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After blogging about how I would like to increase my investment in the local banking sector, I went on to increase my investment in UOB by 19% and in OCBC by 11% in the following two weeks.
Why did I do this and in case you are new to my blog or do not remember, read this:
DBS, OCBC and UOB at 40% of portfolio?
To be honest, they are not at 40% of my portfolio yet as their stock prices rallied somewhat too quickly or I was adding to my positions too slowly, maybe.
Anyway, the catalyst for this short update is a comment from a reader in a blog.
If you are interested, read it in the comments section: HERE.
This is my reply to his comment:
Technically, the banks are somewhat overbought at this point and price action seems to be grinding or churning at resistance.
This doesn't mean that their share prices couldn't go higher but a correction is probably to be expected and it will present a chance to add if it happens.
As for fixed deposit, we will just have to make hay while the Sun shines and enjoy the higher interest rates while they are available.
If the Fed does what they say they will do, then, the higher interest rates could stay high for longer as the aim is to mop up liquidity.
There will come a point when there isn't too much liquidity sloshing in the market but looking at how yields are behaving, we might have some way to go.
When we are at that point, we might not have a simple correction in equities as things could get ugly.
Don't know how things will look in the future.
All I can do is to have a plan which makes sense at least to me.
1. Stay invested in bona fide income producing assets that have the ability and willingness to pay me.
2. Stash emergency funds in risk free and volatility free products which pay reasonably well.
3. As for a war chest, I don't have a very large war chest like I used to have but in retirement my aim isn't so much to grow wealth aggressively anymore.
It is all about financially security and not having to rejoin the workforce because I did something exceedingly foolish with my money.
Crossing fingers!
Gambatte!
References:
1. Growing passive income.
2. Inflation and my budget.
3. 4% yield T-bill and my plan?
Bloggy Award
11 comments:
Dear AK
Nice to see this one from you. Thanks for the acknowledgment in your previous blog
The US I- Bond very transiently last month yielded north of 9% thereby inviting an unprecedented application rush
The next tranche was however yielding only 6 plus%! Within a couple of weeks!!
To me, this indicates, a real expectation for a fed pivot in Q1-Q2 2023. The falling gasoline prices, lower wage inflation than expected plus fall in the US 30 year mortgage rates and notional rent equivalents factored into the CPI are all pointing to a potential peak and a short plateau before rates start gently going downward
With this indicating a terminal rate of around 5% maximum, at a 70% probability, I am planning a barbell albeit equity based approach with REITS acting as a natural hedge to the local banks
Technically, if the yield curve inversion broadens {2-10 year spread at 0.70 as I type}, recessionary risks rise significantly and the banks will start falling. This would be the time I will add adopting a contrarian approach. The current market is very tricky to navigate and essentially some natural risk protection with stable dividend payers like NBN Keppel Infra and Sheng Siong are also on my add list
Let us see how it goes
Warm regards
Garudadri
Hi Garudadri,
Yes, "tricky" is definitely the right word for the situation we are in.
I have a feeling that a slowing down of rate hikes is at hand although I do not know if a Fed pivot (i.e. reduction in interest rate) is going to happen next year or not.
A reduction in interest rate isn't a bad thing because that would mean that inflation has probably been tamed and a lower interest rate would reduce the financing cost for not just indebted businesses but also households.
As for the possibility of bank stocks being negatively impacted, it is important to remind ourselves not to chase rising stock prices and to wait for a pull back before adding which is what I am doing now.
Technically, a retracement to support in the near future looks very likely.
Investing in the local lenders at book value is probably what Buffett would consider paying a fair price for a good business especially if we believe that Southeast Asian economies can avoid a recession but, of course, if we can pay a lower price, it would be better.
Time will tell.
sometime we forgot these most basic things about investment
and go to invest some China Tech ETF that doesn't pay dividend
:D
Hi AK,
I have been dilligently xferring my OA to SA to reach the current FRS. I realized I cannot xfer my OA to SA upon reaching FRS. Rather than earning 2.5% in my OA, I can xfer the OA funds to my spouse's SA for her to reach FRS. I was wondering if this makes sense? Our house is already fully paid for so there's no worry on the mortgage etc.
Hi Rellangis,
Even in this current environment, a risk free and volatility free investment which pays 4% p.a. is still attractive.
The CPF-SA is like a long term bond but with a strong retirement funding angle as it gets converted into an annuity later on in life.
As long as you are sure you do not need the CPF-OA money for any other purpose, I am sure your wife will appreciate the top up to her account too. :)
Reference:
Good men top up their wives' CPF accounts.
hi AK! hope all is well for you. what do you think of haw par stock for investment?
their market cap is about 2 billion sgd now based on $9.30 share price, haw par owns about 670mill sgd worth of uob shares and they have more than 500 mill sgd of cash/equivalents. so effectively you are spending less than 1 billion to buy their remaining businesses which seems like a good deal. they pay a steady stream of dividends as well each year.
Hi 摇木马的小孩,
The issue with Har Par isn't with its business or balance sheet now.
The risk free rate has risen so much and so quickly that Mr. Market is no longer satisfied with a yearly 30c DPS which even at $9.30 a share after sharp declines translates to a dividend yield of only slightly more than 3%.
Investing in UOB directly might be more appealing to Mr. Market when we see how UOB's share price has risen while Har Par's share price has fallen in recent weeks.
Unless there is some clarity as to whether Har Par's value would be unlocked which would make it a value play, I don't know if it is an attractive investment for income.
Hi AK,
Given the cyclical nature of banks, do you expect them to peak soon (e.g. over the next few months or so)?
Interest rates are likely to peak soon and will eventually start going down, which could possibly impact the banks' earnings for 2023.
Will you consider taking some profit near the peak of the cycle, and buying back when the banks decline?
Hi SN,
I am not very good at timing the market.
It is true that there were times when I got it right but I have also gotten it wrong many times. ;p
Less stressful to invest in the banks for the long term as they grow more valuable over time.
This is true even through multiple business cycles, all else being equal.
Of course, as an investor for income, for me, it is primarily about receiving reliable and meaningful passive income and there is no need to risk it by trying to time the market.
Hi Ak, I’ve been a follower of your blog. Can I know which platform did you used to trade the stocks? And why did you used that platform. Thank you.
Hi AP,
I am using Lim & Tan most of the time.
I know there are cheaper brokers available but I am a creature of habit and too lazy to change.
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