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PUBLIC BANK BHD: A Minimum Risk Investment

Recently I posted my article with the title “No Risk Investment Strategy” on KLK and Batu Kawan and many readers think that there is some risk in owning KLK and Batu Kawan. I should have qualified it by saying that if you buy KLK or Batu Kawan and keep them for the long term, you will certainly make exceptionally good profits.

As you know, all business operations face different challenges at different time. All businesses will always have competitors. For example, a property developer will have competitors offering cheaper and better houses. A manufacturer will have to worry about his raw material price increase and better products from his competitors. As a result, company profit will always fluctuate which causes share prices to fluctuate.

What is the safest share to invest with minimum rick?

If you look at the above long term price chart of Public Bank, you will notice that it was selling at Rm one in 1997 and currently it is selling above Rm 20.00, a return of 19 time your capital in 17 years. This return is about 18% per annum compounded over 17 years. Moreover, PBB gives out about 3% dividend per annum, making a total return of about 21% p a.

If you use margin finance which is available at base lending rate minus 2% = 4.6% pa you can easily increase your profit by another 10%, making a total of about 31% per annum. At a compound rate of 31% pa, you can double your capital in less than 2.5 years.

That means if you buy PBB with a capital of Rm 100,000 and fully use margin finance you will have Rm 1,600,000, 16 times your capital in 10 years.

I know many investors are fearful to buy PPB when it is selling at its peak price. You must bear in mind that PBB is always selling at its peak price because it’s share price is continuously going up in tandem with its profit or EPS growth. Even now it is selling above Rm 20 which seems to be so high but it is selling at a P/E ratio of only 17.

Remember, fear is often the biggest obstacle to success.

Over the years, I notice that all shares cannot continuously go up or come down for whatever reason and you can make more profit if you sell some shares when it is up and buy back when it is down.

PBB share price also moves up and down like any other share in the short term. But in the long term PBB share price should continue to go up. I strongly believe this long term up trend will continue because it is one of the best managed local banks and has been making more and more profit every year.

There is also little risk in investing in PBB stock unlike in some other less protected sectors. Unlike in other countries, Bank Negara regulates and protects banks because banks are the financial intermediaries of the economy. The Government regulates the banks to ensure that customers are protected and the country’s economy is safeguarded. In this way, investors also profit.