To begin with, let’s look at the market capitilsation of the big banks in Australia. As of time of writing, the market capitilsation is as follows:

1. CBA……….. $153 billion
2. NAB………..$86 billion
3. WBC……….$68 billion
4. MQG……….$62 billion
5. ANZ………..$61 billion

It may surprise a few of you that ANZ is currently not in the big 4 banks anymore as defined by market capitalisation (that being the share price multiplied by the number of shares outstanding). You can view the Mkt Cap ($M) column in Stock Viewer in VectorVest. To get to the market capitalisation figure, take the number in the column marked: Shares (M) and then multiply by the current share price to arrive at the market capitalisation (while there is no need as you have it already, but for those of you who want to see how this is derived). As you can see, market capitalisation can change from week-to-week with WBC , MQG  and ANZ  all being closely bunched!

As VectorVest pointed out in a recent Q&A, we have been noticing the decline in the banks. Since the 1st of June through the 21st of June, CBA  is down 15%, NAB down 14%, WBC  down 18%, MQG is down 12% and ANZ  is down 13%. Yet, you may be scratching your head once you graph the top 5 banks. Notice how Earnings (EPS per VectorVest) for all the banks are rising! Also notice how all the Earnings Growth Rates (GRT) per VectorVest are holding steady with a good upward trend. What gives?

Fear! Fear of what could be. In a recent webcast where we covered the banks, we asked our subscribers why the sell down could be taking place? The answers included:

  • Less mortgages for the banks
  • Default on loans
  • Impact upon profit margins

However, the numbers are not projecting that at present. Therein lies the opportunity. Is the market overreacting? In a downward trending market, falling share prices are of no surprise, so the decline across all the shares in Australia on average is expected.

Digging into this a bit further, the Financial Review Australia had an article entitled: “How investors are playing the big bank sell-off.” Please click here to read the article. The article went on to note both sides of the argument for whether it is an opportunity to buy the big banks cheaper or whether to stay away. The views were given from numerous sources. Some big names were bullish, but then there were some big names who were not. What to make of all of this?

Stick to VectorVest. Stick to the facts. Earnings are rising, but the market is falling. VectorVest advocates buying rising shares in rising markets. The temptation is to find a stellar stock with rising earnings, a strong GRT score with a smooth left to right profile and rush out and buy the stock without checking Market Timing. It is like jumping into a river on a sunny day thinking it is a great time to swim as you have found the perfect spot – but fail to see that there is an underlying current that you end up swimming up against to get back to safety.

Don’t be that swimmer that fails to check the river currents. Don’t be that investor who fails to check Market Timing. Therein lies your answer – is it time to buy the banks? No, not yet per what we teach at VectorVest (please speak to your adviser for personal advice). Market Timing must always take precedence. Once Market Timing is in our favour, as investors, we can check all our key VectorVest indicators. VST, RS, GRT, EPS, Sales and so on. Start getting your shopping lists ready, but to venture into the current market with all our key Market Timing signals noting to keep out – would most certainly go against every trading plan at VectorVest currently.

Reading the opinions of others is interesting, but as disciplined followers of VectorVest, we stick to our trading plans. The opportunities will be there when the market turns and to jump in against the tide is not what we advocate or teach. Stick to you trading plans, stick to your Market Timing rules and you will avoid the pitfalls of emotional investing.

Please click here to see this week’s video where we look at the bank’s current fundamentals and technicals considering the current market selloff. In the video, we will show you how the decline in the banks is in line with the overall market decline.  You will see exactly how we do this in VectorVest.

On a final note, click here to read some interesting statistics on the Australian big banks including who has loaned out the most in mortgages and who has lent out the most to investors.


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