So, what is my answer?
Well, I can’t say for all. But here, let me share what I did for my own portfolio.
In times of uncertainties, I believe it is best for me to start by assessing my own objective and game plan for investing in stocks. Here is mine:
Personally, I’m an investor who invests primarily for dividend income that grows consistently for the long-term. I aim to accumulate shares of resilient businesses where their management teams have visions for future growth, especially when their stock prices are undervalued. I would love to hold onto them for as long as they remain solidly profitable.
This sets my own investment criteria where the stocks I like to invest into would have a solid business model, a track record of consistent growth in profitability, a robust balance sheet, fantastic in cash flow management, have well-discussed plans to sustain growth, and have attractive valuation ratios.
What Happened to My Portfolio During COVID-19?
The stocks I’d invested had fallen in price by some 30-50% in March 2020.
My capital appreciation had turned into capital losses in an instant.
Did I sell any of my stocks?
Nope, I did not.
Was I disappointed or worried? After all, I could have sold off my stocks to have my capital gains protected before the crash.
I wish I’m that smart and I can foresee where the market is and will be heading.
But, I’m not.
I don’t know how to predict stock prices or where our economy will be heading in the near future. I don’t know how long the COVID-19 pandemic will last.
In contrast, I was excited to experience the stock price crash in March 2020. For me, I viewed it as a chance to shop for high-quality dividend stocks because the stocks were on ‘Christmas Sales’, especially right after the lockdown.
What I Did During MCO?
I kept myself busy, shopping for discounted stocks. I was spoiled with choices.
I wished that I had all the money in the world to buy all of these solid stocks for they are seriously cheap. But, in reality, I only had so much to add into my stock portfolio so I have to be cautious with my next few stock investments. ‘Should I buy more shares of my own stock or should I buy stocks that I never invested in the past?’ Both seemed to be tantalisingly appealing to me.
What Stock Did I Invested Into?
After much due diligence, I have decided to invest into DBS Group Holdings Ltd (DBS) at S$ 18.31 a share on 6 April 2020.
Here is why:
1. DBS has reported continuous growth in shareholders’ earnings for the last 10 years. It has increased by a CAGR of 12.1%, up from S$ 2.04 billion in 2009 to S$ 6.39 billion in 2019. It is attributed by a consistent rise in its net interest income, and income from wealth management, cards and transactional services while it maintained a stable cost-to-income ratio during the period.
2. In 2019, DBS has reported to have a non-performing loan (NPL) ratio of 1.5%, a cumulative total allowances of 94% (or 191% in collateral is considered), a net stable funding ratio (NSFR) of 110%, liquidity coverage ratio (LCR) of 139%, and total capital ratio (TCR) of 16.7%. The above ratios measure the balance sheet strength of DBS and I find them (NSFR, LCR and TCR) to be above their minimum regulatory requirements by the Monetary Authority of Singapore (MAS).
3. In 2019, DBS had generated S$ 1.99 billion or 26% of profits before tax (PBT) from its operations in Hong Kong and Mainland China. I’m interested in this for I have learnt the Greater Bay Area (GBA) that consists of Hong Kong, Macao and Guangzhou Province as an area for growth in the long-term.
4. DBS has a culture that embraces digitalisation. This is evident with its launch of Digibank in Indonesia and India and establishment of 33 platforms under the Platform Operating Strategy that is aimed to build ecosystem platforms, further improve its operational efficiency and lending models via data analytics. This is important as banking is shifting to be more online or mobile-based from offline.
5. At S$ 18.31 a share, DBS was trading at a P/E Ratio of 7.44, P/B Ratio of 0.96, and its dividend yield is 6.71% per annum. Both the P/E Ratio and P/B Ratio are at their 10-year Low while its Dividend Yield is at its 10-Year High.
So, what did I do when I was given a chance to buy a shares of world-class bank that has a credit rating of ‘Aa1’, a track record of profit growth, has presences in main growth markets like China and India and embraces digitalisation at a price which is trading well below its valuation ratio and offers 6+% in dividend yield?
I invested into it.
But, What if its Stock Price Drop Further … ?
What about loan deferments, bankruptcy of Hin Leong, GDP contraction of 2+% in Q1 2020, the circuit breaker due to ongoing COVID-19 pandemic, a protest in Hong Kong, US-China trade tensions … the list goes on?
Aren’t you concerned that banks like DBS will be affected in the near future?
Won’t their stock prices fall even further?
I don’t know where DBS’s stock price will go after buying it at S$ 18.31 a share.
It can go up, down or sideways. Given the pessimistic outlook, I hope that it will drop further as I intend to accumulate and not trade for quick profits. So, if DBS falls to S$ 18, S$ 17, S$ 15 … etc, that would be good news to me. Thus, I buy in anticipation that it could drop further in the future.
Fast Forward to June 2020
Here is what happened to my investment in DBS and my portfolio presently.
1. DBS is trading at S$ 21.16 a share, up by 15.6% from my purchase cost. More importantly, I’d received 66 cents in dividends per share (DPS) which comprises 33 cents in DPS for Q4 2019 and 33 cents in DPS for Q1 2020 in early June 2020.
2. Most stocks in my portfolio had experienced a rebound in stock prices, hence, proving that the portfolio built has been resilient as it withstood a tough test of COVID-19, economic uncertainties and political instability worldwide presently.
Stock Investing Lessons Learnt from COVID-19
Here, I’ll list down a handful of key lessons learnt from this pandemic:
1. Keep cash for buffer and it could be used as standby reserves to capitalise on stock investment opportunities arising from heightening market uncertainties.
2. Focused on building a resilient and defensive portfolio by investing into stocks that have superior fundamental qualities at their lowest possible prices. Buy the stock as if you want to keep it for eternity.
3. Markets are unpredictable. My portfolio was downed by 30-50% in a matter of weeks and it can rise back up in months like a Yo-Yo. The reason for my stocks to have such ability is this – My stocks are superior in fundamental qualities that are demanded by investors. It won’t work if the stocks are ones that reported a string of losses or profit declines for many years.
4. Emotions like fear and greed drive the stock market. It has caused and will be causing prices of good stocks to either ridiculously appreciate or depreciate in the past, present, and future. Market volatility can serve as a friend as we could buy them at ridiculously low prices and sell them if they are superbly overpriced in the future (I rarely do so).
5. Have an investment game plan and stick to it. It is a freeing way to invest as I don’t need to be constantly reactive towards the latest news, rumours, reports, tweets, or postings on social media which may or may not impact stock prices. I think it would be great to invest with a prepared mindset that anything can and may happen in the stock market. It would be a fallacy to expect to buy stocks in anticipation of them to go up only without a plan on what to do if they fall.