This article is the latest in a series that aims to help novice investors with the stock market. To enjoy past articles in the series, please visit our full archive.
The Beginners’ Portfolio is a virtual portfolio, which is run as if based on real money with all costs, spreads and dividends accounted for.
We still have some cash left to invest, from the sale of our Vodafone shares and from dividends accumulated since we started the portfolio, and we’ve already used a chunk of it to top up our holding of Rio Tinto.
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For the rest, I decided to go for a bank, and it was a choice between Barclays (LSE: BARC) (NYSE: BCS.US) and Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US).
I’ve now made the choice and stumped up the (virtual) cash, and gone for Barclays. Here’s how the transaction went:
We picked up 210 Barclays shares at a price of 254.2p apiece, costing us a total of £546.56 including costs.
So why Barclays?
Similar valuations
The valuations of the two banks are actually pretty similar. PEs for Barclays and Standard Chartered for 2014 currently stand at 8.3 and 9.6 respectively, based on analysts’ forecasts, dropping to 7.3 and 8.8 for 2015 — Barclays is a bit cheaper on that measure.
Forecast dividend yields for the same two years are pretty close too — we’re looking at 3.8% rising to 5.2% for Barclays, with 4.4% and then 4.8% for Standard Chartered. So how do we choose?
A tale of two risks
It’s essentially a comparison of different risks. With Barclays, it’s those years of toxic assets, weak liquidity, PPI mis-selling, trying to fiddle LIBOR rates… The bank took a £1.2bn hit on its 203 results for the cost of its ‘Transform’ programme, and we really can’t be sure what further costs will be facing shareholders as compensation claims for mis-selling are going stronger than the banks had expected.
Standard Chartered is cleaner when it comes to such mismanagement, but it is now facing fears of a Chinese crunch as the Middle Kingdom’s credit boom and soaring property market could be heading for a rapid and painful halt — Standard Chartered does the bulk of its business in the Asia region.
Known unknowns
In the end, Standard Chartered seems to me to be more of an unknown unknown, and I prefer the better-known unknowns that face Barclays — and I reckon keeping risk as low as possible is a key part of learning to invest, as we really want as few surprises as possible.
Next time, I’ll bring you an updated list of the whole portfolio, including the latest valuation.
