Is it time to sell stocks? DBS back at pre-COVID price!


Quite a few of you have asked me whether I will be selling stocks.

And with a chart like the below, it’s not hard to see why.

We’re in the midst of a global pandemic and the worst recession since WWII, and DBS’s share price is back to where it was in early March, before COVID blew up!

Now whether to sell is ultimately a personal call. If you bought DBS at $20 just 6 months ago and you’re happy with your 25% gain, locking it in could be the perfectly right thing to do.

So I’m not going to try to tell you what to do with your money.

BUT I will share my thought process for approaching this decision, and you can decide if it helps you.

BTW – We just launched a massive Christmas Promotion for all investing courses.

If you’re stuck in Singapore in December, why not learn to invest properly? 2021 will not be straightforward for markets – likely with lots of opportunities for investors!

Check it out here!

Basics: What happened in 2020?

A quick recap of 2020:

  • COVID lockdowns sparked a liquidity event in March 2020
  • Feds managed to stop the liquidity crisis by slashing rates to zero and going to QE unlimited
  • Big recovery heading into June as the first wave of COVID started to die down
  • Big falls heading into Oct as a second wave of COVID came back
  • Massive recovery in Nov after (1) US elections ended with a deadlock (Biden Presidency and Republican Senate) and (2) highly positive vaccine news

From a macro perspective, most of the action happened in March when Feds slashed rates to zero and unleashed unlimited QE.

Since then, it’s really just been a case of that easy money and liquidity supporting everything else that is happening on the virus front.

Short term (2021) vs Midterm (2022 to 2025)

We need to split up this discussion into the short term and midterm.

I’ll define the short term as 12 months out (2021), and the mid term as 2 to 5 years out (2022 to 2025).

Mid term (2022 to 2025)

What will not change in the next 5 years?

Instead of asking what will change in the next 5 years, a better question may be what will not change:

1. Low Interest Rates 

The way the global economy is set up, it can no longer take higher interest rates – it will crash the entire system because incomes will not be able to service the debt burden.

So I don’t think we’re going to see interest rates leave the zero bound for a long time.

2. Massive Government Deficits 

Government deficits will only get worse post COVID – because of declining tax revenue, and increased spending requirements to drive stimulus.

3. Demographics 

The western world remains stuck with an ageing population, and COVID will not change the population structure of the west (or Japan) in a meaningful way.

Demographics is really powerful because this massive group of baby boomers are retiring and are withdrawing assets from financial markets to fund their lifestyle. They do not actively contribute to society the way a 30-year-old starting a family will.

4. Deflationary impact of Technology 

There’s a good book by Jeff Booth (The Price of Tomorrow) on why Technology is inherently deflationary. It’s worth your time if you’re interested in such topics.

Think of the impact Amazon has had on retail prices in the US, and that will give you an idea why.

5. Inequality and polarization 

Inequality was already an issue from 2008’s QE. It drove asset prices up, so the rich who owned assets got much richer than the working class who exchange time/labour for money.

Inequality went up, and this was accompanied by rising social unrest and political polarization –Trump, Brexit etc.

2020’s COVID will only make this worse, because the lower class has been hit very hard, while the rich who own stocks and assets have benefitted from the liquidity.

This will only get worse going forward.

For the record, these 5 pillars were already in place pre-COVID. COVID was a catalyst, but it did not cause these structural issues.

Were it not for COVID, something else would have taken its place to spark off these problems.

COVID as a catalyst

That said, COVID did serve as a big catalyst. And what COVID did, was that it created a big global recession.

You can think of a recession as creating holes in the economy.

So the hole could be from SIA losing 90% of revenues.

This hole then has to be plugged by government, or it will have a knock on impact.

So if government takes out stimulus equivalent to SIA’s loss in revenue, they’ll be able to plug the hole, and avoid any bigger consequences.

That’s basically what we’ve been seeing in 2020 so far. COVID created big holes in the economy, and governments around the world have been furiously plugging them – to varying degrees of success.

Short term (2021)

What happens in the next 12 months?

The next 12 months is probably the start of the end of COVID.

It’s amazing that mankind discovered a new virus in early 2020, and by end of the year we’re ready to roll out vaccines to combat it. That’s testament to the ingenuity of mankind.

The logistics will be devilishly complex of course. But they will all be solved in due course.

After the second wave that we are going through now (which will subside as the winter months fade), I do expect this would be the start of the end of COVID.

2020 saw the imposing of COVID restrictions, 2021 will see the gradual reversing of COVID restrictions.

Base case – I would say around mid-2021, life may gradually start going back to normal for the more developed economies, and this would accelerate heading into late 2021.

Global air-travel will probably take a while more to recover, because of distrust between nations (requirements for immunization and testing before you can enter another country).

Do we have another March 2020?

A big question from you guys is whether we see another liquidity event like March.

Now March 2020 was a liquidity style event – everyone was leveraged long heading into 2020, and COVID caught everyone by surprise, forcing a violent unwind.

COVID is no longer an unknown factor, so it’s hard to see COVID itself causing a liquidity event (unless it’s a mutated strain).

It has to be something truly unexpected, that few people see coming – a big bank going under, Softbank going bankrupt etc.

Basically, something like Lehman going under in 2008.

Really tough to say if we see that this cycle. Governments globally are very keen to prop up their local companies. Capital markets have completely unfrozen (and partying like 2000), and there’s just a lot of liquidity around. Most companies that really need money, should be able to access it in some form.

So it doesn’t look like we’ll see it, but by its very nature this is supposed to be an unexpected event, so we never know.

What about high stock valuations?

There’s no denying stock valuations are very, very high on a historical basis.

Shiller PE Ratio and the Buffett Indicator are set out below, and both are way above historical levels.

Interest rates at zero

But I think one problem with a simplistic valuations based analysis like that is that it ignores the impact of interest rates.

With interest rates stuck at zero and likely to stay that way for years, it has really changed the equation for investors globally.

DBS Multiplier just announced further cuts this week, and we’re looking at about 1% blended interest rate for most investors.

And my point is this – you can’t look at valuations pre-COVID (when interest rates were 2%), and compare them to post-COVID (where interest rates are likely to be 0% for long periods).

It’s just not an apples to apples consideration.

To illustrate:

If interest rates go from 5% to 4%, bond prices go from $1 to $1.25.

If interest rates go from 2% to 1%, bond prices go from $1 to $2.

If interest rates go from 1% to 0%, bond prices goes from $1 to infinity.

That same 1% drop in interest rates, has an exponentially higher impact the closer we get to 0%.

Of course, the infinity doesn’t happen in real life, but the point is that once we approach 0% interest rates, the concept of money starts to lose its value. And that’s before we go into the world of negative interest rates.

So, and the point is this – Stocks look expensive, but wait until you look at bonds. Compared to bonds, stocks look like a hell of an investment right now.

In fact Market Watch did some calculations, and they found that stocks are the most undervalued relative to bonds since the 1980s. Which is just crazy right?

BTW – we share commentary on the COVID crisis every weekend, so please sign up for our mailing list, its absolutely free.

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Am I selling stocks?

I think the main problem with selling stocks for me, is what do I do with the cash.

In late March this year, I mentioned that I started buying stocks, and I would continue buying for the next 12 – 18 months. You can check the posts from back then for the thought process.

I’ve been doing just that, and it’s worked out amazingly well so far.

My stock and REIT position has grown massively this year, but I still have enough cash set aside to cover emergency funds.

So if I sell stocks now, I won’t be spending the cash – I just need to park them somewhere else.

And where does that cash go?

  • Cash – If it put it in a bank it earns 1% right now, which isn’t that appealing
  • Bonds – Bonds are even worse right now. The risk-reward just makes very little sense to me.
  • Gold – I like gold. I think it will do well mid term. But I already have a 10% position in gold, and I don’t want to overallocate.

Which leave stocks and REITs.

So basically, if I sell stocks now, I have to use it to buy other less overvalued stocks / REITs.

I could always try to market time – cash out and wait for a decline to buy back in, but those are quite specific trading style strategies. As a long term macro investor, I generally don’t employ such strategies when the macro is 50-50. This isn’t Jan/Feb 2020 when it was clear that macro wise things were going to blow up.

Cash is trash, but what to buy?

For the record, I still think there are pockets of value in this market.

I like reasonably valued REITs, I like cheap dividend stocks, and I like growth stocks at reasonable valuations. Oh and I also really like inflation hedges like Gold / Bitcoin.

Couple of ideas below from the FH Stock Watch, you can check out Patron for the full list:

  • Exxon, Shell
  • Gold / Gold miners
  • Google, Netflix, MU, AMD etc

That said I might do some light portfolio pruning, to sell counters that I want to exit, and rotate into more reasonably valued ones.

You can find my full portfolio on Patron too if you’re keen (weekly updates on what I buy/sell).

What happens in the next 5 years?

Now this is where things get REALLY interesting.

I actually think the next 5 years are going to be the golden years for macro investing – where all the 5 pillars at the start of this article will come into play, and result in a reset to the financial system. After that will probably be the death of macro investing, but hey – at least it goes out with a bang right.

The underlying structural problem, is that:

  • Governments need to spend a lot more money to get out of this COVID recession
  • That’s going to drive government deficits very high, which means interest rates cannot go up otherwise the debt burden will bankrupt the country
  • Even with low interest rates, the debt is unsustainable, so the only feasible way to repay it longer term is via inflation (deflation is too painful)
  • Effectively, the way to repay the debt will be to devalue the currency (inflation)

For the record, I’m not making this stuff up – it happens all throughout history.

During ancient times we have the Roman empire mixing tin with silver to increase the money supply (creating inflation), and there are many examples of this in ancient China as well. More recently, it was in the 1970s when the USD was unpegged against the gold standard.

Long story short, this happens all throughout history, and it involves a big depreciation of the existing currency of the day. Which today, is the USD.

There are 2 ways this can be done:

  1. A shock and awe event – Think 1933 when Roosevelt took the US off the gold standard. Or the Plaza Accord in the 1980s when the G7 agreed to devalue the USD, and the USD fell 50% over the next 12 months. This is a shock and awe kind event, with a violent reset of the financial system over a short period.
  2. A slow grind – Think Europe and Japan, but for the whole world. Under this approach, we probably have about 5 – 10 years of negative (or low) interest rates for much of the world, accompanied by slow growth. It will be a slow and miserable grind, but the end result is the same, the devaluation of fiat currency.

I think it’s too early to call which of the above we will see. It will come down to politics and characters, and it’s really tough to anticipate the exact sequence of events that will need to play out.

But because of this though, I think it’s dangerous to hold too big a cash position in the mid term. Elevated cash positions make sense short term to protect against exogenous risks (nobody knows exactly how COVID plays out), but as 2021 plays out and COVID uncertainty drops, it would make sense to continue deploying cash into markets, to protect against mid term inflation.

Love to hear your thoughts!

BTW – We just launched a massive Christmas Promotion for all investing courses.

If you’re stuck in Singapore in December, why not learn to invest properly? 2021 will not be straightforward for markets – likely with lots of opportunities for investors!

Check it out here!


  1. On the thought where there could a big depreciation of USD, what is the best way for the average singapore investor where SGD is our main expenses manage the FX risk? Investor who are allocating some part of the portfolio for growth would likely have some HKD and USD exposure. We already see USD weakening against most regional ccy. Putting FX hedges are probably too costly and not easy to monitor. Is there some asset class, instrument where it can give some sort of hedging exposure? Would be great if you have an article to provide insights to this, thanks much!

    • That’s a great question.

      The easiest way of course is to hold more SGD assets. SGD is a safe haven currency because of how the MAS manages it, so it’s a very good currency to hold in times of turmoil. The problem with this approach though is the lack of geographical exposure, because with SGD assets you cant get exposure to the China/US markets.

      At the end of the day, I would say some fx exposure is inevitable. But make sure you hold assets – eg. USD denominated real estate/stocks, so that if the USD drops, the asset prices go up and you have a de facto hedge against the currency depreciation. And then some diversification from gold/bitcoin etc. What you generally want to avoid is holding say 10% of your portfolio in USD cash for too long and leaving it naked to FX movement.

  2. Thanks for the post. Enjoyed it a lot. Do you have any thoughts on using the ‘cash’ to invest into property, since many options such as bonds etc are no go.

    • Yes, I have plans to purchase another property in the coming months. I’ve mentioned this on Patron in the past but might have forgotten to mention in this post. 🙂

  3. Dear FH,
    ‘where all the 5 pillars at the start of this article will come into play, and result in a reset to the financial system. After that will probably be the death of macro investing, but hey – at least it goes out with a bang right.’
    Can you explain how the financial system will be reset? ; transfer of wealth by Governments?
    ‘death of macro investing’, investment will be not based on Government’s actions anymore?

    • Personal view – via a big depreciation of fiat currency. This will lead to a transfer of wealth from the creditor class to the debtor class (and reduce the current inequality we see). My fear is that after this one-off (or slow) depreciation, governments will control global macro conditions. So think of the fixed income market in Japan and Europe, extend that to FX and interest rates, and multiply across the whole world. If that happens it would be the death of macro investing because volatility is removed.

  4. Hello FH,
    Thanks for reply. You have always been insightful.
    In this case, just my candid thoughts, we should make use of cheap credit now and amass wealth because our debts in future will be devalued?

    • Well if I am right – taking cheap debt to buy high quality assets is exactly one way to play this trade. As long as you don’t get forced to sell / margin called in the short term. 🙂

    • Personal view – Is that mid term we see a big depreciation of fiat currency. This will lead to a transfer of wealth from the creditor class to the debtor class (and reduce the current inequality we see).

      My fear is that after this one-off (or slow) depreciation, governments will control global macro conditions. So think of the fixed income market in Japan and Europe, extend that to FX and interest rates, and multiply across the whole world. If that happens it would be the death of macro investing because volatility is removed.

      Could be wrong though. This is a slightly more controversial call.

  5. Hi FH, thanks for the great insights (as always)! Do you think it makes sense to do a portfolio rotation now (and into 1H 2021)? I.e. yes it makes sense to sell some stocks (and bonds), and move into more risk-on areas:
    – Tilt away: Developed market government bonds and investment-grade corporate bonds, large-cap growth stocks (i.e. “pandemic-resilient” Tech), “stable” and resilient stocks (i.e. utilities, consumer staples)
    – Tilt towards: Emerging market government bonds, high-yield corporate bonds, “re-opening” stocks (i.e. transportation, consumer discretionary / retail), most other small-cap and value stocks

    • Hi LH! Great question.

      I think it will depend on personal risk appetite to a certain extent. For me personally, I’ve been doing that since about March/April – rotating out of cash/bonds and into risk on REITs/stocks. Massive massive rotation after the election and positive vaccine news, to the point where short term looks slightly overbought.

      So personally, I would say yes, but to watch the short term very carefully.

      But again, really depends on risk appetite. If you have money you cannot afford to use or need to access short term, markets are still very volatile with a 12 month outlook. 🙂

  6. An excellent piece! Thank you
    Strategies that I am adopting:
    – Booking profits from my modest US holdings to reduce further drag on account of the falling USD
    – Deploying that to buy SG REITS, which will hopefully reap rewards with recovery plus Low interest rates
    – monthly allocation to gold ETF as gold has dropped to circa 1800$
    – Long position for SG blue chips and buy value UK stocks as well – dividend play
    Hoping still for a good EU Brexit deal

    • Interesting, thanks for the share. The UK value stocks is a really interesting play. Any counters in particular you’re looking at?

  7. Thank you for the article, always enjoy reading them.

    Aren’t the 5 pillars contradicting with respect to spending?

    My thoughts as below, pls feel free to correct me if i understand them wrongly.

    Zero interest rate and massive Gov spending will drive up spending, money supply, stock prices and real estate prices as more money chase after yields

    But aging demographics and how technology is making everything cheaper (deflationary) will reduce demand or spending.
    Aging demographic = reduce of demand for everything
    This is specially toxic for real estate (thinking of Japan & Europe)
    If you buy commerical properties in Europe and Japan now, wouldn’t you suffer a loss later on?
    Why REITS like Mapletree North Asia Commercial Trust (MNACT) would want to hold buildings in Japan.

    Feel that ultimately, what move the markets or the focus is still the first 2 point about zero interest rates and massive gov spending.

    If USD was to depreciate 20% to 30% in the next decade, how do you think it will affect currencies like the Vietnam Dong, Indonesian rupiah, emerging currenices etc.

    • Yep, those are the right questions to be asking.

      Whether deflationary forces win out vs inflationary forces is going to be one of the defining themes of 2021. The way the modern economy is built, it cannot accept a deflationary impulse, so I think govts/central banks will do everything in their power to ensure deflation doesn’t win out, at least not over a longer period.

      The other 2 qns are a bit more tricky:
      1. Real Estate – Does demographics beat out interest rates and asset price inflation? Nobody knows, but over the past 10 years, the latter camp has definitely been winning. If I were to make a bet, I would say that continues going forward as well.
      2. A depreciation of USD like that will be fantastic for EM currencies. The tricky part is how it happens. How the USD goes from here to 30% weaker is the million dollar question, that has massive implications for everything else.


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