Over the past 10 years, OCBC share price has been on an uptrend. Not including dividend, but just based on price alone, the compound return is about 7%. If we include the dividends using the discounted rate of 5%, the total discounted dividend would have shaved off about $2.74 from the original average closing share price to obtain $3.81. This means that the share price would have advanced about 3.16 times over the last 10 years, compounding about 13.6%. But that said, we started at a low base in year 2009, which was during the Global Financial Crisis (GFC).
10-Year compounded return (including dividend) = 13.6%
10-Year compounded return (excluding dividend) = 7.0%
2-Year compounded return (including dividend) = 10.1%
2-Year compounded return (excluding dividend) = 8.2%
However, if one were to buy the stock more recently, say 2 years ago in 2017, and managed to enjoy the dividend for 2017, then the calculated return is reduced to about 10.1%. If he were to buy after the dividend distribution, but still at an average closing price of $10.68, the return would be further reduced to 8.21%. Of course, all this may be hypothetical because we are talking about yearly average closing price (not yearly weighted average price) over a period of about 250 trading days in a year.
In a situation when we cannot wind back the clock to buy at GFC prices and to sell now, we can only make do with the situation now. This is where the use of standard deviation comes in. One important point to remember is that the standard deviation is based on past data. It does not represent the future. But still, barring unforeseen circumstance, it may be possible to make some simple projections to help us improve the probability of getting the future prices. Certainly, I am not saying that I am going to be pin-point accurate to buy at the lowest price and sell at the highest price. It would be near to impossible. What I am saying that I am using some mathematical tool to help me cluster my hits to buy at a certain price range and selling at a higher price range if I choose to do it.
First and foremost, we need to understand what really will affect the share price. Base on my past observations, share prices are affected by a few broad factors: the macro-picture and business environment surrounding the company and the strategies, execution and the results of the company in question. A bunch of words, but we can categories them as such:
The macro-picture –
- Actions taken by politicians eg. US-China trade war developments, US-N. Korea denuclearisation news.
- Significant events and usually un-precedented events like those happening in the global financial crisis or Asian financial crisis
- Oil price crash
- Interest rate movements.
- Business cycles developments.
- Announcement of dividend policy, bonus issue, rights issues etc.
- New business, new products, won a new project etc.
- Buy into new companies, mergers, acquisitions or become take-over targets.
Since the mean is at the right of the median, it shows that the OCBC share price is right-skewed (or positively skewed). This means that it has a long tail of high extreme prices. Implicitly, the mode of this price curve lies towards the left. This means there are plenty of opportunities to buy at lower than average price but there are less opportunities to sell at higher than average price.