World Buying Stock

Investing for the community should become a lifestyle trend. No longer limited to just think ‘saving’ and put the funds on deposit that supposedly most secure investment instrument. Begin turning to the stock. Why?

Simple indicator is the increase in the Composite Stock Price Index (CSPI), which reached 46.13% to a level of 3703.512 during 2010, and is predicted to continue in this year.

According to research results of PT Bahana TCW Investment Management, the strategy of investing in 2011 is to minimize the allocation of liquidity, either cash or deposits. The problem of excess liquidity to keep interest rates remain low, so the acquisition can not cover inflation.

Let’s look at interest rate movements on the type of investment deposits. Since 2005, the government cut fuel subsidies and the allocation of the global crisis that terrible incident in 2008, causing deposit rates continued to decline. Until the acquisition of interest on the bonds can not fight inflation, mainly of food commodities and education.

Indeed during the 1998 crisis, the government became fully ensure public funds are deposited in the deposit. So forget the notion that the deposits as a profitable and safe investment.

Trimming the fuel subsidy is causing inflation and cause interest rates rise. But it turns out the positive impact, especially foreign investor confidence, actually increased.

Furthermore, not only foreigners who buy government bonds, but also domestic banks. Proceeds from sale of state bonds has raised additional funds of banking, even exceeding the purposes for which credit has actually been increasing.

As a result, excess funds are collected in Bank Indonesia Certificates (SBI), and ultimately be borne by the central bank.

Bank Indonesia (BI) instrument makes interest rates as inflation control through the absorption of liquidity. If the rupiah liquidity is absorbed, there can be reinforcement that reduces the risk of inflation. During the height of bank money in SBI, the bank is relatively not so needy of public funds as reflected in relatively low deposit rates.

An alternative solution is to stock investing. Shares of commodity sector remains one of the main drivers of investment in the stock market. But the expectation of rising stocks will not last year.

“We think the expectations are the benefits to follow the historical average of 20%, according to the long term nominal GDP growth of Indonesia,” explained Director of Research and Investor Relations Investments on the type of bonds or corporate bonds also worth ogled. Investors can choose a corporate bond with a good credit rating, rather than government bonds. Treasury bond yield mapping for the tenor of 10 years, in late 2010 at 7.6% level. This figure is lower than the average 10-year inflation of 8.3%.

“Indeed, inflation in 2011 could be less than 8.3%, so the yield on Treasury bonds are very attractive. But investors should be alert to secure itself when inflation soared,” he said.

Other investment alternatives can be done in non-listed companies through private equity fund. Especially when the price of stocks and bonds are considered expensive, while the low-interest bonds awake.

The advantage to invest in private equity funds is the dividend. In addition, there is potential for greater profit when released into the market the company’s business capital as a public company.

Investing in stocks means dealing with volatility. Instead of running for the exits during times of market stress, the smart investor greets downturns as chances to find great investments. Graham illustrated this with the analogy of “Mr. Market”, the imaginary business partner of each and every investor. Mr. Market offers investors a daily price quote at which he would either buy an investor out or sell his share of the business. Sometimes, he will be excited about the prospects for the business and quote a high price. At other times, he is depressed about the business’s prospects and will quote a low price.

Because the stock market has these same emotions, the lesson here is that you shouldn’t let Mr. Market’s views dictate your own emotions, or worse, lead you in your investment decisions. Instead, you should form your own estimates of the business’s value based on a sound and rational examination of the facts. Furthermore, you should only buy when the price offered makes sense and sell when the price becomes too high. Put another way, the market will fluctuate – sometimes wildly – but rather than fearing volatility, use it to your advantage to get bargains in the market or to sell out when your holdings become way overvalued.

Here are two strategies that Graham suggested to help mitigate the negative effects of market volatility:

• Dollar-Cost Averaging

Dollar-cost averaging is achieved by buying equal dollar amounts of investments at regular intervals. It takes advantage of dips in the price and means that an investor doesn’t have to be concerned about buying his or her entire position at the top of the market. Dollar-cost averaging is ideal for passive investors and alleviates them of the responsibility of choosing when and at what price to buy their positions.

• Investing in Stocks and Bonds

Graham recommended distributing one’s portfolio evenly between stocks and bonds as a way to preserve capital in market downturns while still achieving growth of capital through bond income. Remember, Graham’s philosophy was, first and foremost, to preserve capital, and then to try to make it grow. He suggested having 25-75% of your investments in bonds, and varying this based on market conditions. This strategy had the added advantage of keeping investors from boredom, which leads to the temptation to participate in unprofitable trading (i.e. speculating). (To learn more, read The Importance Of Diversification.)

• Know What Kind of Investor You Are

Graham advised that investors know their investment selves. To illustrate this, he made clear distinctions among various groups operating in the stock market.

Active Vs. Passive
Graham referred to active and passive investors as “enterprising investors” and “defensive investors”. You only have two real choices: The first is to make a serious commitment in time and energy to become a good investor who equates the quality and amount of hands-on research with the expected return. If this isn’t your cup of tea, then be content to get a passive, and possibly lower, return but with much less time and work. Graham turned the academic notion of “risk = return” on its head. For him, “Work = Return”. The more work you put into your investments, the higher your return should be.

If you have neither the time nor the inclination to do quality research on your investments, then investing in an index is a good alternative. Graham said that the defensive investor could get an average return by simply buying the 30 stocks of the Dow Jones Industrial Average in equal amounts. Both Graham and Buffett said that getting even an average return – for example, equaling the return of the S&P 500 – is more of an accomplishment than it might seem. The fallacy that many people buy into, according to Graham, is that if it’s so easy to get an average return with little or no work (through indexing), then just a little more work should yield a slightly higher return. The reality is that most people who try this end up doing much worse than average.

In modern terms, the defensive investor would be an investor in index funds of both stocks and bonds. In essence, they own the entire market, benefiting from the areas that perform the best without trying to predict those areas ahead of time. In doing so, an investor is virtually guaranteed the market’s return and avoids doing worse than average by just letting the stock market’s overall results dictate long-term returns. According to Graham, beating the market is much easier said than done, and many investors still find they don’t beat the market. (To learn more, read Index Investing.)

Speculator Vs. Investor
Not all people in the stock market are investors. Graham believed that it was critical for people to determine whether they were investors or speculators. The difference is simple: an investor looks at a stock as part of a business and the stockholder as the owner of the business, while the speculator views himself as playing with expensive pieces of paper, with no intrinsic value. For the speculator, value is only determined by what someone will pay for the asset. To paraphrase Graham, there is intelligent speculating as well as intelligent investing – just be sure you understand which you are good at.

Warren Buffett is widely considered to be one of the greatest investors of all time, but if you were to ask him who he thinks is the greatest investor he would probably mention one man: his teacher, Benjamin Graham. Graham was an investor and investing mentor who is generally considered to be the father of security analysis and value investing.

His ideas and methods on investing are well documented in his books, “Security Analysis” (1934), and “The Intelligent Investor” (1949), which are two of the most famous investing texts. These texts are often considered to be requisite reading material for any investor, but they aren’t easy reads. Here, we’ll condense Graham’s main investing principles and give you a head start on understanding his winning philosophy is the principle of buying a security at a significant discount to its intrinsic value, which is thought to not only provide high-return opportunities, but also to minimize the downside risk of an investment. In simple terms, Graham’s goal was to buy assets worth $1 for $0.50. He did this very, very well.

To Graham, these business assets may have been valuable because of their stable earning power or simply because of their liquid cash value. It wasn’t uncommon, for example, for Graham to invest in stocks where the liquid assets on the balance sheet (net of all debt) were worth more than the total market cap of the company (also known as “net nets” to Graham followers). This means that Graham was effectively buying businesses for nothing. While he had a number of other strategies, this was the typical investment strategy for Graham. (For more on this strategy

Playing in the stock market can provide benefits far doubled compared to saving money on deposit or invested in bonds. But playing in the stock market could also lead to substantial losses. Therefore before deciding to play the stock is very important to evaluate whether you are someone who is willing to take risks commensurate to a commensurate benefit. The greater the risk that would result in greater profits.

If the risk is greater the yield advantage that only small, means we are wrong to apply the most basic financial strategies, higher risk, higher profit or lower risk, lower profit. This underlying why deposit rates quite low, because the risk of deposits is also quite low.

Thus, choosing to play the stock, rather than bank deposits, means having to obtain greater profits from the deposit. If it turns out the benefits derived from the deposit rate is lower, then there is something wrong in how you play the stock.

The following are the steps you need as a beginner to play the stock. This article assumes that you have read the book enough to understand the mechanisms that play the stock, as well as procedures to open accounts at securities companies.

General formulation:
1. You must have a big enough desire to play or learn how to play or have a strong desire to earn profits by investing in the stock market. It must be ingrained in you from the start, or never play the stock, you should buy mutual funds only. Formula One is: you must have a strong urge or desire to play the stock and profit.

2. Play in a fairly small amount in advance, such as Rp 10 million or USD 20 million since there is always a small possibility of a loss could be too big. Therefore play in a small amount of money, such as pilot projects. If you start to feel comfortable and know how to play to generate a profit, then you can slowly increase the amount of money invested. When adding the amount invested, always remember that the money that you can add up, do not just remember that once you earn, but you must remember that investments can be reduced even exhausted. You never know when an important event that negatively impact the market place; suddenly could happen prices plummeted, and you did not get out of the market. The second formula is: always remember that the money you invest can be reduced or even exhausted.

GARP

GARP is an acronym for Growth at a Reasonable Price. The world according to GARP investors, combining the approaches of value and growth, adding the numerical point of view.

Professionals are looking for companies with solid growth prospects whose stock prices do not reflect the intrinsic value of the business, obtaining a “double payment” as earnings increase, and the equation price / earnings, according to which these earnings are valued – also are increased. Peter Lynch is one of the most famous GARP professionals worldwide.

“Knowing what you have” is the fundamental principle of Lynch. In the process of choosing stocks, mutual funds, etc., the investor should investigate any type of detail in their possessions. Knowing who is the manager of the fund. Investigate the investment style of the managers and their performance in different market conditions.

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Analyze before investing
Before investing your money you should analyze well the asset, vehicle or instrument in which you are about to invest, which involves collecting all possible information about it, and then analyze that information.

You should be able to determine as accurately as possible their profitability, their performance, the capital recovery period, and their concern and, thus, whether the investment is really an opportunity. Never invest in something you do not understand at all, or something that you took your time to analyze it.

Do not analyze too much
You look good investment before you invest, but not to the point of being too cautious and wanting to inform, analyze, prepare and plan things too much.

The reason for this is that you could fall into what is known as “paralysis by analysis” and allow the opportunity and what is worse, let someone else take it. You have to analyze before investing, and tell you the conviction to invest, do it without wasting any more time.

Have an exit strategy
When you invest you should always have an exit strategy, either to avoid the risk of losing your money, or if things do not go as planned. For example, you might decide you will sell your investment at some point, you retire to lose a certain amount, or change the rotation of your business if your main idea will not get good results.

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