of growth and dividends can turn their attention to companies such as Singapore Exchange Limited (SGX: S68) and iFAST Corporation Ltd (SGX: AIY).
Both companies are growing their earnings through long-term growth initiatives, while also paying out a quarterly dividend.
Get Smart: Opportunities abound
In summary, your focus should be on buying great companies and holding them over the long-term to realise their full intrinsic value.
And less time should be spent trying to figure out where the market is headed.
Opportunities abound and there is a myriad of suitable companies no matter which type of investor you are.
No one knows how markets will perform in the short-term.
But if you have an investment time horizon measured in years, rather than days or weeks, and also focus on buying strong, growing companies, making money in the stock market will not be a problem.
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Disclaimer: Royston Yang owns shares in Alphabet, Facebook, Mastercard, Singapore Exchange Limited, iFAST Corporation Limited and Keppel DC REIT.
