Transcription
Okay, so today we have a special guest in house. So we have Bianca from our PP analyst team here today to talk a little bit about the current market context, how people are feeling, and I think more importantly, to tap into an area of expertise which is mainly in the dividend/income investing space as well.
But maybe before that, just to set a little bit of context in the sense where, like, I believe for those of us who have stayed invested throughout 2026, it has been a pretty volatile ride. It's extremely roller coasterish, and I think after multiple episodes, I think markets are again getting excited about the current AI data center narrative for quite some time now. And they are mainly very growth-focused in the sense where when you buy this kind of growth companies, even though they're very volatile, they can go up like 20, 30% easily, they can go down 30, 40% easily.
Myself included, I'm also slightly guilty about it where we are trained to have that, um, buy the dip mentality because we know that the stock market generally in the long term tends to go up. But given how things have played out in the last 5 years, we we are kind of accustomed to that front. So I think maybe as a start, what's your view on that first context and also subsequently, is there still a space for investors to consider maybe a more income or dividend strategy moving forward from here in this kind of market context?
Hi everybody and glad to be back here. I know CK has hyped me up a bit. The point is, I'm just as human as CK and everyone else probably who's watching this video. I'm also just learning along the journey, and I would say these are little snippets of wisdom that I slowly gain throughout my whole personal investing journey. Can't say I'm an expert because there's so much more that I may not know yet.
But to kind of relate back to CK's question. So I would say I agree, it is tough to argue against the current market mode because, yeah, growth and tech have usually completely dominated the whole investing conversation for the better part of the first 5 years, and the returns have been, I mean, 20, 30%, it is pretty real enough to justify the whole excitement. And the AI narrative in particular has put quite a lot of capital and invested attention into quite a concentrated set of names, or I guess most people would have known the Magnificent 7, to the extent that any company that's outside of that universe has been basically been made to feel irrelevant. That's something to potentially debate on.
But essentially, that's the point. Everybody is just throwing their money into AI companies. And, yeah, most importantly, I do agree it has essentially trained, like indirectly, a generation of investors arguably with a very specific reflex. So every time that one of these, like say, Magnificent Seven companies have dipped in a share price, it's time to buy, and then you just hold it on diamond fingers, and you know the patience will be rewarded. So that's the environment that we're operating in.
But that brings us to CK's second question, like, is there a space still for income or dividend investing? Okay, again, this is just my personal perspective to it, but I would say yes. And the core reason for this is actually pretty simple because regardless of whether the market is booming or hitting all-time highs or coming crashing down, there will always be high-quality businesses out there structurally that have been designed, or at least the systems they have built within, will be able to generate reliable cash flows. And these companies would have that cash to be able to be returned to the shareholders like myself and CK. So a hot market in this case for AI does not magically eliminate all these, like, dividend cash cows.
But what it does, however, is that they make your entry price a lot more critical than ever before. So a lot of people treat dividend investing as one of those passive exercises where you just buy any stock that offers a dividend payout. But in reality, the reason why I said that your entry price is pretty important, especially in a hot market, is because the exact dividend yield that you lock in will actually be kind of determined from day one itself because it depends on the price you pay. So the formula is pretty simple, right? What's your dividend yield? It will be your annual dividend divided by the share price that you paid for that pursuit company stock. So if you were to pay an inflated price, you will essentially compress, while your denominator, and then therefore your dividend yield will be affected from the very beginning. And that drag can compound over time depending on how the share price performs. And ideally speaking, the comp dividend companies you're paying for, you will want the share price to go up over time, ideally speaking, or at least stay steady. So I believe that the opportunity to invest for income is always available, but you need to maintain discipline on your entry price because one of the things that separates a successful income investor from a relatively less successful one.
So I think when we talk about dividend or income investing as a whole, it's pretty vague because in a sense, there are a lot of different subsections. There are different asset classes within that universe as well, and within each different subset, different factors actually affect them. But maybe from a broadstroke perspective, actually, I've looked through some of the recent data, at least, is that they tend to not perform as well as some of the other things that we've discussed about. So maybe you can give us from a 150-foot pole view on how do I look at this whole section, in a sense where what has been happening, why have they not been performing, and moving forward, if you can crystal ball this entire thing, will they continue to underperform? I know it's a very big question to to ask, but just to get your view on this whole segment first before we dive into maybe specifics.
I may sound like Adam, but the point is, nobody has a crystal ball. I wish I had a crystal ball, but I don't. And asking me about how the markets in general will perform in the long run, the point is, nobody knows. I also think that anyone who gets claims that they know the directions of future interest rates and micro cycles with full confidence is most likely overstepping. I'm not sure if it may be the best way to think about this is, how can we build an income portfolio that holds up regardless of which way the market goes? Would that be a better approach?
I think one of the most helpful ways that Adam has shared in his teaching is that the answer is pretty simple, which is diversification within your whole dividend portfolio itself. So especially for capital gains investors, right? The way Adam has taught is to essentially also applies to dividend investing itself because different parts of the income universe, so whether it's investing in banks or real estate investment trusts or REITs, bonds, or private credit, they have different sensitivities depending on different market conditions, especially interest rates. So, for example, growing interest rates tend to positively impact banks because their interest income will also go on the rise. But this would negatively impact REITs because REITs use gearing, or essentially borrowing money from banks to finance, whether it's acquisitions or asset enhancement initiatives, basically renovation projects, to put it in layman terms. So these different market conditions impact different dividend stocks' performances.
So this brings its back to the point that if you were to diversify your capital allocation within your dividend portfolio in a healthy manner. So when one area, let's just say for instance, private credit faces headwinds, other parts of your portfolio will be able to absorb that. So rather than worrying about how the market will perform in the future and maybe consider sector allocation for that, perhaps a better goal to strive towards would be resilience rather than essentially prediction or speculation.
Okay. Actually, I just wanted to ask, just just a side question, right, for myself, is that amongst maybe my group or people that I know, there tends to always be this argument or we tend to overindex on the idea of what is a superior way to invest. You see, so now you see that growth investors are having their run over the last 3 to 5 years, everybody's printing money like nobody's business, whereas other investment strategies, maybe not even just income specifically, like they have taken a backseat, they have not been performing as well. So with all that said, I think since we have been trained that growth investing is like the so-al quote unquote superior way, at least for now, what do you think of your thoughts of like, is there still a point? Do I need to even bother about income investing or not? Should I just all-in go into growth and and just ride the wave regardless of volatility?
Well, I think that's a fair question, and ultimately, it would really depend on how one defines superior because, and I think if we were to like work backwards, right? I believe it really comes down to what you personally are trying to get out of your portfolio. So dividend investing and growth investing or capital gains investing, in other words, they are not competing answers to the same question. They are actually answers to very different questions entirely. So if your goal is to maximize capital appreciation, so you know, try to buy low, sell high, growth stocks, I would definitely say is the more quote unquote superior path or direct path towards that. And yes, there's perfectly nothing wrong with it. I also do it myself as well, or at least have my own personal capital gains portfolio.
But the trade-off that often gets ignored is that you are probably going to, with capital gains investing, endure higher volatility, and your drawdowns are probably going to be steeper. And with that, depending on, I guess, person to person, your psychological and emotional roller coaster experience to all these different market swings are probably going to be much greater. Meanwhile, on the other hand, so let's just say your dividend investing portfolio includes the Singapore banks, which I'm aware Adam also invests in them. Let's just take DBS as an example, since CK is Singaporean. If the bank happens to have a single earnings miss or a sudden shift in sentiment, so in this case, with the declining interest rates, um, DBS share price is probably not likely to just suddenly half in value overnight. Like the last time I checked, their share price is roughly about $60 S dollars. It's probably not going to just suddenly like half to $30 overnight just because of this single earnings miss. So that's the essential trade-off that I think it's important for us to acknowledge before we start to point fingers and say one is superior over the other.
And I think the another thing that's important for us to take note of is actually the income universe is not necessarily as disconnected from the current growth narrative that people assume. Like, for example, how CK, you mentioned at the start of this discussion that data centers, for instance, is one of the hot materials right now. Well, there are actually data center REITs out there, such as the Keo DC REIT or Keo Data Centers REIT in Singapore, for instance, and they are actually quite a legitimate play in the whole AI infrastructure demand, and yet they're also sitting comfortably within a well quote-unquote dividend or income investing framework. So that brings me ultimately to the point that I'm hoping to bring across is that really, growth investing or exciting growth or boring income aren't exactly like binary things. It's more about just being honest with yourself of, okay, what do you want your portfolio to do for you? Do you want to mainly collect dividends, or do you want to see your share price go up? Ideally both at the same time, but sometimes we can't get everything that we want, and then you work backwards and therefore build your allocations accordingly.
Since actually you have already also floated some of these sub-segments, right? Maybe I want to dive deeper into the potentially the income universe. So have floated things like REITs, your Real Estate Investment Trusts, your banks, which are probably your dividend growers as well, you have your utility-style companies, your bonds, your private credit, and things like that. So maybe just on the aggregate, what are some of the key potential opportunities or trap you see today in the current income space?
I think that's a tricky question. Well, without getting into very specific recommendations because legally we are not in the capacity to do so. But I think it's kind of the same thing as how we do for capital gains investing. So some of the most useful lens we could look into finding well opportunities is to see how market narratives may create certain like potential entry points within the income universe. So I'm going to just take private credit as a good real-life example right now. So as we may know, there is quite a few prominent business development companies or BDCs that have a relatively significant exposure to the software sector, and basically the loans that they give out to some of these companies includes software companies. And for a lot of big names, this forms about 20% of their entire portfolio, or sometimes even higher, like 30%. So with the whole SaaS or software apocalypse that is essentially haunting software companies like ServiceNow, Salesforce, Adobe, etc., this fear is also essentially leaking into the private credit sector. So with that reason, the fear surrounding this whole AI disrupting legacy software businesses is gaining traction, and this anxiety basically hits the whole private credit sector hard. And I think beyond that, it also did not help that there were some pretty public scenarios about a specific fund called Blue Owl Capital that is freezing withdrawals and essentially being forced to sell part of their loan assets just to return capital to investors. And even though has no relation to other players who happen to also be in this space, this whole fiasco has also triggered a cascade of fear across the entire private credit market and dragged down other players in the space, well, in terms of their share price, although they have nothing to do with the original trigger.
So now when it comes to opportunities, I can't say that private credit is an opportunity right now. But let's just say that you are an investor who has done your homework on this whole underlying asset class of private credit. This kind of market narrative may actually create a genuine entry opportunity. But at the same time, I'd like to cover that to say that this can also be a trap if you know nothing about private credit and suddenly you decide to just chase the dip without a clear investment thesis personally. Because I mean, just like how we bring back to the discussion earlier, no one can predict the future. This whole narrative or software apocalypse narrative altogether can stay negative for a very long time, maybe don't know, 5, 10 years, we just don't know before it starts to turn. So the point is, you need to form your own personal conviction before investing. And on top of that, the broader point I will hope to also make is that this situation also exists across the income universe all the time. It's not just private credit. So investors who have basically done their homework will be able to just separate the noise from, you know, all these scary headlines that you see on CNBC or Wall Street Journal from the actual fundamentals that they own. And yeah, this could be an opportunity or a trap depending on how you have kickstarted your research journey.
So actually for yourself, right? Are there any particular bright spots you're monitoring? Not saying whether it's an opportunity or trap, but what you are closely looking into, maybe other than private credit that you have shared just now?
Actually, personally, I have been eyeing the Singapore banks in general. Like for context, would be DBS, OCBC, and UOB because in general, I noticed that their price action seems to be steady or at least on the upward trend over time. And, um, essentially, these banks, they have shown a consistency in paying out their dividends to shareholders over time, and it's just one of those spaces that personally I'm interested in. I can't like vouch that this is suitable for everybody.
So thanks again so much for sharing insights into the entire income space, right? So maybe as we come to kind of the tail end. I was just thinking or role-playing in my mind that let's say I'm someone relatively younger in like the 30 to 35 range, and then he's very excited about this whole growth investing and investing in this kind of very, very volatile but stocks that can go very quickly that focuses a lot on capital gains. Then he says that like, oh, why should I even bother about dividend investing? If he says that to you, what would be your take on this idea that, oh, since you're younger, you shouldn't be even be dabbling into this whole idea?
Actually, I have been getting this, uh, statement every other week from some friends who are also in the investing space. Again, this can be arguably debatable and very subjective to personal opinions and risk appetite, actually, most importantly. But I would push back a little bit on the idea that you need a huge portfolio like $100,000 or more before it makes sense to start dividend investing. Even if I start with $1,000, right, to afford like 100 shares of OCBC, the Singapore bank, the payout is going to feel small early on, and I can understand, okay, it's easy to convince yourself that it's not worth it yet. But I think that the framing actually misses the point of why are you beginning early in the first place.
So, okay, there are two buckets that I could break this down into. So first thing is starting early means that you are locking in positions at today's prices, which can look very different 10 to 15 years from now. Or perhaps, if I take a real example, cuz, um, I saw that DBS share price, as we mentioned earlier, is about $60. About 5 years ago from this date, or in May 2021, essentially the share price was, uh, if I'm not mistaken, about $27 S dollars, or okay, to round up, $30. So even within a 5-year period, you have noticed that if you were to have entered a position in DBS, like in May 2021, your capital gains ironically would have actually more than doubled as of today. So if you were to start early and lock in at this price, who knows what share price that you will see of from your dividend portfolio 10 years from now. And just to regurgitate my point, the example I picked about DBS was just a 5-year difference. In addition to that, as a business essentially grows its dividends over time, the yield on what you're originally paid may keep getting better, especially with the entry price that you've locked in years ago that may look like a bargain 15 years, 20 years later on.
And then beyond [clears throat] the financial mechanics, right, about your dividend yield, I would argue that those early years where you start to build and slowly grow your dividend portfolio is actually an opportunity for you to build habits. The habit of essentially reinvesting your dividends as opposed to just taking them and spending it on a fine dinner, as well as the patience to hold true some of these volatility because, and any form of investment will have some degree of volatility without second-guessing yourself. So essentially, the whole idea is that it helps you to become a more astute investor as you slowly build a dividend portfolio. If you're unable to handle, let's just say $1,000 in the market, it's going to be particularly tricky for you to handle well, in this case, $100,000 or even more in the future. So the point is, what you're really building on in these early years is the discipline, and it should hopefully compound just as reliably as how your money and dividend yield would.
Okay, I think any last point you wish to add?
I think maybe just one final point is that actually income investing is arguably, personally, I would argue that it is just as rigorous as growth investing, and in some ways, you're going to need a whole lot more patience compared to growth investing because, as how I shared earlier, a lot of people tend to mistake dividend investing as one of those set-it-and-forget-it schemes for people who don't want to engage seriously with the market. And actually, that's not quite true because you've got to identify businesses that are healthy enough, well-managed enough, and structurally well-positioned enough to keep paying you that cash consistently, or even increase their dividends over time throughout all these different market conditions. And that actually does take some serious analytical work. You still got to do your homework. The key difference is that, okay, perhaps you won't be chasing like this really sexy market narrative or like earnings multiple expansion story. So at the end of the day, dividend investing is really still about building conviction on the whole underlying durability of the business. And when you get it right, the good news is that your portfolio would hopefully be compounding quietly while everyone else is probably riding the next emotional cycle of the next big thing. Who knows? It could be quantum computing that comes into the space in the future after the AI hype has died down. We just never know.
Okay. I think through this entire discussion, Bianca really shared quite a bit in terms of the income investing universe and how investors should look into it as well. So with that, I think hope you guys enjoyed it. Feel free to leave in the comments below on how you are positioning yourself, whether is it through dividend income or even just growth investing in general. And we'll see you guys in the next video. And till next time, keep winning. [music]