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How to Win in the Stock Market, even if there is a Second COVID-19 Wave

It has only been six short months since the worst pandemic in our lifetimes broke out.

Fortunately, there has been some respite in recent months from the lockdowns and movement restrictions.

In Singapore, the circuit breaker measures that lasted for most of April and all of May have been finally lifted.

Businesses that have been shuttered can now breathe a sigh of relief at being able to operate.

However, the pandemic is not over yet.

Countries such as the US are seeing a second COVID-19 wave that is, once again, threatening to overwhelm hospitals.

Confirmed cases have hit 3 million in the US, and the death toll is approaching 150,000.

Australia and South Korea have also witnessed a second wave of infections after successfully suppressing the virus earlier, demonstrating how tough it is to eradicate this dreaded disease.

Thankfully, Singapore has reported no second wave just yet, but the risk is ever-present and should not be underestimated.

The uncertain situation leaves us with a key question: how can you navigate these events and emerge a winner in the stock market?

Thankfully, the answer isn’t as tough as imagined.

Strong businesses with rock-solid financials

The key is to put your money in strong businesses with solid franchises that can withstand a prolonged crisis.

Well-known global names such as Amazon (NASDAQ: AMZN), Nike (NYSE: NKE), Apple (NASDAQ: AAPL) and Visa (NYSE: V) have enjoyed a long track record of growth and can stand firm even in the face of the pandemic.

By investing in such companies, you can enjoy a good night’s sleep without worrying about the company going bust.

Of course, even the strongest businesses may face disruption as a result of the pandemic.

That’s why it’s important to assess the competitive strengths of any business you intend to invest in.

Is the company able to hold its own during tough times? Does it have adequate cash resources and a rock-solid balance sheet that can hold the fort?

If the answers to the above questions are a resounding “yes”, then you have most likely found a winner.

Injecting capital into these companies over time and holding on to them as they continue growing is a sure-fire way to build long-lasting wealth.

Dividends are a signal of stability

Back home, an astute investor may have noticed that not all businesses have been negatively impacted by COVID-19.

You should keep your eyes open for companies that can sustain or even increase their dividends.

The ability to do so is a sure signal of strength and stability amidst the pandemic.

REITs such as Keppel DC REIT (SGX: AJBU) and Parkway Life REIT (SGX: C2PU) have bucked the trend and posted year on year rises in dividends.

Other examples of non-REIT companies that have maintained or increased dividends include Singapore Exchange Limited (SGX: S68), Boustead Singapore Limited (SGX: F9D) and iFAST Corporation Ltd (SGX: AIY).

Having the right temperament

Finally, the most important aspect of a winning investment philosophy is to have the right temperament and mindset.

Greed and fear are the enemies of the rational investor.

Successful investors dare to invest during market crashes, knowing that the fundamentals of the business remain intact.

These same investors are also able to hold on to great companies through volatility and to consistently add on their positions when opportunities arise.

Dividends received are reinvested into the same companies that paid them, thereby reinforcing the virtuous cycle of compounding.

Get Smart: It doesn’t take a genius to win

As you may have noticed, it does not take significant effort or a high level of intellect to win in the stock market.

The idea is to simply accumulate great companies and hold them over the long-term.

Reinvest the dividends and then inject more capital into these same companies as you accumulate savings.

Rinse and repeat this process, and you can easily end up a winner in the investment game.

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Disclaimer: Royston Yang owns shares in Apple, Nike, Visa, Keppel DC REIT, Singapore Exchange Limited, Boustead Singapore Limited and iFAST Corporation Ltd.