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Is it a good time to invest in OCBC shares?

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Hi SG Wealth Builder,

My comments on your post: OCBC Bank’s 3Q16 results beat market estimates. I’m not sure why it shows “failed to leave comment” on your article post. Hence, I drop you the comment via this mail.

My comments: I’m curious on your statement stating that your target entry for OCBC stocks will be at $6.00. Current trade price for OCBC share is $8.43. Based on the liquidity of SGX market, the price could hardly fluctuate in between price gap of around $2.00++. Not to say it’s impossible, as anything is still possible to happen in the stock market.

My concern here is if we were to wait for that target price of $6.00, and assuming the market goes smooth for the year. Then we will be missing out the 1 year opportunity for the stocks if the price never achieve the target price of $6.00 within the year, isn’t it? Since based on analysis the stocks growth is strong and having potential of profit as well. This is just my personal opinion and it’s always my pleasure to share and learn more from your analysis. Hope you have a great day!

Best Regards,

William

I received the above email from one of my readers. Really grateful to him for reaching out to me. Recently I have some technical issues with my blog plugins. Hence, if you are unable to leave any comments in my blog or is unable to subscribe to my blog posts, please feel free to email me at sgwealthbuilder@gmail.com.

With regard to William’s query on whether its realistic to expect OCBC share price to drop to the $6.00 level, I must say that there is no right or wrong answer. The only thing that matters is whether readers made money from investing in OCBC shares. Indeed, there is the risk of opportunity loss if the target price is never met. But for my case, the return of capital is more important than the return on capital. Allow me to elaborate.

For some investors, they have the luxury of a huge war-chest and can afford to allocate much funds in holding on to blue chips like OCBC shares. Thus, with strong holding power, they are able to ride out any major stock market corrections even when the share prices fell below the target exit levels. For my case, I do not have deep pocket and hence, $6.00 is the ideal level for me to start buying OCBC shares. This is my margin of safety for OCBC shares. So even if the OCBC share price dropped below this level and I were to possess the shares, I would not panic sell.

Many investors assume that the safest approach in stock investments is to buy and hold blue chips for the long term. But look at what happened to SMRT and NOL? Both got privatized at fair value at the point of trading but long-term investors who had bought at much higher price would have suffered explosive losses.

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No, I am not suggesting that OCBC would be the target of a hostile takeover. The chances of that happening is very remote because OCBC is fundamentally a very strong bank. What I am highlighting is the lack of entry and exit strategy among many investors. Many investors ignore the importance of setting entry and exit price for their stock investments. So whenever there are significant changes in the business fundamentals, they still hold on to the stocks with a blind faith that capital appreciation will occur in the long run.

Another point to note is that bank stocks are the typical bellwether of the economy. During bad times, the share price of bank stocks like OCBC tend to under-perform due to weak market sentiments. Thus, even though OCBC’s recent financial performance is good, its share price will still be pegged to the macro-economy health. So far this year, the share price had dropped to a low of $7.46 due to China’ stock market crash. Therefore, it is not inexplicable for OCBC share price to slide to $6.00 if recession really struck Singapore.

Basically, I am not in a hurry to be one of those “long-term” investors with capital trapped in shares. I prefer to study the market and enter at a price that meet the value of a stock. Of course, defining the value of a stock is very subjective and one man’s poison may be another man’s meat. The bottom-line is figuring the level of entry and exit price that you are comfortable with for that particular stock.

Do you invest in OCBC shares? What are your thoughts and comments on this article? Feel free to share your comments in this blog. Alternatively, if you wish me to analyse another SGX stock, please contact me at sgwealthbuilder@gmail.com.

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Magically yours,

SG Wealth Builder

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1 Comment

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  1. Hi SG Wealth Builder,

    Thanks for your details explanation on my queries.
    At least now I have a clearer picture on your sharing of the minimum entry price that you meant.
    Truly appreciate!

    Best Regards,
    William.

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