Making the right decisions in investing was never easy, even under normal circumstances.
Reviewing which companies to buy or sell to achieve an optimal portfolio requires a delicate balance of analytical skill and experience.
The COVID-19 pandemic has just made this exercise much tougher.
You have witnessed the swiftest crash in the last 100 years back in March.
Followed by the sharp rebound thus far in April.
Meanwhile, there are conflicting news reports as to whether the virus has been contained, with some countries declaring success while others are still struggling to cope.
In Singapore, the increase in COVID-19 infections has been staggering but has been limited to mainly foreign workers living in crowded dormitories.
So, as you stand at the proverbial crossroad, what should you do with your portfolio?
Do nothing and wait, or buy more?
Not all industries are impacted equally
What you should realise is that the pandemic has not impacted all industries equally.
Some, such as aviation, tourism, cruise ships, retail and hospitality, have been hard hit by travel curbs and border closures.
Massive job losses around the world have dampened economic growth and curtailed spending power, pushing down demand for goods and services.
However, there are still pockets of growth to be found amidst the wreckage.
Sheng Siong Group Ltd (SGX: OV8), a local supermarket chain, reported impressive year on year growth figures for its first quarter recently.
Revenue was up 30% year on year, while net profit jumped 50% year on year.
Our local bourse, Singapore Exchange Limited (SGX: S68), reported a 38% year on year rise in net profit, powered by record trading volumes in derivatives.
If you are discerning enough to pick the winners, then your portfolio will not be impacted too badly.
Will valuations go lower?
A common question to ask would be whether valuations will go back down to March troughs.
With the pandemic still raging across the world, it may feel that the worst is yet to come.
However, in the four months since the virus first spread around the globe, the world’s knowledge about the coronavirus has increased exponentially.
Many countries have also managed to up their response to the pandemic, resulting in the flattening of the disease curve.
The hit to the real economy has been anticipated, and economists are waxing lyrical about this being the worst recession since the Great Depression of 1929.
If you factor in all this knowledge and expectation, it’s probably fair to say that a lot of the bad news had already been incorporated into share prices.
It would take a significantly worse piece of attention-grabbing news to push valuations back down again.
Think beyond the immediate
As long-term investors, we like to think beyond the immediate term.
It’s a fact that COVID-19 has changed many aspects of our lives.
Some businesses may go bust if they cannot cope with the fallout, while others will remain resilient or even thrive.
We have always advocated pacing your purchases to avoid timing the market.
This approach applies at this juncture as well.
Rather than waiting for another market crash, you could slowly deploy some capital into the market in stages.
More importantly, keep your focus on companies that have strong balance sheets and robust business models.
Better still if these companies continue to pay dividends through the crisis, as this means you get to compound your returns.
Get Smart: The market is forward-looking
Time and tide wait for no man, as the saying goes.
While no one knows if share prices will get cheaper in the weeks to come, I believe a lot of the bad news has already been priced into current valuations.
Investors should deploy their capital in stages, taking advantage of bombed-out valuations.
If the recovery does come more swiftly than anticipated, we may not be able to buy at attractive valuations any longer.
So, open up your wallet, Smart Investor, and start buying some great companies to include in your investment portfolio.
But remember, pace yourself.
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Disclaimer: Royston Yang owns shares in Singapore Exchange Limited.