Buying DBS shares at above $40? Reasons why FOMO probably isn't a good idea!

Hi good people, yes I am back as teachers get some respite during this year end season. Hooray, we have made it to the end of another tedious and grindy year. A recent conversation with a friend went along the line of "Hey bro, DBS shares recently went up to above $40. I'm thinking of whether I should buy now?" Knowing that this friend of mine has all his investments in ultra safe assets like T-bills and Singapore Savings Bonds (SSB), I replied "Why do you want to buy DBS shares when it has rallied to an all time high since 2005?" He replied eagerly "DBS confirm won't die one. Besides, it has risen to above $40 and the momentum in its share rally seems strong. I think it will continue to go up. Its seems like a sure win, as the people around me seem to keep talking about DBS and everyone seem to be super excited over the juicy dividend and capital gain leh." Sighing, I replied "Bro, here's a few things to take note of before you FOMO. Personally I will avoid buying DBS shares at above $40 and these are my personal reasons why." (Disclaimer, I have DBS shares in my portfolio and I personally like DBS shares for its robust balance sheet and stellar ability to generate an impressive return on both shareholders equity and asset. Hence, this is not an article to smash DBS shares, it simply reflects my two cents worth of opinion on why I would void buying DBS shares at current market price.)

1. Price is what you see and value is what you get. In short, DBS price and valuations are both way too high for my personal liking. 

Lets go back to the basics. DBS price to book (PB) ratio is currently at above 1.7. Basically it means that you will be paying a 70% premium to buy DBS shares at its current share price of above $40. Personally this is way too high for my comfort. Lets put things into context. Personally, I bought all my DBS shares back in 2020 shortly after the circuit breaker hit us. Buying DBS shares back then at slightly above $22 per share, at a price to book ratio of about 1.1 seems more reasonable than current price which seems a bit too optimistic. Even if you take reference from DBS median PB ratio of 1.3 plus for the past 5 years, the current above 1.7 PB ratio should be a red flag not to join the herd frenzy of buying DBS shares. My friend replied at my comment "WAH LAU, but for people like me, when do I buy DBS shares then? You can't possibly expect me to wait till another circuit breaker or market crash right?" Looking at his distressed state, I patted his shoulders and sighed "Yes, bro this brings me to my second piece of advise."

2. Check your emotions and ask if you are emotionally competent in stock picking. If the answer is no, you'll probably be better off buying the whole index and adopting a passive approach to investing.

"Why do you want to buy DBS shares now? Why didn't you consider buying when the markets dipped during 2020 and during 2022?" I asked my friend. Grinning sheepishly, he replied "Bro, I was scared to shit during both the circuit breaker and during the inflation scare of 2022 lah." Smiling back, I quipped "Then doesn't it dawn on you that you were scared when markets were down. Now that markets have rallied strongly, aren't you being a little greedy and rushing in blindly? Don't FOMO bro, you might be better off either buying the whole index and adopting a passive investing approach. This could include dollar cost averaging or delegating your investments into a robo advisor." The conversation above shows that BOTH greed and fear are the worst enemies of most retail investors. Hence, one needs to be perfectly honest and ask if you are able to keep your emotions in check during market swings. If you have the tendency to sell when markets are depressed and buy when markets are rallying, you would likely be better off adopting a passive broad-based approach to investing versus timing the market. Besides DBS already occupy about 23% of the local Straits Times Index (STI) ETF. Hence, you could just buy the whole index if you can't handle the individual price swing of DBS shares. In addition, you'll able to gain from DBS share price rally, given the huge position of DBS shares in the STI. Ok, disclaimer, I am not advocating for either passive or active investing and you honestly don't have to pick just one approach. I personal adopt a blend of both. Nonetheless, this ultimately depends on your emotional competency in handling market fluctuations in the equity market, your investment experience and most importantly, your investment objectives.

3. FOMO just doesn't cut it. Whether its buying DBS shares, property, Bit Coin or any form of asset. Always go back to your investment objective and ask if current price justify an entry.

From the tulip mania collapse in 1637 to the railway mania in the first half of the 1800s to the more recent meme stock frenzy of 2021, history have proven time and time again that FOMO usually lead to bad outcomes for investors. Look, I am not saying that DBS shares are in a bubble, nor am I demeaning the quality of DBS (long time readers and friends would know that I personally like DBS for the above mentioned reasons at the start of this article). But you have to ask yourself why do you want to join onto the bandwagon of buying DBS shares now and not when markets were depressed and offering a relatively better valuation? If your investment objectives isn't clear and you get easily swayed by people's actions, FOMO will cause you to lose money consistently, no matter which asset you gravity towards. 

In conclusion, I will avoid buying DBS shares at above $40, given its high valuations. While I personally like DBS, as it is able to generate a high return on shareholder equity, assets, while having very low non-performing loans, buffered by robust capital reserves, current valuations turn me off. I'll leave a few useful sites below for easy reference, and do have an enjoyable year end break everyone.

Yours sincerely,

Finance Kaya Toast

Disclosure: This article was written as me talking to myself as an ordinary Singaporean, wishing to achieve financial freedom. It does not represent any financial advise. All opinions are independent and represent just my two-cents on all matters financially-related.


Useful reads:

https://drwealth.com/dbs-vs-ocbc-vs-uob-1q23-results/

https://www.thesingaporeaninvestor.sg/2024/08/12/dbs-vs-uob-vs-ocbc-who-came-out-on-top-in-its-q2-and-1h-fy2024-results/

https://financialhorse.com/dbs-bank-pays-a-6-1-dividend-yield-best-singapore-stock-to-buy-better-than-ocbc-and-uob-bank/

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