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I remember Warren Buffett said that when he first started out as a professional investor, he had more ideas than he had money.
Later on, he had a lot more money than he had ideas.
It isn't as popularized as other things he has said before and, so, it is easy to forget.
I am probably stuck at the "many ideas but not much money" stage.
Well, I guess most of us are.
There are so many things I would like to invest in but I simply do not have enough funds to do so at least not in any meaningful way.
So, what to do?
Before going on, you might want to listen to this video I just uploaded to my YouTube channel on what Warren Buffett and Charlie Munger said:
I should pick what I think is my best idea at any one time.
I should not scatter my limited resources which is something I have been guilty of doing.
The operative phrase being "I think."
Yes, I could be wrong.
My best idea for a while now has been to invest in the banks.
So, I will latch onto that idea and further grow my exposure to the local banking sector.
As I feel DBS doesn't seem to offer as much value for money, I will grow my positions in OCBC and UOB mostly.
How am I actually going to do this?
As a retiree, I lack an earned income and I consume most of my passive income.
So, I have a harder time growing my investment portfolio.
Taking a leaf from Warren Buffett's book, the plan right now is to reduce exposure to non-bank investments on market up days and to increase my investment in the banks on market down days.
It is going to be a gradual process and will likely happen over many, many months.
I would like to see my combined investment in DBS, OCBC and UOB account for about 40% of my investment portfolio.
Now, they are at about 30%.
Having said this, to be perfectly honest, I could change my mind partway as I am pretty satisfied that my portfolio right now is able to bring home sufficient bacon.
I am also not wired like Warren Buffett or Charlie Munger and might not be able to see this through.
If you agree with me, beware, you might be mental just like me.
If you disagree, you could be right and I could be wrong.
Just talking to myself, as usual.
Largest investments: When to worry? What to do?
Bloggy Award
27 comments:
Hi EX,
I am glad you find the blog helpful. :D
Time to go look at the blood in the streets.
Just have to be careful not to be washed away by a flash flood of blood which could be coming next year. ;p
Boustead Singapore undervalued?
Hi fenix,
I have absolutely no idea. ;p
Hi AK
Thank you for giving your readers an insight on how you are navigating the current market. Indeed, everything looks cheap now but the question of which stock will get cheaper, or like you said which one offers the most value for us to allocated our limited resources is one that continues to baffles the layman investor. Yesterday the banks stocks finally budged a little after being relatively resilient the past few weeks and I took the chance to buy in some and will continue to be do each time it drops 2%. Next year is the real test, wishing everyone all the best!
Hi Winnie,
Rising interest rate provides a strong tailwind for the banking sector.
However, the fear now is that a recession is on the way as the Fed rate hikes have been too rapid and are causing distress globally.
In a recession, banks will suffer as they are cyclical businesses.
The IMF has warned that 2023 is when the world goes into a recession.
This is probably going through Mr. Market's mind.
In severe bear markets, the banks have traded below their book value before.
That has yet to happen.
So, having a plan for what to do if that happens is a good idea too. :)
Hi AK,
Some banks are currently trading below book values like Citigroup. What are your views on Citigroup (better position than Credit Suisse)?
For example, Citigroup is trading ~0.6x NTA. And is maintaining a respectable CET1 ratio of ~12%. At the same time, it is also divesting international assets. Also with rising interest rates, this bodes well for banks with a low cost base and good operating leverage.
One thing to look out for is the bank's ability to attract and retain deposits in view of increasing interest rates (which in local context DBS UOB and OCBC are fighting for). But banking is a sticky business and requires more push factors than pull.
Also, like what you mentioned, a recession would cause loan losses and create more provisions for loan losses going forward which will affect current and future earnings in a downward spiral.
Hi Verseun,
My investing is limited to what is available in the Singapore stock market.
So, I don't have an opinion on US banks or Chinese banks, for examples.
For sure, a low operating leverage is a good thing and going digital has certainly helped DBS, OCBC and UOB.
This trend is likely to strengthen.
As for banking being a sticky business, that is so true.
It could be because I am lazier than the regular guy but the inertia to stay put is so strong. ;p
The prospect of a global recession and possibly a rather long one with the Fed saying interest rate will stay higher for longer, my plan is to keep some powder dry in case the unthinkable happens.
Recession is scary but stagflation is worse.
Good afternoon, AK!
I agree with u. In fact this is one of the safer & long-term investment’s strategy in light of global economic uncertainty.
Our SG three local banks have a good & continuous dividend’s payout history for decades, even during economic recessions. Thus, ensuring continuous cash flow/income is of utmost importance. Especially if one’s is in retirement or preparing for retirement, as retirement is (all) about cash flow.
Thanks to the banks conservative 50% dividend payout policy and high % of CET1 CAR ratio. The high interest rates environment in the coming (few) years will increase banks’ net interest incomes, but posed challenges for many other businesses and individuals.
The recent upgrade of SG becoming the third top-ranking global financial centre (surpassing HK) has certainly given a further boost to our banking & financial sectors… as it’s the lifeblood of our economy. “)
Hi Eddy,
Yes, I very much agree that cash flow is the most important thing to consider when it comes to investment decisions for people close to or already in retirement.
This is one reason why I keep saying that it is never my way or the highway as there are many people who don't seem to understand why I do things the way I do.
Fortunately, I started the shift to invest in the local banking sector a few years ago starting with DBS and then later OCBC with investment in UOB being the latest decision made during the pandemic induced bear market.
Well, it looks like I won't get to be lazy at least in the next few months as reallocation of resources will have to continue.
Dear AK
Nice to hear from you again
I agree and hold not only SG banks but also US Aussie UK and Chinese banks as well for the past few years. My biggest investment is in SG banks and overall agree with the investment hypothesis as regards NIM expansion. Nevertheless, if there is going to be a deep recession, all three banks will drop significantly and as I see now, the three banks are trading at prices that have not factored in this recession risk with its implications in terms of poor loan uptake, rising bad loans etc etc
I have been utilizing this drop in SG REITS and I will do this first to lock into higher yields. The REITS will drop further and I plan to buy steadily for my passive income stream
OCBC might splash out on a potential Indonesian acquisition and UOB has already invested in SE Asian Citi assets recently. Both are likely to face asset quality pressures if a recession hits and therefore I will buy only slightly lower than from now
DBS might fare the best amongst the three and that explains its relatively higher and justifiable valuation
My targets are 11.50 and below for OCBC, 26 and below for OCBC and 32 for DBS to initiate the next tranche of buying
Hopefully I will have time and funds to facilitate this
The banks will prove to be a natural hedge to REITS
Wilmar and ST Engineering as well as Keppel Infra and Netlink are also gradually at enticing levels
As you rightly put it, too less cash to chase so much
Difficult indeed
Best wishes
Garudadri
Hi Garudadri,
The Great Singapore Sale this year has extended to the stock market, it seems. ;p
Rising interest rate provides a strong tailwind for the three local banks but like you have said, a deep recession would throw a spanner in the works.
Although we could make a case that local banks are very well capitalized and are more likely than not able to weather any recession, Mr. Market could go into a depression which would allow us to buy at lower prices.
I know I have said that my plan now is to add to my investments in OCBC and UOB but if DBS should have a meaningful decline in the price of its common stock, all else being equal, I could add to my investment in DBS too.
I would like very much to add to my investments in some REITs as well as I see them trading at what I feel are prices which might suggest distress when it doesn't seem to be the case to me but my war chest is complaining. ;p
Hi AK,
When planning to raise your position in the banks, do you look at the book value/dividend yield, or do you have other useful indicators to decide when to buy? as you invest primarily for passive income, will dividend yield be your key consideration?
For DBS, will $29-$30 be an attractive price to add? Previously it went below $30 in June to July, and seems to have a strong support there.
At $30, DBS will have a yield of 4.8% which seems attractive, similar to OCBC's current yield of 4.82%.
However, in the event of a global recession like in 2020, do you expect DBS to return to the lows of 2020 (i.e. fall below $20)?
Thanks.
Hi SN,
Looking at both NAV and dividend yield makes sense.
You are right that dividend yield is an important consideration as I invest for income but I also want to buy something that could potentially be more rewarding in the future.
OCBC looks like it is the best capitalized when we look at CET1 ratio and has room to increase dividends.
I mentioned it in this blog:
2Q 2022 passive income.
As for UOB, after acquiring Citibank's operations in several SE Asian countries, over the next 2 to 3 years, their ROE will likely improve significantly.
Having said this, DBS will always be my first love as my investment in DBS so many years ago marked the beginning of my journey investing in the local banking sector.
To be honest, I was looking at DBS at $30 too but decided to wait a little as it was trading at such a big premium to NAV.
I doubt very much that we would see DBS, OCBC or UOB test their lows made during the pandemic induced bear market.
If they should, then, we should not just buy some, we should buy more because they are more valuable today than they were back then. :D
Hi AK,
when you mentioned some reits are trading at distressed price, can you share what are the reits that you are looking at?
Hi SL,
It is dangerous for me to say more but I can repeat what I have already said before since it is already in the public sphere.
You might be interested in a blog I published in September on IREIT Global.
IREIT Global is a bargain.
IREIT Global is even cheaper now than it was back when the blog was published.
When we look at the financials and even if we were to factor in a further 10% decline in income which is likely to be temporary, IREIT Global as an investment for income isn't a bad deal.
However, the biggest issue now is rising interest rate not because it will impact borrowing cost because IREIT Global doesn't have to refinance until 2026.
It is because if we can get 4% or even 5% per year return risk free from government bonds now, why should we invest in real estate in any form?
So, as landlords, we want to be able to increase asking rents so as to make staying invested in real estate sensible and I think IREIT Global can do this but Mr. Market wants evidence of this and time will tell.
Hi AK, I’ve further increased my investment in UOB during their recent low share prices.
Wonderful results. I guess higher profits to come in the quarters ahead, and also for all three local banks. 👍🏼🤞🏼🙂
https://www.theedgesingapore.com/capital/results/uob-posts-record-high-earnings-14-bil-3qfy2022-34-y-o-y
Hi Eddy,
I increased my investment in UOB by around 19% in the last two weeks.
Very pleased with the results. :D
I also increased my investment in OCBC by around 11% in the same period.
Hope OCBC does not disappoint. :)
Hi AK, Siew Mun
Happy for you.
I have invested in OCBC recently as well, so hope it will bear good fruit next week.
Hi Yv,
Welcome to the club, fellow shareholder. :D
We could see a case of sell on news which is when a stock goes down after announcing positive results because the positive news has been baked into the higher price.
After all, OCBC will be paying dividend only half a year or so from now.
Traders could take profit in the meantime.
Not that it is a problem as it would mean another chance for me to buy at lower prices. :)
Hi AK,
Just like to share an interesting (long) article published two days ago by BT, interviewing the MAS chief, Ravi Menon.
I must say that this is a very good reading article for investors that have exposure in banking and financial stocks.
In summary, I’m rather optimistic that with our dai-gor, MAS - the central bank ‘watching, guiding & backing’ behind our three local banks, they should continue to remain healthy and strong in the years ahead. After all, financial & banking is the lifeblood of SG economy! “)
https://www.businesstimes.com.sg/banking-finance/singapore-fintech-festival-2022/mas-ravi-menon-sees-opportunities-in-digitalisation
Hi Eddy,
Thanks for sharing this.
Absolutely agree.
After all, our 3 local lenders form 50% of the STI.
If they go kaput, so does the STI. ;p
Stay invested in DBS, OCBC and UOB.
Stocks of local lenders going to the moon! ;p
Hi AK, may i know your opinions on the local 3 banks.. what are your comfortable entry price range for these 3 banks u r adding into your portfolio?
Hi S A,
All 3 local lenders are well capitalized and well managed.
DBS looks like it is the most highly valued.
OCBC and UOB are trading closer to their book values.
After the recent run up in prices, some consolidation is ongoing which might see prices declining to test supports.
Won't be surprised to see a 2% or so decline in prices from here as traders take profit.
Not saying anything about my entry prices. ;p
Thanks for your opinions, would u mind sharing what price points are considered cheap for the 3 banks?
Hi S A,
You so tricky. LOL.
I am going to side step that by saying I don't think OCBC and UOB are expensive now.
Of course, they could get cheaper. ;p
AK,
What is the good entry price for UOB and OCBC?
Hi GP,
Please see my replies to comments from S A above. ;p
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