Recently, I noticed an interesting phenomenon in the market: funds are quietly flowing from high-priced tech stocks into financial stocks. Honestly, putting money in a bank savings account yields only 2% per year, but investing in financial stocks can steadily earn a 5-7% dividend yield, with the potential for stock price recovery—this difference is really significant. Many people are asking, how should I buy financial stocks? Is now a good time to enter? Today, I will organize my observations and trading logic.

Why have financial stocks suddenly become worth paying attention to recently? The main reason is that a clear rotation has appeared in the market. The Taiwan stock index is oscillating near 28,000 points at high levels. Electronic stocks, especially AI concept stocks, have surged strongly, but their P/E ratios have already exceeded 30 times, and profit growth is hard to sustain the explosive momentum of last year. In contrast, large bank stocks still have P/E ratios around 10-12 times, making their valuations much more reasonable. As the economy gradually soft-lands, funds naturally start shifting toward value stocks with stable profits and dividend support.

The impact of interest rate environment on the financial industry is not as bad as expected. Although the Federal Reserve is entering a rate-cutting cycle, which puts some pressure on net interest income, Taiwan’s financial holding companies earned over 560 billion NT dollars in the first 11 months of last year, setting a new high. My observation is that as long as the economy doesn’t hard-landing, the overall dividend-paying capacity of financial holdings should be stronger this year than last. Stock prices will naturally have room for a rebound. During the 2022 bear market, the weighted index fell over 20%, but the financial index declined less than 15%. This “attack when possible, defend when necessary” characteristic is especially valuable in the current high-level oscillation environment.

Speaking of how to buy financial stocks, first, you need to understand their classifications. In Taiwan, financial stocks are simply divided into a few categories: financial holding companies with diversified businesses, including banks, life insurance, securities, etc. They are well-diversified and offer stable dividends, making them good choices for beginners, such as Cathay Financial, Fubon Financial, and CTBC Financial. Pure bank stocks have less volatility and are suitable for those who want to hold steadily. Insurance and securities stocks tend to be more volatile and are better suited for strategic positioning during market turning points.

If you don’t have much capital, you can start with financial ETFs, which have low thresholds and diversification. My own trading strategy is to select targets with a dividend yield of at least 5%, a P/E ratio between 10-15 times, and stable profits. Examples include Fubon Financial, Cathay Financial, and E.SUN Financial, which are on my regular watchlist. Usually, I enter when the market is oscillating at high levels and electronic stocks have pulled back, as funds tend to rotate into financials at that time. Alternatively, I buy in batches when individual stocks’ dividend yields exceed 6-7%. After purchasing, I hold and collect dividends annually as interest.

How to buy financial stocks to steadily collect dividends? My approach is to set psychological target prices but not rigidly. For example, if I initially set a target of NT$50, and the stock price rises to NT$45 with the company’s profits improving, I might adjust my target to NT$60. When the psychological target is reached or the dividend yield drops below 4%, I consider trimming or selling completely and switching to another undervalued stock. Over the years, most returns come from dividends and stock price appreciation, so there’s no need to watch the market every day.

However, to be honest, behind the seemingly stable and low-volatility nature of financial stocks, there are also risks. Financial stocks are cyclical, highly sensitive to economic cycles. During black swan events, their declines are often deeper than other stocks. For example, during China’s A-share crash in 2015, the Taiwan 50 index fell over 24%, but Yuanta MSCI Financial fell nearly 36%. During a financial crisis, banks also face the risk of problems emerging at any time. Therefore, diversification is recommended—don’t put all your chips into one basket.

If you want to adjust your positions flexibly in the short to medium term, swing trading is also an option. Because of their cyclical nature, financial stocks are suitable for profit-making through technical analysis during bull and bear markets. Simply put, it’s about capturing opportunities in price uptrends and downtrends.

Long-term, financial stocks hold an important position in the global stock market. In the S&P 500, financial stocks account for as much as 13%. Although they lack the explosive growth of tech stocks, the industry’s earnings growth over the past 30 years has been significantly faster than the overall economy. The advantage of financial stocks is their stable long-term performance and high government support (after the 2008 financial crisis, many countries chose to bail out big banks). Their volatility is usually lower than tech stocks. If the US can avoid a recession, many banks’ prospects should be bright. Banks tend to benefit from higher interest rates, as the spread between deposit and loan rates widens.

But don’t ignore the risks. Changes in interest rates directly affect financial stock performance, and credit default risks must also be considered. When systemic risks occur in the market, the impact on the financial industry can be very large. So, the final advice is: diversify your portfolio, review regularly, and hold long-term. How to buy financial stocks most safely? The answer is diversification, periodic review, and long-term holding.