Is it time to sell Commonwealth Bank shares?

There is no doubt that this has been the most frequently asked question during the previous twelve months and with the price of Commonwealth Bank shares hitting a record high of $160 a share last week, this is not surprising.

There are a lot of arguments that would confirm yes this is the time to sell. Commonwealth shares have never traded at this level before, and it is quite possible they will fall from these heavenly heights some time over the next year or so.

In addition, their yield or the return by way of dividends, has fallen to below 3% for the first time I can remember although for those in retirement this is still boosted by the fact that Commonwealth Bank shares are fully franked.

Maybe this is the time to sell but I would emphasise the word maybe. This is because;

1.      In the whole twenty-five years that I have been providing advice, the share price of Commonwealth shares has always appeared too high except for a few market corrections during the global financial crisis and pandemic.

2.      That in any of the twenty-five years, it has always been tempting to sell Commonwealth Bank shares but for those who did, in hindsight, selling was a big mistake, which most have regretted.

3.      Even if you’re tempted to sell your Commonwealth shares, where would you invest the resulting cash. Would you invest those funds in the other Banks that aren’t performing as well as the Commonwealth, Australia’s big mining companies that are taking a blow from the slowdown in China or one of a hundred companies on the ASX that are not performing as strongly as the Commonwealth Bank.

There is little doubt Commonwealth Bank shares will retrace from their current highs at some point over the next twelve months and while many shareholders will find that disappointing, that’s all it is.

Is it worth trying to outsmart the share market by attempting to judge when this correction might be and getting it wrong by months or years and having a large amount of funds sitting in cash or worse sitting in a lesser company that underperforms the Commonwealth Bank.

Commonwealth Bank’s share price has reached this level because it is one of the most well managed Banks in the world and it has had years of investing massive amounts of shareholder funds in both the best of best technology and people.

Regardless of what happens to the share price, it will continue to be one of the best managed Banks in the world with a strong market share in the Australian economy which despite all of its failings is still a strong, robust and growing economy.

For all of these reasons, it is hard to justify selling Commonwealth Bank shares even at these valuations, but it is only realistic to accept that the market for Commonwealth Bank shares should steady at these levels and probably take a step down.

If you need to take cash from your account, taking some profits by selling Commonwealth Bank’s share would be a good choice but that is the only reason why I would recommend selling Commonwealth Bank shares at this time.