There are numerous strategies tycoons use to build tremendous wealth, such as investing in emerging blue chips. But today, I’m going to focus on a broader characteristic tycoons possess that any investor can use to expand their wealth.
And that characteristic is a patient and persistent attention to the price. Tycoons will wait as long as necessary for an attractive entry price point for high-quality assets, whether it’s a stock, bond, or property.
Now, the sharp pullback in a stock’s price that would draw a tycoon’s attention could be due to any of the following three reasons:
- There could be a broad market blowout, as occurred during the 2008-2009 global financial crisis. Great names like Johnson & Johnson (JNJ) fell 60% or more, giving investors a once-in-a-lifetime opportunity.
- A stock could be off due to company specific issue such as missing a critical earnings report, launching a new product that flops, or suffering a credit downgrade after missing an interest payment.
- A country or region could be out of favor, pulling down all stocks irrespective of quality and performance.
No. 3 is the case with a tycoon blue-chip idea that I’m covering today.
Opportunity in Southeast Asia
Southeast Asia is off about 20% across the board in 2015.
Why? The slowdown in China, a sharp pullback in commodity prices, fear that U.S. interest rates will rise… all these factors are negatively affecting sentiment and crowding out the many positives that these countries offer.
Positives such as growth rates that are four times America’s, geographic advantage at the heart of Asian trade and investment flows, a young and growing consumer middle class, and manufacturing wage rates below China’s.
As the financial capital of Southeast Asia, my pick is Singapore’s leading blue-chip bank – the Development Bank of Singapore (DBSDY), better known as DBS.
DBS is the leading consumer bank in both Hong Kong and Singapore, with influence throughout the region through 200 branches in 50 cities.
Investing in strong banks to tap economic growth in a country or region is a simple and time-tested strategy that can lower your risks, especially in emerging markets.
One of Sir John Templeton’s favorite strategies in difficult markets, banks as proxies for gaining exposure to undervalued markets around the world is both conservative and smart.
Banks have exposure to a national or regional economy through their loans and services to both companies and individuals.
A pick-up in economic growth leads to an increase in loan demand, higher levels of interest income, and lower levels of non-performing loans. Assuming capable management and ample cash flow, this should lead to a jump in profitability and stock price.
DBS is trading at just 10 times trailing and forward earnings and right at book value, while the industry average is around 2.3 times book value. This is in spite of DBS’ steady earnings growth of 10% and its impressive 40% net earnings margin. Moody’s also recently upgraded the credit rating of Singapore’s banking sector.
What’s most important is that DBS is rapidly building up its low-risk private banking and wealth management business just as wealthy Chinese assets are moving their capital offshore. Management is targeting a 40% increase in wealth management fees by 2020, and that may be conservative given the opportunities sitting right in front of the bank.
Indeed, wealth is piling up in Singapore faster than anywhere else in the world.
Investment assets in Singapore have surged an incredible 1,110% since 2000. If this rate continues, this city-state will overtake Switzerland by 2020.
Could tiny Singapore truly beat powerhouses such as London, New York, and Zurich?
Despite these strengths, DBS has pulled back 24% so far this year. It also sports a rich 3.6% dividend yield.
Blend some tycoon blue chips like DBS with the old standbys, and watch your global portfolio grow in 2016.