The Japanese Market: Hai? Iie?*

*Yes? No?

It was once an economic powerhouse second only to the United States, and its companies, products and technological innovations ruled the international business community and attracted a huge consumer base. 

Picture generated by Meta AI

However, after a series of events brought about by policy and economic factors, a drastic crash of its markets and economy resulted, and deflation and stagflation kicked in, marking the beginning of the so-called Lost Decade in the early 1990s. Later, the term had been pluralized to include the decades of 2000s and 2010s (i.e., Lost Decades). The extension of the lost years was due to the subsequent natural and market disasters such as the Global Financial Crisis in 2008, the Tohoku earthquake of 2011, and the COVID19 pandemic in 2020, not to mention the rise of the Chinese economy and competition.

In late 2023, the Nikkei 225 index, one of the two indices used as barometers of the Japanese equities market, began its surge to recovery, and by around February 2024 had gone to its all-time high, surpassing the level last reached in December 1989. In recent times, there were calls by institutions to invest in Japan, and Buffett’s company Berkshire Hathaway had made inroads into the five largest trading houses, which are diversified companies with huge horizontal and vertical industries and services.

On the economic front using the gross domestic product (GDP) growth rate, between Q4 2023 (coinciding with the beginning of the Nikkei 225 recovery) and Q2 2025, five of the seven quarters were positive, ranging between -0.5% (Q1 2024) and +0.7% (Q2 2024)¹. 

However…

Core inflation figures went to at least 2% every month year-on-year since Apr 2022², and while such figures were considered normal in most developed countries, for Japan, after experiencing periods of low or negative inflation, this was a rude shock, especially when real earnings including bonuses were mostly in the minus region during the same period³. Whilst the government tried to arrest the issue of inflation by raising interest rates, the sharp spike from 0.1% to 0.25%⁴ in end Jul 2024 caused a brief global market crash in early Aug 2024 (dubbed the “unwinding of the Yen carry trade”).

On top of GDP and inflation, two others longer termed “elephants in the room” are the oft-mentioned decreasing population demographics and the threat of a large earthquake (and accompanying tsunami) within the next 30 years. With so much not-so-good factors and news happening, is it still a compelling market to enter?

The Bedokian’s Take

Currently Japan is ranked fourth globally in nominal GDP on an individual country basis, below the United States, China and Germany respectively, but it is forecasted that their position would slip to fifth by the end of this year with India overtaking them. Despite having more negative than positive factors highlighted above, the silver lining is to capitalise on the weaknesses themselves. For instance, the rapid greying population favours healthcare and its related sectors and industries (e.g. medical technology components, geriatric equipment, etc.). Automation, where Japan was at the forefront before their Lost Decades, sees further runway ahead with its major role in addressing the dwindling labour population.

A weakened yen, though sounded like bad news for Japanese tourists wanting to travel overseas, is a good one from the country’s point of view in terms of the price competitiveness of its exports. In turn, this would bring about an increase in export-oriented domestic production and manufacturing (and incoming tourist dollars, too).

Learning Points

Looking at the macroeconomics of a country constituted part of The Bedokian Portfolio’s economic conditions layer for fundamental analysis⁵. Numbers like GDP, interest rates, inflation rates, etc. are publicly available from many sources and they tell an economy’s health and performance. While these macro variables are beyond one’s control, it is good practice to take them in for thought while carrying out one’s investment analysis.

Disclaimer

1 – Japan GDP Growth Rate. Trading Economics. https://tradingeconomics.com/japan/gdp-growth (accessed 16 Aug 2025)

2 – Japan Core Inflation Rate. Trading Economics. https://tradingeconomics.com/japan/core-inflation-rate(accessed 16 Aug 2025)

3 – Japan Real Cash Earnings YoY. Trading Economics. https://tradingeconomics.com/japan/real-earnings-including-bonuses (accessed 16 Aug 2025)

4 – Japan Interest Rate. Trading Economics. https://tradingeconomics.com/japan/interest-rate (accessed 16 Aug 2025)

5 – The Bedokian Portfolio (2^nd ed), p91-93

Nine Years…

Today marks the ninth year of The Bedokian Portfolio blog. For this anniversary post, I will touch on our definition of retirement and some updates on our Bedokian Portfolio.

Picture generated by Meta AI

Definition Of Retirement

Most people reach a stage in their professional lives known as retirement, which is typically defined as leaving one's job and ceasing regular employment. Many view retirement as an opportunity to step away from work routines and spend time differently. However, some may encounter challenges such as difficulty adjusting to new daily structures or uncertainty about how to spend their time, potentially due to a lack of post-retirement planning.

Our definition of retirement consists of two parts: reaching financial independence so that employment income is not required as the main source of funds, and gaining the flexibility to engage in preferred activities, including continued work if desired. For the first part, achieving financial independence often involves alternative sources of cash flow, such as investment portfolios or income-generating assets. The second part is qualitative and it relates to identifying personal goals and experiences previously unattainable due to work commitments.

Continuing to work after retirement remains an option, either for supplementary income or personal fulfillment, but one may choose to leave or change jobs if existing roles become physically or mentally demanding. The objective is to enable a fulfilling post-retirement life distinct from prior work routines. If continued employment is motivated solely by financial necessity or there is no structured plan for retirement activities, then one may not be fully prepared for this phase.

Our Bedokian Portfolio So Far

Despite geopolitical tensions and economic uncertainties, the bull run in the U.S. and our local markets continued, and these greatly contributed to our Bedokian Portfolio (and other portfolios in our Portfolio Multiverse, too). Our Bedokian Portfolio value as of 26 July is just around 8% shy of our 2028 year-end target, around three and a half years later.

As shared in this post we used an annual return of 4% for projection, which I guess for most people is conservative. We would prefer to stick to this number as it acts as a buffer should our portfolio value heads south in later years, and if the portfolio size grows more than expected, the plus point is that we may consider an earlier step-down point.

Cheers to all!

Is The Market Going Into Turmoil…Again?

Just when almost everything is starting to get better with a (supposedly) done trade deal between the two largest economies in the world, an event of military nature is brewing, where two non-bordering Middle Eastern countries began to trade projectiles at each other, threatening to widen an already existing conflict in the region.

Picture generated by Meta AI

Being a sensitive entity, Mr. Market had reacted, but not as bad it seems, for now; the S&P 500 index had gone down by around 1.1% since Thursday¹, and with gold (the safe haven asset) and crude oil (very positively correlated to the area concerned) prices up by about 1.8%² and 7.0% (Brent)³ respectively. However, with both sides warning of escalation, this may just be the beginning of another downturn.

While in terms of global affairs, each geopolitical and socioeconomical occurrence had a different context, for the market, the narrative remained the same; it goes up when there is good news and goes down when there is bad news. If one had invested at least for the past couple of years, he/she may have noticed that the market usually goes through a series of rise-and-fall patterns.

Thus begs the question of why a substantial number of people react wildly to boom and bust news, to which the answer is simple: emotions. Adding the effect of media (mainstream and social) making remarks about how things are going to get better or worse (or both) amplifies the feelings inside one’s minds.

As I had always commented, short of a nuclear apocalypse or an alien invasion, the investing world would continue to chug along, and all things, good and bad, shall pass. While one is at it, do make sure to take advantage of the situation, like buying in when others are selling out, which works for our style of investing.

Keep calm and carry on investing.

 

1 – Yahoo Finance

2 – Goldprice.org

3 – Oilprice.com

Don’t Know What To Get? Get An ETF!

A few days ago, we had received our proceeds from the delisting of Paragon REIT. As per our portfolio management practice, these would be parked at the cash portion of our Bedokian Portfolio. The recent inflow had increased the cash allocation to about 8%, which went above the allowable threshold of 7.5% (for us, we set the level of cash at 5%, with an allowance for 2.5% deviation). This meant that as per our guideline, it is preferred to deploy at least 0.5% to other asset classes.

Picture generated by Meta AI

While the past couple of years had seen cash being a good asset class, the declining treasury bill and fixed deposit rates reverted it to become what is known as “cash drag”, the opportunity cost of holding too much cash is the missed potential higher returns from it being invested into other financial instruments, though in our personal opinion we should hold some in case of opportunistic play (e.g. our 10-30 Rule¹). Also, the cash portion is where cash injections and dividends/coupons/interest would flow to, so it is like a reservoir of sorts with the necessity of having some water in it.

Still, there are times (like now) when it is difficult to determine where to deploy the cash to. The general idea of allocation is to put it at the asset class portion that is about to hit or hitting the negative deviation allowance, but the execution part is usually marred by this question: what to get?

There are three ways to go about it, but I shall highlight on the first two: prospecting and adding onto current holdings. For prospecting, it is understood that time and effort is needed to look for new counters to invest in (e.g., for me I did not prospect for a few years as mentioned here), and for those who cannot afford these resources, looking at current holdings is another way, but it is less incentivising to load them if their valuations are not favourable.

This brings us to the third way: going by exchange traded funds (ETFs), specifically those which are passive and follow indices. This method is in the domain of passive investing; investors would just rebalance their portfolios either via cash injections or selling deemed overvalued asset classes and buying into deemed undervalued ones. For ETFs, one need not to worry about valuations of individual counters since they represent (sort of) the entire asset class in general; in other words, it is buying into the asset class.

Of course, the caveat is to look for diversified ETFs that covers different geographical regions and sectors/industries for the “go the ETF way” to be effective. It could be a good jumpstart the portfolio into a core-satellite model².

 

Related post

Tired From Looking For New Companies To Invest? Read This (Very) Short Post

Disclaimer

1 – The Bedokian Portfolio (2^nd ed), p131-133

2 – ibid, p135-137

The Quandary Of Rebalancing

The two main ways of rebalancing one’s investment portfolio are either through cash injections, or the selling of an asset class and buying into another. During rebalancing, some investors may face a dilemma of sorts in the form of opportunity costs (or reinvestment risk, depending how one views it), and the need to maintain the portfolio asset allocation. 

Picture generated by Meta AI

Putting it into an example of a simple equities/bond portfolio, at the point of rebalancing, the equities portion is already over the allocation, yet an investor is not willing to tip the scales over to bonds due to its current lower returns compared with equities. If this investor goes ahead with plowing more into equities instead, he/she had defeated the purpose of rebalancing, and subsequently diversification.

Unless the portfolio is concentrated for a known purpose or for trading, having a heavily skewed investment portfolio would bring unnecessary risks. Yes, one may forego the additional gains and yields that the additional capital may bring, but for the sake of portfolio preservation and being in the comfort zone of one’s risk tolerance and appetite, rebalancing is a must-do.

Borrowing a saying heard in team sports:

No player (asset) is bigger than the team (portfolio) itself. 

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.

Picture generated by Meta AI

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. 

Picture generated by Meta AI

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.

Picture generated by Meta AI

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.

Picture generated by Meta AI

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.

Picture generated by Meta AI

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)

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

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)