Sold: OCBC and DBS

As of today, I am no longer holding directly onto any local bank stocks. I sold off OCBC in February and DBS in March and here’s why.

Why I sold OCBC

After a holding period of almost 5 years, I made the decision to finally close my position in OCBC after it went slightly above my average cost price. I sold it at $10.64 which was a mere 1.8% gain excluding dividends received (7.7% including dividends). The profits are so pathetic and insignificant that I have to console myself by saying that at least in totality I still receive more than the interest OCBC gave me when I was using their 360 savings account.

The main reason for selling OCBC is because I cannot live any longer with the fact that I am giving up potential higher returns elsewhere for a “safe, bluechip counter that won’t go wrong”. I am not saying that OCBC is a bad company per se, but I just hate how the comparatively lower performance of OCBC to its peers is a huge opportunity cost to me!! Ugh.

Another reason that cemented my decision to sell is for consolidation. OCBC made up about 7% of my portfolio and is one of the lower-yielding dividend stocks I have at 5.0%. In general, I do not favour holding onto many stocks in my portfolio. Instead, I prefer to accumulate a larger position in a good company vs. multiple small positions in mediocre companies. I think there comes a point where diversification loses its purpose and ends up diluting gains so it may be unnecessary to diversify excessively just to protect against downside.

Diversification may preserve wealth but concentration builds wealth.

Warren Buffett

With OCBC out of the picture, I am able to rebalance and adjust my portfolio allocation to one that is more aligned with my current investment outlook.

Why I sold DBS

I managed to scoop up some shares of DBS during the sudden market crash last March and have been holding onto it as a dividend stock since. Before MAS imposed the 60% cap on dividend distribution for banks, I projected a conservative 6.8% distribution yield on my average cost price. At such an attractive yield and upside potential for the price to go back to “normal”, of course DBS was a keeper! I was still able to receive a ttm distribution yield of 5.6% even after the announced cuts which is frankly not too shabby at all.

For those vested in our local banks for dividends, you can check out this video by The Fifth Person on bank valuations where they discuss a little on dividend yields and easing of the dividend cap.

Since DBS seemed to be a solid stock to have in my portfolio, why then did I sell it? Truthfully, it is because I was greedy. With recent optimistic expectations on banks’ earnings and performance, share prices of our local banks reacted positively and DBS reached its 1-yr high at $29.04. This price is also close to its all-time high and I was extremely pleased with the paper profits I was seeing. So without much deliberation, I submitted a sell order to turn paper into reality. As it turned out, the order was filled in a couple of minutes and I found myself no longer a DBS shareholder.

While I was able to realise a sweet 59.6% gain (65.2% including dividends), I am not sure if I will regret my decision as I had not planned to sell it so soon and will be so angry with myself if I am unable to find a similarly good investment. I suppose I can buy back DBS in future when it does drop again and simply rinse and repeat the process. But who knows when the next correction will be?

My redeployment plan

Instead of waiting for the next stock market crash, I have decided to redeploy the sale proceeds from OCBC and DBS into two funds that I currently hold: JPMorgan Greater China Fund A (acc) SGD Fund and Schroder Asian Income A Dis SGD Fund, both of which I have monthly RSPs.

The JPMorgan Greater China Fund gives me exposure to the Greater China market which includes China, Hong Kong, and Taiwan and allows me to ride on China’s growth story without having to stockpick individual companies. This is a fund I added to my portfolio as a way of diversifying away from our (underperforming) domestic market. So far, this fund has proven to surpass the return I got on OCBC even though I’ve had it for less than half the time I had the latter. That being said, I do not receive any dividends from this fund.

To address the insatiable need for passive dividends every Singaporean investor so crave that I too am partial to, the Schroder Asian Income Fund which is a balanced fund consisting both equities and bonds make up the bond/income component of my portfolio. Since I removed two dividend stocks from my portfolio, I feel the need to add back some form of income-generating asset even though the dividend yield for this income fund is lower than the two bank stocks. Nevertheless, I still prefer to park my funds in here first instead of letting them sit in my pathetic “high-yield” savings account.

Exit strategy or emotional strategy?

When I went through the process of deciding to sell or keep both stocks and how each fitted in my overall portfolio, it felt completely logical and rational to me. Yet as I am writing this post, I can’t help but feel that it technically wasn’t and I was basing my investment decisions off my feelings which had little to do with the stock’s actual fundamentals. Exasperation fuelled my desire to rid of OCBC from my portfolio, whilst greed led me to make a hasty sell call on DBS.

I had a clear idea of where OCBC and DBS sat in my portfolio and wanted to hold onto both stocks long-term to collect dividends. However, I did not end up doing as planned and exited earlier than I intended. Thankfully, I “got lucky” with DBS and was able to preserve my capital in OCBC but that will not always be the case.

I always thought I was quite good at investing objectively. But I guess not lol. Moving forward, I will definitely work harder on managing my emotions when making investment decisions to become a more disciplined and effective investor and always remember: facts over feelings!!!

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