If there is one word to sum up what Singaporean investors are feeling today, it would be “uncertainty”.
As a nation, we are back in Phase 3.
Yet, we are not out of the woods.
Singapore is accelerating its vaccination roll out with a target of having three out of every four residents fully vaccinated by October.
Yet, last month’s return to Phase 2 is a reminder that the threat of the COVID-19 virus is still ever present.
The city state is on the road to economic recovery, logging a 1.3 per cent growth in its gross domestic product (GDP) for the first three months of the year.
Yet, many of the safe-distancing restrictions remain, hampering economic activity.
With so many competing viewpoints, it’s no wonder that Berkshire Hathway’s (NYSE: BRK.A) Charlie Munger said that it was normal to feel confused.
We are, after all, in uncharted territory.
When confronted with dissonance, it’s helpful to break down the information we have into digestible parts.
Firstly, there are things that we know we know, or the known knowns.
We also know there are some things that we do not know, or the known unknowns.
And finally, there are matters that we are not aware that we do not know, or the unknown unknowns.
Known knowns
There are a number of things that we have learnt after living for more than a year under COVID-19 restrictions.
During the circuit breaker, companies running their operations online suffered minimal to no impact.
In fact, a select group of businesses even experienced accelerated growth as the population stayed at home.
Wealth management fintech platform, iFAST Corporation (SGX: AIY), saw its 2020 net revenue jump by almost 32 per cent year on year, while profits more than doubled year on year.
In response, iFAST shares have leapt by more than 830 per cent since the start of 2020 amid optimism for continued growth.
The thing is, tech companies have already been growing before COVID-19 arrived.
In all likelihood, the growth of these firms will continue in the future.
Meanwhile, remote work is here to stay.
Take DBS Group Holdings (SGX: D05).
Singapore’s largest bank is giving its employees the option to work from home 40 per cent of the time.
But don’t expect the bank to cut its office space by the same amount.
Instead, it is only reducing its office footprint in Singapore and Hong Kong by around 20 per cent.
According to CEO Piyush Gupta, DBS Group is looking at reshaping its offices to promote collaboration.
Translation: office space is still needed, but the space will be reconfigured.
As investors, this transformation is what we should be watching.
Elsewhere, shopping malls have suffered from a decline in footfall amid safe-distancing restrictions.
CapitaLand Integrated Commercial Trust (SGX: C38U), or CICT, Singapore’s largest shopping mall owner by floor space, saw shopper traffic plummet by over 70% during the circuit breaker in 2020’s second quarter.
As the restrictions were eased, malls recovered three-quarters of their pre-COVID footfall for the first three months of this year.
Tenant sales, though, did even better, rising back up to their previous peak for the same period.
The same dichotomy can be observed at Frasers Centrepoint Trust (SGX: J69U), or FCT, one of the largest suburban mall owners in the Garden City.
Like CICT, the malls at FCT are still seeing lower shopper traffic this year.
However, FCT tenant sales in February 2021 have exceeded its January 2020 tenant sales by almost 12%.
The difference in the two ratios suggest that shoppers are making less trips but buying more per trip, a phenomenon called trip consolidation.
Like commercial space, we will have to observe how these malls evolve to adapt to the change in shopper habits.
Known unknowns
There are also things that we know that we do not know.
For instance, we know that there is pent-up demand for travel.
We don’t have to guess.
We have evidence that there are travellers waiting for borders to reopen.
When the Singapore-Hong Kong travel bubble was announced last November, one-way flights between the two countries sold out within hours.
Similarly, when the second attempt at a travel bubble was made in late April, tickets were quickly snapped up by eager travellers.
From the two cases above, we can safely say that there is indeed pent-up demand for travel.
But even with that knowledge, the travel bubble between Singapore and Hong Kong has not materialised so far, mainly due to a rise in local infections.
We do not know when the travel bubble can actually launch.
Beyond that, we also don’t know how many more travel bubbles will be possible in the future, with which countries, and the time frame needed for a successful launch.
As such, it is harder to predict the near-term future for the likes of Singapore Airlines (SGX: C6L), which rely heavily on air travel volumes to turn its business around.
Likewise, the lack of tourists will hamper demand for the hotels owned by Mandarin Oriental (SGX: M05) and other players in the hospitality business.
In summary, we know that there is pent-up demand for travel but we don’t know when a recovery will happen for the aviation and hospitality industries.
As investors, we have to be aware of what we do not know as these factors can have an impact on the stocks we own.
Unknown unknowns
Finally, there are things we do not know that we do not know.
The very nature of unknown unknowns means that we will encounter both positive or negative surprises in the future that could have an impact on the stocks that we own.
And while we may not be able to predict the future, we can certainly take some measures to protect our stock portfolios from unpredictable outcomes.
Diversifying your stock portfolio is one method.
Adding a margin of safety when you buy your stocks is another.
And last but not least, we should remain open to learning new things as the pandemic changes the way we live, work, and play.
Get Smart: You’re not alone
The late John Shedd once said that a ship in harbour is safe, but that is not what ships are built for.
Similarly, when it comes to investing, we cannot stay on the sidelines forever.
Holding cash for the long term is not a good option when it will be eaten away by inflation in the future.
As such, we have to plow ahead despite the uncertainty.
We have to accept that we are not in control of every factor that can impact our stocks.
Like a captain steering a sailboat through choppy waters, the best thing that we can do is to position our sail so that we can enjoy the tailwinds that arise, all while limiting the headwinds that appear.
The reward is certainly worth it.
If you hold great companies with great management teams, we are certain that you will come out ahead in the future.
Note: An earlier version of this article appeared in The Business Times.
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Disclosure: Chin Hui Leong owns shares of Berkshire Hathaway, iFAST Corporation, DBS Group, CapitaLand Integrated Commercial Trust and Frasers Centrepoint Trust.
