Regulatory, Liquidity And Counterparty Risks

We are rapidly seeing the increase of multiple polarisations of geopolitical blocs and the complicated world order that we may be heading into, and these may amplify some of the risks that most investors tend to overlook. Most of us would associate risks as total loss of an investment due to market and economic forces, but we need to be aware of other forms of risks that, though the probability of it happening may seem be remote. Examples of these risks are regulatory, liquidity and counterparty risks.

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Regulatory risks are events where regulations, legislation and/or standards have a negative effect on certain sectors/industries. There are a few examples, one of which is the ever-present government antitrust suits against the technological giants.

Liquidity risk, from the market perspective, is one where a counter could not be sold, or liquidated, in required time, because of low or no demand for it. Some may have experienced liquidity risk when their shares/bonds were suspended on an exchange, oftentimes stuck there almost forever.

Counterparty risk is the failure of the other side (i.e., the counterparty) in carrying out their obligations of a financial transaction, such as the delivery of securities after payment has been made, or the failure of a bond to distribute a scheduled coupon payment.

After having introduced the risks and bringing back to the point said in the first paragraph where these risks are amplified, the growing geopolitical tensions would probably have, or had have, them manifesting as a sequence of events. A famous instance was the SWIFT (pun intended) sanctions placed on Russia the moment they invaded Ukraine, which led to, among others, the severance of the Russian market from Western investors. Regulatory risk (brought about by sanctions), then liquidity risk (unable to access the Russian markets to liquidate holdings) and at the same time, counterparty risk (defaults occurred in the trading of Russian securities individually or by fund houses).

While accordingly investors had gotten back their monies from their respective exchange traded funds (ETFs) that had Russian securities, the period in-between would be harrowing especially for those who may have a huge position in them. This is a clear demonstration that governmental actions could bring about a huge dent in one’s investment portfolio.

The abovementioned scenario could well play out if non-Western region or country is trying to do something funny in the great global game, and I could probably hear murmurs of turning away from global diversification and stick to local companies for safety. However, the best way to manage these risks is diversification itself.

Some may view this blogpost as scaremongering, but I must highlight that all investments carry risks, and it is up to the individual to determine the probability and one’s weightage of each of the risk types happening. Via diversification along the descending degree of asset classes, regions/countries, sectors/industries and then companies, and along with portfolio sizing (in my opinion, not more than 12% holdings for a company or a sector-based ETF), losses can be mitigated and limited in contrast to a wipeout had one instead concentrated. 

Disclaimer

Maximising Returns

Many times, I have been hearing others on the hypotheticals of getting rich from certain assets/securities if he/she had gone in earlier (GameStop, anyone?). Similar for portfolio make-ups, where certain asset allocation provided the best returns for certain periods.

For the above to happen, one’s foresight would truly need to be accurate, but as I had shared countless times, no one can predict right to the exact detail, so there is no point lamenting on missed chances. 

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I acknowledge that it is in the interest of every investor and trader to maximise their returns from their investments and positions, but it is near impossible to win all the time. The best one could do is to stick to one’s plan that works, perform due diligence in carrying out portfolio building and fundamental analysis, and realise that ups and downs are inherent in the investing/trading journey.

Though it is good to know about how much returns investing greats and some individuals on social media generate, it is preferable to gain some insights and learning points from them, rather than invoke feelings of envy and jealousy. Everyone’s financial journeys and objectives are unique from one another.

Disclosure

The Bedokian is not vested in GameStop.

Disclaimer

Dark Side Factors That Could Derail Your Investment Portfolio

As part of the Star Wars Day (May the Fourth) special, I will share a post on dark side factors that could derail an investment portfolio.

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Dark Side Factor #1: No Diversification/Under-diversification

Imagine an investment portfolio that consists of only one counter, and if anything extreme happens to it, be it a company bankruptcy or a bond default, the whole portfolio goes poof. In non-extreme cases, a price drop of its securities would bring put a big dent, since basically the portfolio equals to that one counter.

Going further, though with the safety of numbers, there is this risk of under-diversification as well, especially if investments are on basically one sector/industry and/or one region/country. Think about an event that affects the entire sector/industry (e.g., airlines and travel during the COVID19 pandemic) and/or country/region (e.g., the Asian Financial Crisis of 1997) and what would happen to the portfolio.

The answer to deal with this would be adequate diversification, and for the Bedokian Portfolio’s case ranks in the following order: asset classes, region/country, and sector/industry. In this way the risks are spread, with the downside mitigated due to the net effects of correlation between the counters.

Dark Side Factor #2: No Rebalancing

Rebalancing and diversification go hand in hand, thus even with diversification done but with no rebalancing performed, there is still a danger to one’s portfolio. Allowing an asset class to deviate from the preferred or designated allocation would create concentration risk akin to #1, lost opportunities to invest in other asset classes at their lows, and not to mention compromising an investor’s risk tolerance when the portfolio moves away from the set make-up.

Rebalancing can be done in two main ways: either passive or active. Passive rebalancing is usually done periodically, e.g., quarterly, half-yearly or annually. Active rebalancing involves re-allocation to the portfolio make-up constantly or within a short period. Either way, if it is done, one will be steered away from the dark side.

Dark Side Factor #3: Getting Emotional

The Jedi practised emotional control so as not to be affected by them, and this extends to how one should manage their portfolios whether during happy and crunch times. Many times, I have had heard of the phenomenon of “buy high sell low”, and dumping everything to “run for the hills”, only for the investor to regret the decision later.

The markets and the economy go through a boom-and-bust cycle, which is part and parcel of the investment journey. As said countless times, stay calm, enjoy the ride, be rational and carry on investing, for its time horizon is long.

 

Dark Side Factor #4: Not Sticking To The Plan

It is good to fine tune a portfolio methodology and make-up to suit one’s preference and risk tolerance, but to do it extremely (e.g., switch totally from equities to cryptos, etc.) and/or frequently (e.g., Bedokian Portfolio this year, 60/40 equities/bonds next year, etc.) would likely bring lower returns and unnecessary risks than one had not made the change in the first place.

When embarking on the journey of investing, it is recommended to know one own’s objectives and risk appetite, and also read up to learn about it, which I had covered here and here respectively. Once these are in place and the investing philosophy and methodology established, it is easier to carry out according to plan, and perform tweaks down the road.

Dark Side Factor #5: Leverage

While using leverage could increase returns based on what some investing books had stated, for the uninitiated it could prove to be a handful when one need to monitor the portfolio and the borrowings simultaneously. With an even greater leverage on leveraged products, where returns and losses are heavily amplified, the risk of margin calls is greater.

When utilising borrowings, it is important that one should have a clear understanding of what he/she is doing, and the advantages and implications behind them. 

 

May the Fourth be with you. 

Learning Points From The Past Two Weeks

The happenings and experiences of investors and traders for the past two weeks, in my humblest opinion, serves as an almost comprehensive trove of learning points to take home with, especially for those who are new to the markets, and for veterans relearning the basics.

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While I can pick at least a dozen major and minor points to talk about, for this post I will select four which I deem them as important. I will also provide some links to my previous posts for detailed explanations on the points.

Learning Point #1: Everything Seems To Go Down

In times of market crisis, a common observation was that everything was going down, even safe assets such as gold. There are a few explanations, which I had covered here and here.

In gist, a lot of investors would want to preserve their capital by moving to safe assets, which may include bonds, commodities (gold in particular) and cash. The problem was that the vast quantum and speed of assets liquidated by so many people within a short time had caused demand and supply distortions, which in turn affected prices. Though equities were the hardest hit, there were also investors getting rid of the deemed safe assets, too, like bonds and gold, to hold onto the most liquid of them all: cash, before thinking of their next move.

After “Liberation Day” on 2 Apr 2025, gold went below USD 3,000 per oz before soaring to an all-time high again, which proved somewhat correct the points raised in the linked posts above.

Learning Point #2: No One Is Able To Predict The Markets

There are amateurs (retail investors and influencers), professionals (analysts and economists) and anyone in between that would constantly try to predict the market outcomes, with some backed-up by data and information, but no one is able to do it correctly. By prediction, what I meant was the ability to have the correct outcome at the correct time, right down to the ‘T’, and I dare say it is almost impossible to do it. Read this writeup for more details.

A related note to this point is that since no one knows how things would pan out, the things that was said by people in the media should be taken as opinions, not the truth, hence we should not be blindly following whatever was spoken.

Learning Point #3: Bottom Fishing

Rational investors would know the past two-week period as “the sale worth waiting for” and eagerly biding their time to purchase their targeted counters at their assumed right price. The ultimate prize would be going in at the “bottomest” price before shooting up again. Catching the bottom, though slightly easier than predicting, still requires sheer luck. Personally, I was able to sell a counter at its highest and bought another one at its lowest, both once, in my investing/trading life, and I attribute them solely to good luck, not acumen.

Rather than waiting to fish for the bottom, there are other methods in getting a counter near its lowest, where I had shared here.

Learning Point #4: Keep Calm And Carry On Investing

This is self-explanatory, so I shall not say more. 

Disclaimer

 

The Most Expensive Show-And-Tell

On 2 Apr 2025, dubbed as “Liberation Day” by the current U.S. administration, a “show-and-tell” by the incumbent president on the imposition of reciprocal tariff rates on every possible nation and territory in the world, had wiped off at least USD 2.4 trillion worth of market cap from Wall Street¹.

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Apple plunged close to 15.8% over two days, and Amazon’s price down by around 12.6% over the same period, due to their supply chains intertwining closely with China, one of the main targets of the tariff drive. Across the global markets, indices and prices were down in various magnitudes over the uncertainties of the impact that the tariffs would bring.

In this post, I would not delve into the intricacies and implications of the tariff rates, and the main macroeconomic reasons why the U.S. is doing this, as these are factors way beyond our control, I will instead focus from the investor side of things.

Same, But Different, But Still Same

For those who had invested at least for the past six years, this plunging market scenario is like the one that was encountered during the COVID-19 crisis back in Mar 2020. Some may argue that the context of both situations is different, i.e., one was a pandemic where no one could predict when it would end, whereas the other is a deliberate economic event where somebody may know when it could end, these periods marked good moments to enter counters that one may have been waiting for, and/or to average down current holdings due to their relatively cheaper valuations.

And it seems that a lot of investors are learning this “buy the dip”; the day after Liberation Day on 3 Apr, retail and individual investors made USD 4.7 billion worth of net equity purchases (difference between bought and sold), the highest in 10 years². Yes, I am one of them.

Good Companies Tend To Be Resilient

While every equity security is screaming “cheap cheap” now, not all are equal; some may turn out well and become multi-baggers in the years to come, but there are a few whose prices could remain at a low level for longer periods. This is where the concept of company fundamentals come into play, and those with wide healthy financial numbers like good free cash flows, low gearing, etc., and strong moats like reliable customer bases and near monopolistic products/services, etc. would tend to pull through.

Fundamental analysis is needed to see if the companies are resilient. For one’s current holdings, a periodic review may be sufficient, while a full one is necessary if prospecting for new counters to invest in.

We Cannot Tell The Future

Will the tariffs be reduced? How much lower will the S&P 500 go to? What would be the bottom price for Apple?

My only answer to them is four words: I do not know. As oft mentioned by me, predictions, especially the correct outcome at the right moment, are short of impossible to state. In terms of the timing to go into the market, one can use indicators (valuations, price signals, etc.) as a gauge of whether to buy into the company/index exchange traded funds (ETFs). If one is on the path of passive investing with periodic rebalancing, and/or following a disciplined periodic approach of buying into the securities, then just continue with it.

 

The last best time to invest in a dip was five years ago. The second-best time is (probably) now.

Stay calm and invested.

Disclosure

The Bedokian is vested in Apple and the S&P 500 via SPY ETF.

Disclaimer

1 – Wynne, Alan. Lessons from “Liberation Day”: A guide to tariffs. J.P. Morgan Wealth Management. 4 Apr 2025. https://www.jpmorgan.com/insights/markets/top-market-takeaways/tmt-lessons-from-liberation-day-a-guide-to-tariffs (accessed 5 Apr 2025)

2 – Gottsegen, Gordon. Individual investors made a record $4.7 billion in stock purchases Thursday as new tariffs pummeled markets. Marketwatch. 4 Apr 2025. https://www.marketwatch.com/story/individual-investors-net-bought-a-record-4-7-billion-worth-of-stocks-on-thursday-as-new-tariffs-pummeled-markets-a82a4a8c (accessed 5 Apr 2025)

Sell Banks And Buy REITs?

I have had heard of the above mantra from chat groups and online blogs, possibly due to the perception that banks are (deemed) overpriced, and the recovery of real estate investment trusts (REITs) are in progress as observed from price movements and analyst reports.

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In portfolio management terms, this is rebalancing, where assets of different asset classes/regions/sectors are bought and sold to maintain the desired portfolio make-up. Within the action of rebalancing, however, there are variations in its execution; on one end some do it passively and periodically, while on the other end some do it actively and opportunistically to capture gains from anticipated events and news.

Back on the action of selling banks and buying REITs, it would be dependent on one’s portfolio, investment strategy and methodology used, and which part of the above described active-passive spectrum one is at. Depending on each investor’s circumstance, it may not be necessary to sell one and buy the other. For our case, as we are still in the accumulation phase, we rebalance by injecting capital, thus we buy both banks and REITs.

Providing more context and detail, we had recently deployed into OCBC when its price showed weakness during the middle of March 2025; this purchase is for averaging up our current holdings. For REITs, we had been nibbling them since interest rates started to spike in 2022, with the knowledge that every asset class would go through highs and lows in cycles (my oft stated “Sunday” and “Monday” moments).

Hence, to sum it all up, an investor needs to take stock (pun intended) whether the advice of “sell banks and buy REITs” is suitable for his/her investment philosophy and portfolio situation. If the advice is sound, then it must be rationally substantiated with reasons such as the purpose of doing so, the justification of fundamentals, etc. Following blind advice without facts and context is akin to listening to jumping into the deep end of the pool blindfolded and with hands tied, which someone with a sane mind would not do in real life.

Disclosure

The Bedokian is vested in OCBC.

Disclaimer

Frasers Centrepoint Trust’s Full Acquisition Of Northpoint City

Frasers Centrepoint Trust (FCT) announced the acquisition of 100% interest of Northpoint City South Wing on the morning of 25 Mar 2025, following up with another announcement of private placement and preferential offering for investors and unitholders.

 

 Screenshot of Northpoint City from FCT presentation slides.

Some Important Points On The Equity Fund Raising

The total acquisition cost is Singapore Dollar (SGD) 1,172.9 million, with the agreed property value of SGD 1,133 million. No less than SGD 400 million will be raised from private placement and preferential offering (the private placement had just ended with around SGD 220 million raised). From the proceeds of the raised equity, around SGD 415.2 million would be used to repay existing debts, and around SGD 6.1 million would be used for fees and expenses associated with the equity raising exercise.

Post-acquisition, it is expected that the distribution per unit (DPU) accretion increase by 2.0%, with aggregated leverage (a.k.a. gearing) increase 1.3% to 39.8%, all on a pro forma basis and on the assumption that the perpetual securities are issued.

The application for the preferential offering units is scheduled to open on 8 Apr 2025 and close on 16 Apr 2025, with the listing of the units indicatively on 25 Apr 2025.

The Bedokian’s Take

A good outcome from this exercise is that FCT is having full ownership of the entire Northpoint City and with it, cementing their place as the true “King of the North (of Singapore)” of suburban malls, complementing Causeway Point in Woodlands. Positioned at the “heart” of Yishun town with the namesake MRT station and bus interchange, and with 100% occupancy to boot (for both wings as of 31 Dec 2024), it is an almost sure-win in terms of having a captive market population through Yishun residents.

The major risk variable to FCT’s hold in the north is the impact of the Johor Bahru – Singapore Rapid Transit System (RTS), which I had covered here and it represented a double-edged knife, i.e., could go both ways. Overall, we would be going for the preferential offer due to FCT’s suburban mall dominance and to keep our holdings from being diluted (anyway, I had disclosed our intention to add more FCT in our previous post, so this offering had partially fulfilled it).

For the preferential offering, the issuance ratio is 54 units out of every 1,000 units owned. As we prefer our holdings to be rounded to the nearest 100, we are likely to subscribe for additional units to make up the number.

Disclosure

The Bedokian is vested in FCT.

Disclaimer

References

Frasers Centrepoint Trust. Presentation in relation to the Proposed Acquisition of 100% interest in Northpoint City South Wing and its Trustee-Manager as an interested person transaction. March 2025. https://links.sgx.com/FileOpen/FCT_SGXAnnouncement_Investor_Presentation.ashx?App=Announcement&FileID=837297 (accessed 28 Mar 2025)

Frasers Centrepoint Trust. Results of the private placement and pricing of new units under the private placement and the preferential offering. 26 Mar 2025. https://links.sgx.com/FileOpen/FCT_SGX_Announcement_Results_of_Private_Placement.ashx?App=Announcement&FileID=837445 (accessed 28 Mar 2025)

Being Opportunistic In the Past Weeks

Uncertainties caused by the threat of tariffs (implied or about to be implemented), and a slew of other minor reasons, had spooked the markets somewhat, with the S&P 500 index down more than 4% year-to-date. A down market is the time to look for bargains, and ample opportunities to buy in counters at relatively less expensive prices and/or to average down on securities that one may have already owned.

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Yes, this smack of the characteristic called market timing, which is usually frowned upon as the future price movement is a big unknown. However, any price is a good price if the investor felt the fundamentals and/or valuations had hit the right spot.

To summarise, since February, we had added the following five assets into our Portfolio Multiverse:

• Alphabet (Bedokian Portfolio)

• Nvidia (Bedokian Portfolio)

• OCBC (CPF Portfolio)

• NikkoAM-StraitsTrading Asia ex Japan REIT ETF (Bedokian Portfolio)

• Cryptocurrencies Bitcoin and Ether (Trading Portfolio)

Frankly, more counters were planned to be added, such as Frasers Centrepoint Trust, Frasers Logistics & Commercial Trust, and some bond ETFs (e.g., ABF Singapore Bond Index Fund, Nikko AM SGD Investment Grade Corporate Bond ETF, etc.) that we had in our holdings. However, these counters had seen a rise from around mid-March that, in my opinion, was possibly due to capital shift and asset class/regional rotation into Singapore assets, among other things.

There are always buying opportunities abound in the markets, depending on the economic situation, asset classes and market sentiments.

Disclosure

The Bedokian is vested in the mentioned counters/securities/assets in this blog post.

Disclaimer

An Ounce Of Gold And An Ounce Of Silver

Gold and silver are two of the most traded precious metals in the world, and in the financial markets they are valued on a per troy ounce basis. One troy ounce (abbreviated oz) is equal to around 31.1 grams (g) on the metric scale.

However, it is obvious that both gold and silver are not the same, which every science student could tell you that they are different elements in the first place, with similarities and differences in physical and chemical properties with and from each other. In this post I shall share with you the three distinct things between them: size, amount and price.

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Size

If you had ever seen an ounce of gold and an ounce of silver together, you may have noticed that silver looked larger than its gold counterpart. This is because of a characteristic called density.

Density is defined as the amount of mass within a given volume, and its unit of measurement is grams per cubic centimetre, or g/cm³. Silver’s density is 10.49 g/cm³, while gold’s density is 19.3 g/cm³. Thus, with a given mass of one ounce, the volume for silver for that ounce is 2.96 cm³ (31.1/10.49) while gold is 1.61 cm³(31.1/19.3).

However, if you are observant enough, the dimensions of the various minted and cast bars and coins do not equate to the volume given above, and it is slightly higher (e.g., the Perth Mint’s 1 oz gold cast bar measures 1.9 cm x 1.9 cm x 0.5 cm = 1.805 cm³). One reason for this occurrence is due to the surface irregularities caused by imprints, grooves, cavities, blisters, etc. that may increase its volume. Another reason is that the dimensions taken represents the approximate measurements and do not consider the minute variations mentioned in the previous reason. 

The bottom line is that regardless of the volume discrepancies, the mass (or weight in layman speak) and purity are the more important factors in determining the metals’ value (and price).

Amount

According to the United States Geological Survey (USGS) website¹, around 244,000 metric tons of gold and 1,740,000 metric tons of silver have been discovered to date. While there may be undiscovered amount of gold and silver lying somewhere under the planet’s surface, not all could be mined because of accessibility (depth, lack of technological means, etc.). Still, this currently proved that gold is rarer than silver in terms of their amount on Earth.

Price

While the gold-silver density ratio is 1:1.84, and the gold-silver discovered amount ratio is 1:7.13, the same cannot be said for the price. Unlike density, which is fixed, and amount in the world, which is roughly around there for quite a while, the price or mint ratio, known to investors/traders as the gold-silver ratio (GSR), is fluctuating over the course of 30 years, ranging from a high of around 1:126 or so in 2019, to a low of about 1:31 back in 2011².

The GSR is used as a gauge for overweighting/underweighting on gold and silver, and the “magic number” to trigger the rotation is dependent on individual’s preferences. The popular guideline around is the “80/50 Rule” that states:

• When the GSR is above 80, switch from gold to silver.

• When the GSR is below 50, switch from silver to gold.

If one followed the 80/50 Rule to the “T”, he/she would not have had a chance to buy gold because it had never fall below 50 since around mid-2012 onwards, though he/she could have had many chances of buying silver (now is a good period, too, since it is around 89).

It is still possible to invest in both gold and silver using their individual merits without looking at their interrelating GSR, like price levels which dictates their demand and supply. In terms of usage silver has more industrial uses than gold, especially the former’s use in the growing solar energy sector.

Conclusion

Now that you have a better understanding of the two precious metals, you may be interested in reading up more on them in The Bedokian Portfolio eBook (under Chapter 5: Commodities), as well as some posts which I will include them in the Related Posts section below.

Disclosure

The Bedokian is vested in physical gold and silver, and the iShares Silver Trust ETF (SLV).

 

Related Posts

High-Ho Silver!(?) 

The Gold Rush 

The Gold Silver Ratio 

 

1 – United States Geological Survey. https://www.usgs.gov/science/faqs/minerals (accessed 10 Mar 2025)

2 – Gold/Silver Ratio. Goldprice.org. https://goldprice.org/gold-silver-ratio.html (accessed 15 Mar 2025)

The CNN Fear & Greed Index

A tool that I use in gauging the sentiment of the U.S. markets is CNN’s Fear & Greed Index (https://edition.cnn.com/markets/fear-and-greed). Presented in a semicircular odometer-style chart on a scale of 100, the index has five regions, namely: Extreme Fear, Fear, Neutral, Greed and Extreme Greed. CNN uses seven indicators in deriving the numbers, which are explained in detail in the link provided above, and the index is updated as soon as new data from the indicators are available.

Screenshot of CNN Fear & Greed Index. Source: CNN, 8 Mar 2024

As shown in the historical numbers, the index can be volatile as well, and can change within just days or weeks apart; on 1 Apr 2024, the index was at 71, which was at “Greed”, and by 19 Apr 2024, it dropped to 28 which was “Fear”. For the period in context, the markets were down due to higher reported inflation figures which lowered the probability of interest rate cut by the Federal Reserve.

It was also during this period that we had entered Apple (USD 165, coincidentally on 19 Apr 2024) after using the CNN Fear & Greed Index as one of our indicators, on top of others such as price action, and a quick review of its fundamentals. Similarly, after the index’s recent fall into “Fear” territory from 21 Feb 2025, we had added positions to Nvidia and Alphabet (and after also considering other factors and indicators).

Personally, I find the index is a good gauge to utilise though I must stress that it should not be the main dealbreaker for your buy/sell decisions. As I had mentioned above, it is good to aggregate it with your other tools and analysis before pressing the execute button.

 

Disclosure

The Bedokian is vested in Alphabet, Apple and Nvidia.

Disclaimer

The Thing About Asset Class Correlations

In portfolio management, the term “correlation” has been mentioned many times as its very characteristic formed the basis of diversification among the asset classes. For those who are new to investing, correlation is “a statistical measure that determines how assets move in relation to each other”¹. As the various asset classes behave differently during differing market and economic conditions, their relative price movements with one another would be different given a set period or snapshot of time.

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However, there has been a notion that correlation in terms of price and returns is a zero-sum game. For example, in a portfolio consisting of two asset classes (let us call them A and B) and they are negatively correlated with each other, the assumption is that if the price of A rises, the price of B would drop, vice versa. Yes, that is correct, but only half; the correlation numbers are not fixed, and there are times where A and B gain together, and at times where both suffered losses together.

As stated above that correlation is a statistical measure, it is being defined by the time frame used. If in a day, the price of A and B moves in tandem, whether up or down, they are positively correlated with each other for that moment. However, if A and B moves differently from each other over a longer period, then their correlation may be less positive, or possibly even negative, for that said period.

Hence, it is not surprising to see A and B were having a negative correlation over set time, and yet both had positive returns. Providing a real-world example, I would use two asset classes that were conventionally opposites in the correlation thing, equities and gold (see Figure 1):

 

Asset Class	VTI	GLD	Annualised Return
Equities (VTI)	1.00	-0.14	23.81%
Gold (GLD)	-0.14	1.00	26.66%

 

Fig. 1: Asset class correlations of equities (represented by Vanguard Total Stock Market ETF (VTI) and gold (represented by SPDR Gold Shares ETF (GLD), 1 Jan 2024 to 31 Dec 2024, using monthly returns correlation basis. Source: Portfolio Visualizer.

 

The Bedokian’s Take

While correlation forms part of the overall concept of diversification, for the retail investor, my take is to be aware of it and how it works. Leave the correlation numbers crunching to the academics, analysts and financial bloggers like me to provide useful insights for all. 

Another trivia, which may come as a surprise to you, is that the main cause of correlation comes from you and me (sort of), and the rest of the participants in the financial markets. I will provide a couple of links under Related Posts below to understand why this is so.

Stay calm and stay invested.

Related posts:

Know This, And You Are Halfway Knowing How The Market Works 

Diversification Is Dead! Long Live Diversification! 

 

1 – Edwards, John. Why Market Correlation Matters. Investopedia. 31 Oct 2022. https://www.investopedia.com/articles/financial-advisors/022516/4-reasons-why-market-correlation-matters.asp#:~:text=Correlation%20is%20a%20statistical%20measure,in%20relation%20to%20each%20other (accessed 23 Feb 2025)

All Hyped Up: Banks And Gold

Recently, most investment online and offline talk that I have been reading are about two things: local banks and gold. The run-up of share prices and bumper dividends of DBS and UOB (and probably OCBC who will be announcing on 26 Feb 2025), and the spike of gold inching towards the landmark USD 3,000 price level, had caught the attention of mainstream investors wanting a piece of the action pie.

A common anecdotal indicator on whether something is being hyped up is when non-investors, like the oft-mentioned friendly neighbourhood barber/hairdresser, start to talk to you on the hyped asset. This is a strong, but not the ultimate, sign of an overhyped or overheated market, in general and/or for the asset concerned.

However, looking at the fundamentals of the local banks and gold, in my opinion there is still some potential upside; let us start with banks. 

 

The Big Three

 

(Picture credit: Jason Goh from pixabay.com)

 

All three banks are experiencing revenue growth over the past three years, which results in higher valuations. Figure 1 shows a snapshot of selected valuation ratios of DBS, OCBC and UOB.

Banks	DBS	OCBC	UOB
Price/Book Ratio (P/B)	1.93	1.38	1.29
Price/Earnings-to-Growth Ratio (5 year expected) (PEG)	8.85	2.61	1.58
Forward Price/Earnings Ratio (P/E)	11.95	10.31	9.78

 

Fig.1: Selected current valuation ratios for DBS, OCBC and UOB. Source: Yahoo Finance as of 22 Feb 2025.

Based on the numbers alone, UOB is currently the “cheapest” among the three, but before concluding, a deeper dive is needed because each bank’s business model and geographical exposure is different. On the latter point, for instance, UOB’s foreign concentration is more in the Southeast Asia region, while DBS’ is skewed into Greater China, and OCBC’s is mixed between Greater China and Southeast Asia. Hence, in conducting fundamental analysis (FA), do not just focus on the valuations and price alone; a holistic approach is required, i.e., the Bedokian Portfolio’s three-level FA method¹.

Being the only major financial institutions in Singapore, the banks represented its economic stability and health. As Singapore is one of the top five financial hubs in the world, DBS, OCBC and UOB, in my opinion, are positioned for further growth.

 

The Shiny Yellow Metal

 

(Picture credit: Soofia Tailor from pixabay.com)

 

Since the beginning of 2024, gold had broken the resistive USD 2,000 mark and went on a steep curve upwards towards the USD 3,000 line, resulting in a near 50% growth rate for the past year. There are a few reasons why gold prices spiked, like the current geopolitical tensions (trade wars and actual wars), economic uncertainty, hedging against inflation, central bank purchases, etc., and all these factors are intertwined with one another.

Unlike other asset classes which use securitization (i.e., legal “pieces of paper”) to denote ownership value, which may have a (very low) risk of being made worthless, gold (and other non-perishable hard commodities like metals) holds value on its own, depending on its demand and supply. Between 1971, when gold was delinked from the US dollar, and Mar 2024, gold had an average annual return of 7.98%². Despite losing out to equities in terms of returns over the same period, it is a finite resource, and its worth would go higher as time goes by.

 

Is It Too Late?

Another way to put this question is: what is the right price to enter. True that prices of banks and gold had gone up significantly over the past year, and there is a possibility of investors suffering from buyer remorse due to a possible fall in price after vesting in them. Although this can be seen as a form of averaging up for those who are vested and having the price margin of safety, for new entrants these deemed “high prices” proved a challenge.

The important thing here is to gain a toehold on them first by investing a token amount, and then average up or down from there. We do not know which direction the price movements will be, but if they are fundamentally sound going forward, then this is one possible way of starting on them.

Disclosure

The Bedokian is vested in OCBC and physical gold.

Disclaimer

1 – The Bedokian Portfolio (2^nd Ed), Ch 11

2 – Average annual return of gold and other assets worldwide from 1971 to 2024. Statista. 25 Jun 2024. https://www.statista.com/statistics/1061434/gold-other-assets-average-annual-returns-global/ (accessed 22 Feb 2025)