One of the best investing decisions that I have made during this pandemic is to load up on Singapore bank stocks (DBS, UOB, and OCBC) when they crashed to very low bargain prices in 2020.
The 3 banks are the linchpins of the Straits Times Index (Singapore stock market) as they have more than 40% weightage on the index. They have excellent fundamentals, strong cash reserves and consistently growing their profits. They also give a decent payout of 3 to 5% per year. The bank stocks are like the fat geese that lay golden eggs.
So why did I sell all my bank stocks when they are such great companies to hold? Why am I selling away all my golden geese?
This decision has definitely nothing to do with the Russia-Ukraine War.
Here are my reasons.
Reason 1: They have reached All-Time-High (ATH) prices
These bank stocks are now trading at their all-time-high prices and the chances of them doubling are pretty slim. Assuming they give an average of 5% dividend each year, it will take 20 years to achieve 100% profits of the invested capital.
I think another 10% growth in their share prices in the coming months is possible but it is unlikely to rise more than 30% growth of their current share prices. Thus, the room for growth is limited.
Reason 2: The catalyst of the Federal Reserves’ multiple interest rate hikes has been factored in and any U-turn from the Fed will send the stock price down
The financial sector has been a beneficiary for the Fed’s policy to increase interest rate this year and many financial institutions have seen their share prices increase significantly over the past few months. The market always looks forward and I believe these catalysts of the interest rate hikes have already been priced into the share prices. However, nothing has been confirmed yet. If the Federal Reserve decides to do a U-turn and become more dovish than hawkish, the banks’ fortunes will be reversed and their share prices will start falling.
Reason 3: Unrealised profits will remain unrealised
While the unrealised gains were increasing with the share prices, they remain unrealised until the day I sold my shares. If any unforeseen events were to occur, e.g. the Fed’s U-turn explained in reason 2, then these unrealised gains would slowly become lesser as the share prices drop. Thus, selling away my bank shares allow me to finally lock in the profits on these gains.
In my latest and last sale of bank stocks, my average price in DBS stock is $20 and at $36, my profit is 80%. For my UOB stock, my average price is $21.5 and when I sold at $32, my profit is close to 50%. All these profits are realised and in the bag, regardless of what happens in the future.
Reason 4: I have better plans for the realised profits and newly available capital
The biggest reason that propels me to make this huge decision is that I have greater plans for the capital that I can release from this sale. Owning the bank stocks gave me passive income through the dividends but I am seeking higher returns through options trading. And these returns will come in the form of extra monthly income that I can either reinvest or use to pay my expenses so I do not have to rely on my day job anymore to provide me with the income I need.
In the worst trading month of my trading journey, I still managed to get SGD5.5k, despite cutting huge losses on some counters. Thus, I am confident that I can earn an average monthly income that is higher than $5.5k. With the new capital (around 100k) that I get from selling my bank stocks, I will be opening more options contracts relating to the Wheel Strategy and thus increasing my monthly income through trading.
I am actually very interested to sell and open another PUT contract on Tesla. If Tesla’s price is going to fall back to USD600 or lower, I will be selling a PUT contract on Tesla using the new capital that I have now. If Tesla’s share price rebounds and does not hit my target price, I may increase my stakes in Nvidia, another of my high conviction stocks, which can help to generate higher returns due to its volatility.
Without reason 4, I probably will still hold onto my bank stocks and let them generate passive income through their dividend payout. However, I believe in life, we sometimes need to take a calculated risk to gain a greater reward.
Keen to learn about options trading but do not wish to pay for expensive courses, this newbie guide will help gain the knowledge and fundamentals to understand options better. And it’s totally free!
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2 thoughts on “I Sold All Of My Bank Shares | The Final Step Towards Financial Freedom”
Hi Jason. Looks like you are going all in us options market. Good luck!
Thanks Bro Raymond! Yes, taking on calculated risk in exchange for higher returns 🙂 The SG bank stocks are at sky-high prices while the US market has presented so many opportunities with many stocks crashing, so I think now is the right time to switch the funds around.