It's a strategy I like to call 'Buy and Hope', rather than the usual Buy and Hold. Many Australian investors are guilty of it – but perhaps the biggest problem is that not many realise it.
Recent surveys of the most common stocks held by self-managed super funds, which hold around $500 billion in assets, show that the big blue, chip dividend payers are the most popular and widely held stocks. The big four banks, Telstra Corporation Ltd (ASX: TLS), Woolworths Limited (ASX: WOW), Wesfarmers Limited (ASX: WES) and Westfield Group (ASX: WDC) are the usual suspects.
But many investors have no clue how risky bank stocks can be, only seeing dollar signs with those fully franked dividends in recent times. Very few investors remember Australia's last recession, 23 years ago in 1992, when Westpac Banking Corp (ASX: WBC) almost went bust thanks to bad debts of $2.7 billion.
Buying bank shares, particularly the big four at their current prices is more Buy and Hope investing than Buy and Hold. The hope being that Australia doesn't experience another recession, crash in property prices or a spike in unemployment levels.
On almost any measure, including their historical averages and comparison to global peers, Australia's big four banks are expensive, as the chart below shows. The lack of an economic crisis in recent times suggests investors may have become complacent – and view bank shares as virtually indestructible.
Source: CapitalIQ
The problem for naysayers has been the incredible performance of the blue chip dividend payers over the past few years. Despite calls from many, including us here at the Motley Fool, that the big four banks are expensive, share prices continue to rise, as the search for yield in the current low-interest rate environments continues.
So if you are guilty of buying shares and 'hoping' they don't go down, you might want to take a closer look at your strategy. Buying high-quality stocks can still kill your portfolio if you forget that the price you pay is an important consideration too.
