“Are Singapore banks shares too high? Still can buy?”
Before I get to the specifics, I want to share with you the essence of what I’ve learned about investing over the past decade.
I’ve obsessively studied stocks and bonds for years.
And I believe this is something all investors need to know.
I would even put it down as a law that can’t be cheated.
One of the most important factors in investing is this — Price. This is something all investors can control
Because you decide how much you want to pay for a business — that is the price you’re willing to buy a stock.
And that’s the beauty of investing in stocks.
That’s why, you want to limit what you’re paying to build a stock position.
And I’ll tell you why.
What I think about Singapore bank (DBS, UOB, OCBC) shares
Listen to this: knowing how much to pay for a stock keeps you out of risky stocks and a risky market.
And this: knowing how much to pay allows you to better appreciate a business’ value.
It stops you from losing money this way.
Even for Singapore traditional blue-chips, you simply cannot buy them at any price. It’s going to kill your portfolio.
Here’s my views on Singapore banks’ shares:
I like Singapore banks.
They are one of the best investments for me. Banks are well-protected by regulation, and they have a great business model — borrowing other people’s money (deposits) at a cheap cost, and lending the money to others (loans) at a much higher yield.
Warren Buffett owns some of U.S. biggest banks.
I agree with him on this — You want to buy banks when they have made a mistake.
In 2011, right after the global financial crisis, Warren Buffett knew the banking industry is recovering quickly — banks were prospering again.
So he loaded up on banking stocks like Bank of America.
“At Bank of America, some huge mistakes were made by prior management. Brian Moynihan has made excellent progress in cleaning these up…” said in Buffett’s letters to shareholders in 2011.
It’s the same thing with Singapore banks shares.
How to buy Singapore bank (DBS, UOB, OCBC) shares — Read this or go broke
You see, I casually observed that Singapore bank shares trade up and down often.
Because they are a cyclical stock.
And Singapore banks’ profits are tied closely to the economy.
When something bad happens to the economy, their shares fall. When the economy grows, their shares rise.
It’s dead simple.
In 2015, all three Singapore banks suffered when oil prices crashed. Many oil & gas companies went bankrupt overnight. And many couldn’t repay the loans to DBS, OCBC and UOB.
As a result, our three Singapore banks had to “write-off” massive loans.
The stock market was spooked. Bank shares crashed.
Source: Yahoo! Finance
But just like how Warren Buffett took advantage of a frightened market, that was also the best time to buy Singapore bank shares.
It wasn’t hard to know that Singapore banks are financially strong.
They are conservative — lending out much less money than they collect deposits — and are highly profitable.
Now, what’s more crucial was this.
DBS, OCBC and UOB don’t just lend money to oil & gas companies.
They actually lend out to many different industries — property companies, mortgages, manufacturing, technology, healthcare, food. The list goes on.
One bad sector isn’t going to kill Singapore banks. And that makes Singapore banks’ business highly resilient.
Singapore banks, in my opinion, diversifies extensively. Making it more stable as a business.
I bought more Singapore bank shares when the oil & gas companies collapsed. In fact, after that, Singapore bank shares rose all the way till 2018.
But when everyone are so optimistic about Singapore banks, it’s time to look the other way.
That’s when I stopped buying in 2018.
Don’t forget, if you buy when everyone is optimistic, you won’t be making any money.
For instance, on April 2018, if you’d bought DBS Bank at S$30. And if you’d bought OCBC at S$13.80. And if you’d bought UOB at S$30, you wont’ be making any money over the next two years.
Another great opportunity for Singapore bank shares
When the COVID pandemic unleashed, many businesses — especially food and retail — collapsed overnight.
The entire Singapore economy went to a complete halt.
And again, the market was spooked.
People thought Singapore banks could be in trouble.
Besides, Singapore banks move with the economy. When the economy is down, Singapore bank shares are down.
Source: Yahoo! Finance
But it was fear playing tricks on the stock market.
The stock market was worried Singapore banks couldn’t collect the income on the loans made to food and retail companies.
But was Singapore banks truly in trouble?
In fact, for the first quarter results of 2021, DBS net profits jumped 72% from a year ago to hit S$2 billion. It’s the first time DBS quarterly profits cross S$2 billion mark. OCBC’s net profits jumped 115% from a year ago to hit S$1.5 billion. While UOB’s net profits rose 46% to S$1 billion.
It was as if the COVID pandemic never happened at all.
Again, the Singapore bank shares quickly rebounded.
Know when to buy Singapore banks before they roar again
As a general rule, you should avoid buying Singapore bank shares when they are too high.
One quick way is to compare their current price/book ratio and dividend yield, with their historical average.
For me, I know Singapore banks shares go in an up and down movement. So I’ll buy when the market gets spooked.
So if you ask me if Singapore bank shares are too high today? I know they are not at the right price today. I’m not buying now.
I want to wait when Singapore banks make a bad mistake, or when the market don’t like them anymore. That’s my signal.
Don’t forget, you can still lose money buying great companies, but at the wrong price.
Sometimes, investing can be simple.
Always here for you,
Willie Keng, CFA
Founder, Dividend Titan
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