CBA - Commonwealth Bank of Australia

[embryo]

I'm very happy with CBA and don't care what people label me as for holding these shares

 

[Rypieee]

Hahahaha, I've got a negative viewpoint on CBA, and based on its performance, I've been wrong.

Nevertheless, my view on CBA from a fundamentals perspective remains unchanged. In fact, I don't hold myself so much to account, to the share price, as I do, to whether I got my forecast in operational outcome terms, right. I'd like to think, that positive or negative operational outcomes = share price movement in a similar direction too. Perhaps, the guiding hand of the market has evolved into more capital flow-based, rather than, what we were acustomed to in the prior decades - especially following the GFC, where an ever-exponentially-growing amount of liquidity has increasingly become the seemingly, one and only response, to any crisis we face, regardless of where it was borne from - economic, pandemic, conflicts.

Outside of playing musical chairs with however many stools are left, speculating on the demand/supply dynamics of CBA itself, removing all that from this argument, its difficult to settle on a structurally sound investment thesis for CBA, for an investor. I'm all ears, if you have one.

Also, please don't crucify me for saying that I don't judge the performance of my "calls", to the share price. I'm limited in my ability to judge a company on only a handful of metrics, so I try to hold myself accountable based on tangible metrics directly correlated to my assumptions.
Too many times now, I come across investors, even fund managers, make a call for ABC to happen. Instead, XYZ occured. And they celebrate the performance. I'm not denouncing them in any way, I've just got my own set of rules and principles that I follow.

And yes, a crash in CBA is a huge wipe-out. One that extends beyond just the investors in CBA itself. However, I'm not jeering at current CBA investors. Don't get me wrong. Do whatever you think is right.

I suppose my purpose, is more so, trying to explain how I see the sector as a whole. In a gun to my head scenario, if i've been asked to pick a bank now to be invested in. I would argue that the other three majors have better valuation support buffers, based on their current trading prices. And if I continue to filter down, I would end up with nominating WBC as my preferred.

If I can leave you with one final thought. Or consideration that you could make, together with everything else which supports your investment thesis in CBA,

Imagine, market is crashing.

Then, domestic/international fundies who are overweight CBA, sell down to get to at least, net neutral to the market.

In the process, the premium in CBA (last i checked, 2x that of the other three majors) valuation unwinds (the premium was awarded on a growth basis i.e. lower cost of funding/market share/ higher NIMs) in a mega crash. That would compound the rush to the exits by investors. That's not it though.

What might happen? CBA's weighting to the index could, arguably, be downsized from the current 12% or something? If it goes to 10%, or 8%. Who's joining the selling now? Index funds. They track the index weighting, otherwise, they failed in providing the service they are mandated to provide.

Retail investors are typically slower to react. They might hold, they might sell. But if my theory on the CGT side is somewhat sensible, then a sharp decline, can result in a diminishing spread between the current cost of paying CGT, vs incurring a loss. Chances are, they might join the chorus, but will just be late to the party.

All the above factors are cumulatively, going to compound the selling pressure in CBA. But here's the kicker... Who's buying?

 

[Value Collector]

Hahahaha, I've got a negative viewpoint on CBA, and based on its performance, I've been wrong.

Nevertheless, my view on CBA from a fundamentals perspective remains unchanged. In fact, I don't hold myself so much to account, to the share price, as I do, to whether I got my forecast in operational outcome terms, right. I'd like to think, that positive or negative operational outcomes = share price movement in a similar direction too. Perhaps, the guiding hand of the market has evolved into more capital flow-based, rather than, what we were acustomed to in the prior decades - especially following the GFC, where an ever-exponentially-growing amount of liquidity has increasingly become the seemingly, one and only response, to any crisis we face, regardless of where it was borne from - economic, pandemic, conflicts.

Outside of playing musical chairs with however many stools are left, speculating on the demand/supply dynamics of CBA itself, removing all that from this argument, its difficult to settle on a structurally sound investment thesis for CBA, for an investor. I'm all ears, if you have one.

Also, please don't crucify me for saying that I don't judge the performance of my "calls", to the share price. I'm limited in my ability to judge a company on only a handful of metrics, so I try to hold myself accountable based on tangible metrics directly correlated to my assumptions.
Too many times now, I come across investors, even fund managers, make a call for ABC to happen. Instead, XYZ occured. And they celebrate the performance. I'm not denouncing them in any way, I've just got my own set of rules and principles that I follow.

And yes, a crash in CBA is a huge wipe-out. One that extends beyond just the investors in CBA itself. However, I'm not jeering at current CBA investors. Don't get me wrong. Do whatever you think is right.

I suppose my purpose, is more so, trying to explain how I see the sector as a whole. In a gun to my head scenario, if i've been asked to pick a bank now to be invested in. I would argue that the other three majors have better valuation support buffers, based on their current trading prices. And if I continue to filter down, I would end up with nominating WBC as my preferred.

If I can leave you with one final thought. Or consideration that you could make, together with everything else which supports your investment thesis in CBA,

Imagine, market is crashing.

Then, domestic/international fundies who are overweight CBA, sell down to get to at least, net neutral to the market.

In the process, the premium in CBA (last i checked, 2x that of the other three majors) valuation unwinds (the premium was awarded on a growth basis i.e. lower cost of funding/market share/ higher NIMs) in a mega crash. That would compound the rush to the exits by investors. That's not it though.

What might happen? CBA's weighting to the index could, arguably, be downsized from the current 12% or something? If it goes to 10%, or 8%. Who's joining the selling now? Index funds. They track the index weighting, otherwise, they failed in providing the service they are mandated to provide.

Retail investors are typically slower to react. They might hold, they might sell. But if my theory on the CGT side is somewhat sensible, then a sharp decline, can result in a diminishing spread between the current cost of paying CGT, vs incurring a loss. Chances are, they might join the chorus, but will just be late to the party.

All the above factors are cumulatively, going to compound the selling pressure in CBA. But here's the kicker... Who's buying?

Capital gains tax is only a maximum of 23.5% if you are in the highest tax bracket. It shouldn’t really stop you selling if you truly did believe the share was well over valued.

Saying that I haven’t sold my CBA shares yet, even though they would have to be below $130 for me to consider them fair value. I am considering selling a call option on some of them though.

 

[Rypieee]

Capital gains tax is only a maximum of 23.5% if you are in the highest tax bracket. It shouldn’t really stop you selling if you truly did believe the share was well over valued.

Saying that I haven’t sold my CBA shares yet, even though they would have to be below $130 for me to consider them fair value. I am considering selling a call option on some of them though.

I havent actually worked out the exact cost/benefit for an early (lets say, IPO) investor as to when, they are happy to sell their lot and incur 23.5%. Of course, this incentive scales down as we go up the cost base curve.

Irregardless, the one thing that is hard to factor in, is the relativity of individual stock prospects in the market - or just... what do i do with the proceeds? Investors also need to bypass this hurdle, to get closer to selling.

Another (more interesting) factor on the psychological aspects... Some out there, do enjoy seeing their cost base per share at $1, vs current price of $100+. You can show it to friends and family, it pops up on your reports - bragging rights? If they know that they will end up buying CBA again, albeit with a cost base multiples above what it was, they might just end up doing nothing.

These were my thought process, when formulating the "why's" as to; when referring to CBA as being highly liquid, given its market capitalisation/#1 ASX, it could very well be a mirage of sorts. I dont see this same problem elsewhere - TLS would be in a similar boat, if its share price enjoyed a similar pattern to that of CBA.

Covered call? Not put?

 

[divs4ever]

I havent actually worked out the exact cost/benefit for an early (lets say, IPO) investor as to when, they are happy to sell their lot and incur 23.5%. Of course, this incentive scales down as we go up the cost base curve.

Irregardless, the one thing that is hard to factor in, is the relativity of individual stock prospects in the market - or just... what do i do with the proceeds? Investors also need to bypass this hurdle, to get closer to selling.

Another (more interesting) factor on the psychological aspects... Some out there, do enjoy seeing their cost base per share at $1, vs current price of $100+. You can show it to friends and family, it pops up on your reports - bragging rights? If they know that they will end up buying CBA again, albeit with a cost base multiples above what it was, they might just end up doing nothing.

These were my thought process, when formulating the "why's" as to; when referring to CBA as being highly liquid, given its market capitalisation/#1 ASX, it could very well be a mirage of sorts. I dont see this same problem elsewhere - TLS would be in a similar boat, if its share price enjoyed a similar pattern to that of CBA.

Covered call? Not put?

if you were an early buyer of CBA ( at IPO or shortly after ) wouldn't the div. yields be compelling as a reason to hold ( not to mention the franking credits received )

but that train was already gone when i started investing , when i started MQG was at the station , so i jumped on that one

 

[Rypieee]

if you were an early buyer of CBA ( at IPO or shortly after ) wouldn't the div. yields be compelling as a reason to hold ( not to mention the franking credits received )

but that train was already gone when i started investing , when i started MQG was at the station , so i jumped on that one

Realistically, we should always be assessing our positions at the point in time (i.e. dividend yield to current share price), not based on the yield vs the individual's historical cost base. Using such metrics is purely just for a person's ego/self-fulfillment, which btw, nothing wrong with that, we each have our own little quirks. Just be aware of their implications on other areas of your life.

 

[divs4ever]

Realistically, we should always be assessing our positions at the point in time (i.e. dividend yield to current share price), not based on the yield vs the individual's historical cost base. Using such metrics is purely just for a person's ego/self-fulfillment, which btw, nothing wrong with that, we each have our own little quirks. Just be aware of their implications on other areas of your life.

not me

i assess my yield on the price paid ( for the share )

so PME is returning over 200% per year ( plus franking )

TNE is returning over 20% per year ( plus franking )

MQG is returning roughly 24% per year ( plus franking )

SNL is returning 25% per year ( plus franking )

 

[Rypieee]

not me

i assess my yield on the price paid ( for the share )

so PME is returning over 200% per year ( plus franking )

TNE is returning over 20% per year ( plus franking )

MQG is returning roughly 24% per year ( plus franking )

SNL is returning 25% per year ( plus franking )

Sure, you can have a list of yields vs your cost base, but those numbers will only be relevant to you.
Means nothing to the market. However, the market, and every investor in it, follow, judge, and assess investment prospects of the company, based on the current price. Its the only metric relevant to all.

 

[Ferret]

i assess my yield on the price paid ( for the share )

I'm curious why you would do this. It doesn't seem to be a very sensible way to assess yield.

You could be sitting on a share that pays only 0.5% yield on the current share price and is no longer growing. You could sell the share for a very nice capital gain and reinvest much more than your original capital in something with a higher yield or better growth prospects.

The false yield you are using masks this from you.

 

[divs4ever]

I'm curious why you would do this. It doesn't seem to be a very sensible way to assess yield.

You could be sitting on a share that pays only 0.5% yield on the current share price and is no longer growing. You could sell the share for a very nice capital gain and reinvest much more than your original capital in something with a higher yield or better growth prospects.

The false yield you are using masks this from you.

false ?

unrealized capital gains can be temporary

take my adventure in ISX from 1.4 cents to $1 , lucky for me i SOLD @ $1 , a few weeks later it is inaccessible ( maybe it is still listed in Frankfurt )

Linc Energy was another ( bullet dodged )

also capital gains have an inflation factor ( not just a tax liability )

AND what if it is hard to find a better place to invest the cash, that is a realistic scenario in the coming 5 years

it is very hard to get a 20% ( per year ) return without going right out on the risk curve , currently

i know i tried it for a while with corporate debt ( not 20% but sometimes nicely above 12% )

i am quite happy with the current strategy

as should any early holders of CBA

sorry but i don't churn assets unless there is a compelling reason to change the holdings ( like the swap from Blackmores into WES )

besides something that has grown more than 20 times since 2011 is liable to plod along ( growing ) for a while longer .. i am now over 70 i don't need them to grow forever ( just beat inflation )

 

[Ferret]

Well, if it works for you, that's great. I just prefer to be comparing apples with apples.

 

[Value Collector]

Covered call? Not put?

I am considering selling a covered call over some of the CBA I own, given that I think the way are pretty over valued. That way if the share price drops I at least get the premium but if it rises a couple more dollars I will sell.

I don’t know, I might not, just thinking about it at the moment. I will probably take another look at valuation of it before I decide

 

[Value Collector]

if you were an early buyer of CBA ( at IPO or shortly after ) wouldn't the div. yields be compelling as a reason to hold ( not to mention the franking credits received )

but that train was already gone when i started investing , when i started MQG was at the station , so i jumped on that one

Well, the way I would look at it is to compare the likely dividend and growth I could get in something else with the after CGT proceeds I got from the sale, vs what I would get in dividends and growth by staying in CBA

 

[Value Collector]

Realistically, we should always be assessing our positions at the point in time (i.e. dividend yield to current share price), not based on the yield vs the individual's historical cost base. Using such metrics is purely just for a person's ego/self-fulfillment, which btw, nothing wrong with that, we each have our own little quirks. Just be aware of their implications on other areas of your life.

I wouldn’t say looking at the dividends you get now vs what your original buy in was is ego, because that is your current return you are earning on the funds you invested, it’s an interesting fact to know.

 

[Value Collector]

I'm curious why you would do this. It doesn't seem to be a very sensible way to assess yield.

You could be sitting on a share that pays only 0.5% yield on the current share price and is no longer growing. You could sell the share for a very nice capital gain and reinvest much more than your original capital in something with a higher yield or better growth prospects.

The false yield you are using masks this from you.

True, but both data points are very interesting. Share prices can fluctuate wildly, but knowing the cash flow you are receiving based on the original amount you put in is interesting.

 

[Value Collector]

I'm curious why you would do this. It doesn't seem to be a very sensible way to assess yield.

You could be sitting on a share that pays only 0.5% yield on the current share price and is no longer growing. You could sell the share for a very nice capital gain and reinvest much more than your original capital in something with a higher yield or better growth prospects.

The false yield you are using masks this from you.

Also, some investment strategies are super long term, to the point where the assets are going to be warehoused on the books of their owners and basically "held to maturity". In these cases the dividend is the only return that the holding entity (either a person, company or trust) will ever get outside of a capital distribution when the asset is eventually wound up. For these types of investments/holding periods the market price of the asset on an day or in any time in history is basically irrelevant. What is important is the current and future dividends.

 

[Rypieee]

Also, some investment strategies are super long term, to the point where the assets are going to be warehoused on the books of their owners and basically "held to maturity". In these cases the dividend is the only return that the holding entity (either a person, company or trust) will ever get outside of a capital distribution when the asset is eventually wound up. For these types of investments/holding periods the market price of the asset on an day or in any time in history is basically irrelevant. What is important is the current and future dividends.

Yeah I was thinking of that perspective as well. Essentially, having for-gone the capital invested, but the thing is... the capital is still there. Should still be taken into account (incl. future divs) as a collective, and that brings it back full circle to current prices haha.

Maybe ego/self-fulfillment was too harsh of a description to use. Sorry if I offended anyone. At first glance, I couldn't see the logic using your cost base, asides from "hey guess what, I bought CBA at $10, and now I get a 20% yield". I know I would use that as bragging rights. And I know it wouldve fuelled my own ego, hence I just threw it out there. So, again, apologies for any offence taken.

 

[divs4ever]

Yeah I was thinking of that perspective as well. Essentially, having for-gone the capital invested, but the thing is... the capital is still there. Should still be taken into account (incl. future divs) as a collective, and that brings it back full circle to current prices haha.

Maybe ego/self-fulfillment was too harsh of a description to use. Sorry if I offended anyone. At first glance, I couldn't see the logic using your cost base, asides from "hey guess what, I bought CBA at $10, and now I get a 20% yield". I know I would use that as bragging rights. And I know it wouldve fuelled my own ego, hence I just threw it out there. So, again, apologies for any offence taken.

not so much bragging rights as giving a better perspective of your viewpoint

take SNL as an example , i got in years back at a sub $3 price

to me it is a GREAT money-earner , those buying in @ $40 plus , can only dream and hope for a while and wait

so if i ranted on about capital gains and div. returns ( which are roughly 1.4% currently on today's price ) somebody might get misled

conversely i could take about LLC ( where i am taking an acid bath ) but a buyer today might have jumped on the train at a fortuitous moment

PS 'acid bath ' translates to down up 65%

now sure i could 'average down ' but have chosen not to so far

 

[Value Collector]

At first glance, I couldn't see the logic using your cost base, asides from "hey guess what, I bought CBA at $10, and now I get a 20% yield".

Well, each individual investors cost base does determine their individual return on investment.

Interestingly I watched the Berkshire Hathaway meeting over the weekend, and as Buffett was discussing Geico Insurance and mentioned that they paid $2 Billion for 50% of it in 1996, and today that 50% pays out $4 Billion a year for them, while also providing $39 Billion of float the get to invest elsewhere.

So its interesting that even the worlds greatest investor is looking at current earnings and comparing it back to his original purchase price , but this is an example of the situation where I said the asset will never be sold, and will be "held until maturity" on Berkshires books, so current market price they could sell it for is irrelevant. However how much cash its adds to their cash pile each quarter vs how much cash it took out of their cash pile to buy it is interesting.

 

[divs4ever]

Well, each individual investors cost base does determine their individual return on investment.

Interestingly I watched the Berkshire Hathaway meeting over the weekend, and as Buffett was discussing Geico Insurance and mentioned that they paid $2 Billion for 50% of it in 1996, and today that 50% pays out $4 Billion a year for them, while also providing $39 Billion of float the get to invest elsewhere.

So its interesting that even the worlds greatest investor is looking at current earnings and comparing it back to his original purchase price , but this is an example of the situation where I said the asset will never be sold, and will be "held until maturity" on Berkshires books, so current market price they could sell it for is irrelevant. However how much cash its adds to their cash pile each quarter vs how much cash it took out of their cash pile to buy it is interesting.

while i don't copy Buffet/Munger exactly , they did have some great ideas that would work for me ( so i use them where i can )

of course being 70(ish ) 'forever ' isn't that far into my future , so younger folk will be faced with different priorities on their investing journey , and different temptations