You can contact the author (Teguh Hidayat) by email, teguh.idx@gmail.com. The author live in Jakarta, Indonesia.

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List of Stock Indices in Indonesia

One method to analyze the movement of the Jakarta Composite Index (JCI), is to compare it with the movement of stock indices in other countries. That's why you must be familiar with several well-known indices such as the Dow Jones, Nikkei, Hang Seng, etc. Around the world, there are lot of stock indices, so you can not read them all. But here are some list of prominent stock indices in the world.

Did I Said, Contrarian?

In the article of two weeks ago, I mentioned that Lo Hong Kheng is a contrarian investor, which he did what other people don’t, like buying stocks that most people regard it as junk. Well, based on my own experience, the term 'contrarian' is actually interesting, and we will discuss it here.

By the term, contrarian means 'against'. Investopedia defines the strategy of contrarian as a style of investing which is against the direction of the market, by buying assets/shares that have poor fundamentals, and sell it later when the company’s financial performance becomes better (at a higher price, of course). The rationale is that we can only buy stocks at a really discounted price, if the company itself had poor performance, or if the stock market was down. However, since the stock market does not go down every day, then in the conditions of sideways or bullish market, the option to buy stocks at low prices is limited to stocks with average or even poor fundamentals. Because if we want to buy a stock of well-known companies with brilliant financial performance, then we would likely have to pay at premium price, ie the price that reflects high PER and PBV, and it's certainly not in line with the concept of value investing.

Astra International

I found this stock, Astra International (ASII), when I was doing the routine screening job to find good and undervalue stocks. The name of ASII is certainly familiar to any of you, but I myself had forgotten the last time I hold this stock. However, based on several considerations, ASII at this point might be ideal as an investment choice, especially for those of you who like blue chip stocks with high liquidity.

ASII is the largest conglomerate in Indonesia, with a total of 178 subsidiaries and 191,000 employees as of September 2013. As a conglomerate, ASII engaged in diverse business sectors, namely automotive, financial services, heavy equipments and coal mining, oil palm plantations, information technology, and infrastructure and logistics. The latter may be unfamiliar, but ASII is also has a subsidiary in the field of toll road operators, car rental services, water treatment, fuel terminals, and ports. Until the third quarter of 2013, ASII earned Rp5.6 trillion of revenue from the business of infrastructure and logistics, or greater than Rp1.5 trillion of revenue from the information technology (through Astra Graphia/ASGR).

Gajah Tunggal

I’ve been watching the stock of Gajah Tunggal (GJTL) for a long time, ie since about 3.5 years ago when the price was still in the 400s. At the time, the performance of this tire company was recovering after the global crisis in 2008, with a net profit of Rp905 billion in 2009, compared to a net loss of Rp625 billion in the previous year. The slick performance then continues in subsequent periods, and of course the stocks continue to rise until GJTL had briefly reached 3,400 in mid-2011. But since then GJTL kept dropping, and now it is in a position of 2,150. Is it because its performance is not good anymore? Probably not, because until the third quarter of 2012, GJTL still recorded an increase of net profit of 31.4%, or still quite good, and its ROE was still maintained at the level of 20.4%.

PER of GJTL at its current price, based on its latest financial statement, is 7.2 times, aka relatively low, so of course it is quite interesting especially because the trend of the stock movement in the last month appears to have started up again. So how is the outlook? And more importantly, what was the cause of the declining of the stock before? Well, the answer may be related to the company’s policy in managing its debt.

Examining the Infrastructure in Indonesia

If the following question is asked to the people, 'What is the infrastructure?’, the answer would usually, 'It is the highway, bridges, airports, etc.' But in fact, the concept of 'infrastructure' is much broader than that. According to wikipedia, the infrastructure is (I’ve simplified the sentence) physical and organizational structures needed for the survival of a community or a company. In other words, the infrastructure is facilities and/or services required by an economic system to work properly and optimally.

Therefore, the type of infrastructure can then be divided into two: physical and organizational. Physical infrastructure is like roads, bridges, ports, etc. While the organizational infrastructure is usually associated with the government policy, if infrastructure in question is related to the country's economic activity, or management policy, if infrastructure in question is related to the company's economic activity. For example, tax policy, subsidies, capital, asset management, consulting etc. Yeah, the so-called 'subsidy' is also an infrastructure, because it is a facility provided by the government to fulfill the people’s needs.

Saratoga Investama Sedaya

If you type the word 'Saratoga' in Google, then you’ll find out that it is the name of a county in the state of New York, USA. But inIndonesia, Saratoga is better known as the name of one of the largest investment firms in the country, owned by prominent businessmen, Edwin Soeryadjaya and Sandiaga S. Uno. A few months ago, the company with the full name of PT Saratoga Investama Sedaya was rumored to set up an IPO in 2013. If the process is going well, Saratoga will reap US$ 200 million from its IPO, or some say US$ 500 million.

Saratoga’ IPO is obviously interesting to be noted, as they would be the first private equity firm that listed on the Indonesian stock exchange, and also because they are a quite large investment company, with assets under management (AUM) of approximately US$ 2 billion. Saratoga is the parent of several large public companies that have listing on the market before, such as Adaro Energy (ADRO), Tower Bersama Infrastructure (TBIG) and Provident Agro (PALM). Saratoga is also the parent of some private companies, as follows:

The Sleeping Giant

There are some interesting points when I learned the records of Indonesian Trade Balance (exports and imports) for the period of full year 2012, which released by the Central Statistics Agency (BPS), in early February. The points, the import value of iron and steel for the year 2012 had increased significantly, specifically 18.2% compared to the year 2011. Similarly, the import value of goods of iron and steel also rose 36.8%. For other goods that also contain iron and steel components, such as engines, electronics, automotive products, and aircrafts, those import values were also significantly rose between 15 - 30%.

In fact, the value of Indonesian imports as a whole (including oil and gas imports) had increased by only 8.0%. That mean, Indonesia's need for iron and steel, including its derivative products, has increased substantially in the last year, including the need for iron and steel for construction and infrastructure projects. The import value of iron and steel and their derivative products in 2012 had covered 40% of the total import value of Indonesia, an increase compared to 37% in 2011.

Delta Dunia Makmur, Debt Problem

In 2006, David Bonderman, the boss of the largest private equity firm in the world, Texas Pacific Group (TPG), visited Indonesia to seek investment opportunities, along with a young man who was 30 years oldPatrick Sugito Walujoan owner of a local private equity firm, Northstar Equity Partners. Bonderman and Patrick previously had known each other when Patrick worked for Goldman Sachs in New York. After several meetings, Mr. Patrick had convinced Bonderman that he was the right partner for TPG to invest in Indonesia. So, they both later founded Northstar Pacific Partners, a holding company that is used to establish or acquired several companies, notably Bank BTPN (BTPN), and Bukit Makmur Mandiri Utama (BUMA), which is listed on the Indonesian stock market/IDX through its parent company, DeltaDunia Makmur (DOID).

A few years later, the investmentstarted gaining profits. The most successful investment is probably BTPN, which has now become one ofbanks with the best performance in the IDX. But how about DOID? Well, we could say that Mr. Patrick is a little slipped in DOID, as until the third quarter of 2012, the company was still recorded negative performance with a net loss Rp353 billion, up significantly from the previous year amounting to Rp12 billion. If only DOID was able to record the good performance just like Bank BTPN, then it was not impossible that the name of Patrick Sugito Walujo would appear in the list of Forbes Magazine, as one of the 40 richest people in Indonesia.

Garda Tujuh Buana, Now What?

After suspended long enough, the trading session of the stocks of Garda Tujuh Buana (GTBO) has opened last Monday, and the stocks were successfully gaining 9.6% to 4,275 position. It was a bit surprising actually, as usually when a stock was suspended due to someproblem of the Company (in case of GTBO, the problem is related to its ‘magical’ financial statements), then when the suspension isreleased, the stocks would go down. However, on the other hand there are also some opinions that say that there is nothing wrong with the financial statements (FS) of GTBO, so the stock price is still reasonable, or even undervalued. Anyway, let us check the company's fundamentals.

GTBO established in 1996 in Jakarta, with interest in coal mining. The Company obtained its first-and-only mining concession in 2001,located on the Island of Bunyu, Bulungan District, East Kalimantan ProvinceLater, after long time of exploration, the mine started itsproduction in 2010, so that year was the first year the Company generated revenue and profits. By the end of third quarter of 2012, GTBO has produced a total of 3.5 million tons of coal, and the remaining coal reserve are still abundant enough, ie 91.9 million tons.

Unilever: Analysis on Royalties

The date of 12-12-12 (December 12th, 2012) might mean good luck for some people, but not for investors who hold the shares of Unilever Indonesia (UNVR). On that day, the stock suddenly dropped from 25,950 to 23,150 positions. A day later, the decline continues to position 20,350, so overall, UNVR had tumbled 27.5% in just two days. It was a very great decline, given that UNVR was not a penny stock, but the third largest company on the Indonesia Stock Exchange (IDX) in terms of market cap (before the drop, now it is the eighth largest, after Bank BRI/BRI). Bloomberg called the decline as the worst for stock in the last twelve years.

The decline wasn’t without cause. On December 12, the company announced an affiliation deal with its parent company, Unilever BV (UBV), a company from the Netherlands. In such deal, UNVR plans to increase royalties on trademarks, licensing of technology, and management services to the UBV, from the previous 3.5% of the total turnover (revenue) per year, to 5.0% in the year 2013, and will increase to maximum of 8.0% in 2015.

KKGI and LSIP

One of the difficulties experienced by investors when the Jakarta Compiste Index (JCI) was high, is to find stocks that are still undervalue. Well, the easiest solution is to wait until later the JCI was down. But sometimes, waiting is just boring. That's why I check back some stocks I ever had in the past, which at this point I've had it 'forgotten'. Who knows, any of them could still be collected, or at least could be considered again. As a result, I found two stocks that seem quite interesting. They are Resource Alam Indonesia (KKGI), and PP London Sumatra (LSIP).

For KKGI, I have had noticed and had the stocks since November 2010, or about two years ago. At the time, if you still remember, the stock was just gained significantly from 900's to 1,700's. A friend of mine asked me to analyze it, and the results, I found that this small coal mining company had a very good performance, while its valuation at 1,700 was still very undervalue, so I immediately bought it. KKGI itself was previously had not noticed by investors because it was not liquid, because the number of public stocks of KKGI before stocksplit was only 92 million pieces. After the company did a stocksplit in a ratio of 1:4 in March 2010, the KKGI shares of public were split into 368 million pieces, and began actively traded. And along with the increase of liquidity, KKGI slowly but surely began to rise.

Legitimate Businessman: Liem Sioe Liong

Liem Sioe Liong aka Sudono Salim, as you know, has passed away on June 10, 2012 yesterday, at the age of 95 years (or 96 years less one month). Although he’s gone, Uncle Liem, as he was usually called, will always be remembered as the founder of one of the largest business groups in the history of Republic of Indonesia, the Salim Group. As a tycoon, there are so much lessons to be learned from the figure. A friend of mine once said, "Everyone knows how Uncle Liem had working extremely hard in building his business empire. He is a perfect example for anyone who wants to succeed in pioneering a great business from absolutely zero.”

Uncle Liem (to be simple, let’s make it ‘Liem’ only) was born in the District of Fuqing, Fujian Province, China, in 1916. At that time China was in a continuous conflict and war with the Japanese, so that little Liem and his family had never live in peace as farmers. This encouraged Liem’ older brother, Liem Sioe Hie, to seek overseas for a better life, and the destination was to the south, to a town named Kudus. In 1938, at the age of 22 years, Liem then followed his brother. The sailboat carrying him successfully landed in Surabaya, East Java, and four days later Liem’ brother found him and then took him to the town of Kudus, Central Java.

Analysis on Mobile Phone Stocks

Some years ago, a mobile phone or handphone or cell phone, was a device to call and send SMS, that's it. But along with the development of technology, now people could use his cell phone to take pictures, play video clips, send pictures, browse the internet, and any other functions like a computer. Cell phone is no longer just a communication device, but a gadget. And for some people, especially teenagers, it is a matter of pride to have the latest gadget which is in trend, so cell phone is now a fashion item that is have to be updated after some years or months. While for investors and businessmen like us all, that behavior is an opportunity.

In Indonesia, the trend of cell phone brands is often to change. In the beginning of 2000’s,  some brands like Nokia, Ericsson, and Motorola were the market leaders, before then a newcomer, Research in Motion (RIM), had beaten them all with its new generation of cell phone, which called Blackberry (BB) smartphone. And now, the position of BB is threatened by Apple’s iPhone, Google Android, and Samsung. Going forward, some analysts has predicted that Samsung would become the next leader in the cell phone and gadget industry, which at this time Samsung has successfully popularized a new gadget after smartphone: Tablet PC. In the first half of 2011, the brand of Samsung Galaxy Tab was the market leader of tablet PC with a market share of 60%, followed by Apple's iPad.

Tiga Pilar Sejahtera Food

What industry that is most immune to the turmoil of economies both nationally and globally? The answer is of course, the consumer goods industries, including food and beverage industry. Rupiah may fall, JCI may decline, but people will always need to eat and drink. That's why for most investors in the IDX, they have a policy that keep them to hold at least one stock of consumer goods companies, with the expectation that the stock would remain stable despite other stocks fall. Then, Tiga Pilar Sejahtera Food (AISA) is may considered as one of it.

AISA is a food company with a long history. The story began in 1959, when a businessman named Tan Pia Sioe established a corn vermicelli factory in Sukoharjo, Central Java, with the brand 'Cap Cangak Ular'. In 1978, Mr. Tan died, and the business was handed over to his son, Priyo Hadi Susanto. In 1992, PT Tiga Pilar Sejahtera (TPS) was formally established, and the company was handed toStephanus Joko Mogoginta which became director of the company, while Mr. Priyo remains in control as a commissioner. There is no information about whether Mr. Stephanus is the son or nephew of Mr. Priyo, but he is the grandson of Tan Pia Sioe.

Bumi Resources, What's Inside?

Bakrie strikes back! That's my first impression when I read the news that Bakrie Group, through two of its holdings ie Bakrie & Brothers (BNBR) and Long Haul Holdings Ltd, submitted a proposal to the management of Bumi Plc to buy back shares in Bumi Resources (BUMI) which held by Bumi Plc, at a value of US$ 278 million. However, BNBR and Long Haul won’tt buy all of the shares, but only 18.9%, so that Bumi Plc would still holds 10.3% stake in BUMI (because Bumi Plc is currently holds 29.2% stake BUMI). On the other hand, Bakrie will also divest its 23.8% stake of Bumi Plc, in exchange for the remaining 10.3% shares of BUMI which mentioned earlier. So, if the process goes well, then before Christmas this year, Bakrie will no longer have interests in Bumi Plc, and Bumi Plc will also no longer a shareholder in BUMI.

And how about Berau Coal Energy (BRAU)? Bakrie was also offered to buy back 85% stake of BRAU which held by Bumi Plc, at a value of US$ 947 million. So if the proposal is approved, Bakrie would spend more than US$ 1.2 billion to get out of the ‘takeover trap’ of Bumi Plc, or in this case, Nathaniel Rothschild .

Alam Sutera Realty, Now and Future

On 2 July, Alam Sutera Realty (ASRI), a property developer in the area of ​​Alam Sutera, Tangerang, Banten, announced that the company has acquired a company of ​​tourism management for the Garuda Wisnu Kencana (GWK) Cultural Park, Bali, with a value of Rp738 billion (which later rose to Rp813 billion). For ASRI, the purpose of this corporate action is to diversify the company's business activities, where ASRI now has a tourism business. But the corporate action was responded negatively by investors, which ASRI’ stocks was dropped to position 455, although later gaining again to position 480.

The GWK cultural park is located in Tanjung Nusa Dua, Badung District, Bali Province. The main attraction of the park is a super-size statue of Lord Vishnu riding a Garuda. The high of the statue is 145 meters, and the wide is 64 meters. However, despite the construction of the statue was started since long time ago, ie year 1997, the statue has not been completed until now, but only parts of it, namely the head and chest of Lord Vishnu, the head of the Garuda, and the hand of Lord Vishnu. There is no clarity about when exactly the statue will be completed 100%, which is probably has made most investors thought that ASRI was made a mistake about this GWK, because GWK is actually not ready to operate as a tourist area.

Indomobil Sukses Internasional

The industry of car sales in Indonesia is always interesting, as people from the upper and middle class is, almost certainly, to have at least one car in their garage, and they are routinely replace their car with a brand new one after some years or months. In the past, the most popular car brand in Indonesia was Toyota, and it still is. But recently, there are some brands of cars that were previously less known to the public, now it can easily be found on the roadway. One of them, Nissan, with its top types, such as Nissan Juke, March, and Grand Livina. Who holds the Nissan brand in Indonesia? No, it wasn’t Astra International (ASII) or one of its subsidiaries, but Indomobil Sukses Internasional (IMAS).

IMAS is a business unit of Salim Group in the sale of vehicles of four wheels or more (cars, trucks, etc.). Some of the brands held by the company are Nissan, Audi, Hino, Renault, Suzuki, SsangYong, Volvo, Volkswagen, and most recently, Infiniti (Nissan's premium brand, such as Lexus of Toyota). For the Volvo brand, IMAS is also sell a variety of heavy equipment (so IMAS is also a competitor to Intraco Penta/INTA, that sells heavy equipment with the same brand). In addition to selling cars and heavy equipment, IMAS has also a number of subsidiaries in the field of automotive financing, motorcycles sales, car rent, spare parts production and distribution, as well as a small-scale mining contractor company.

Heart is Only for Lovers, Bro!

Bisnis Indonesia newspaper had once interviewed Aburizal "Ical" Bakrie, a former chairman of the Bakrie Group (now Bakrie Group is led by Nirwan Bakrie, Ical’s younger brother), in the year 2010 in order to Bisnis Indonesia 25th anniversary. In the interview, the reporter asked the question, 'How could the Bakrie Group through Bumi Resources (BUMI) has managed to take over Arutmin and Kaltim Prima Coal (KPC)?' And Ical said, 'At that time there was the opportunity, so that we immediately grabbed it. About the money, we would take care of it later.'

As you are already know, BUMI took over 80% stake in Arutmin from BHP Billiton, an Australian mining company, for US$ 148 million, in 2001. Two years later, ie in 2003, BUMI once again acquired a coal company named KPC from Beyond Petroleum (BP) and Rio Tinto, at a value of US$ 500 million. In the interview with the Bisnis, Ical said, 'We bought Arutmin and KPC without cash, because in 2001 we were in bankruptcy and did not have money at all, because of the monetary crisis in 1998.'

Bakrie vs Rothschild

Bumi Resources (BUMI) continued to drop lately, but that does not make it less attractive in the eyes of most of the traders and investors. In fact, some investors are actually started to take a look at this stock, with their own reasons. On the other hand, those who hold BUMI from its upper price are still confused to make choices that are equally difficult: Do I have to hold it still, or just sell it off, which it was meant to realize the potential losses?

BUMI recorded revenues of US$ 1.95 billion in First Half 2012 (1H12), up 8.6% from US$ 1.79 billion in 1H11. However, like other coal companies, BUMI recorded a higher increase in its costs, so the operating profit was down from US$ 461 to 239 million. At this point, the numbers are still normal. But as the company suffered losses due to derivative transactions, foreign exchange, and the divestments in associated companies, then BUMI eventually recorded a minus profit, namely comprehensive net loss of US$ 327 million. It's interesting, because in its cash flows, BUMI recorded US$ 144 million of net cash gain from its operating activities, grew nearly three-fold from US$ 53 million in the same period of previous year.

Lo Kheng Hong, and Bumi Resources

For those of you who've read this blog for a long time, you probably know very well that Bumi Resources (BUMI) is the one of the stocks that I would NOT recommend. The reason? No, not because I've been loss on the stock, because I never had it. But because, when I was getting into the stock market for the first time in 2009, BUMI is a stock with big zero fundamentals with very large debts and poor earning powers, but oddly owned by many investors, not only local retailers but are also foreign fund managers, and at the time BUMI was practically the most popular stock in the Indonesian Stock Exchange. And this was really disturbed me: What’s wrong with you people? How could you choose this stock as your favorite investment???

However, over time, investors are eventually realize that they are not going to gain anything from BUMI, and the stock slowly but surely continue to fall. In the end of 2009, the Jakarta Compsite Index (JCI) closed at 2,534, while BUMI closed at 2,425. And now? When this article was written, JCI was in a position of 4,391, or has risen 73.3% in four years. While BUMI? It plunged, not to 1,000, or 500, but.. 300's already! If in the last year the people were still confident to say that BUMI will not follow the footsteps of its brothers to become a member of club of ‘gocap’ (an Indonesian term for stock at the price of Rp50 per share, the lowest possible price in the exchange), now they began to have doubts. The term of 'stock of a million people' as BUMI’s nickname was already long gone, and the stock is no longer a favorite, even for speculators.

The People's Stock? No More!

In recent days, there are some media which reporting on the amount of debt of the Bakrie Group, which was already in an alarming stage, or at least that’s what they said. There is also an article that says that the nomination of Aburizal Ical Bakrie as the President of Indonesia is indicated as an attempt to save the Bakrie Group of bankruptcy due to debts. An attempt to drop the Bakrie-related stocks? Probably not, because the stock of Bumi Resources (BUMI) and his brothers has already plunged since the beginning.

If we considering that since many years ago, Bakrie is always have a bunch of debts, and this issue is somehow suddenly linked with the nomination of Ical as President, then the story about Bakrie debts is probably has less to do with the business, but rather to politics. Apparently, there is a person who are upset after he was alleged to be involved in case of tax evasion, and also had being called by the Commission of Corruption Eradication (Komisi Pemberantasan Korupsi/KPK), even though only as a testifier. Yep, you certainly already know who the person is: Hary Tanoesoedibjo, the owner of Bhakti Group. Some time ago one of the group’ subsidiaries, Bhakti Investama (BHIT), had reported on tax fraud (I don’t know the details of the case, but the main point is about taxes). Even for politics nonexpert like me, it was clear that the news about the tax case is related to the joining of Mr. Hary to Nasdem Party, because the news is only heavily blown by a single TV station only: TvOne, which belonged to Bakrie Group, where Ical as the patron of the Group is also the leader of Golkar Party, one of main political competitor of Nasdem. So now, after the tax fraud news began to evaporate by itself, it is Mr. Hary’s turn to launch a counter attack, as he is also have several TV stations.

Between Wismilak and Sido Muncul

In fundamental analysis, I usually use a single indicator to find out whether the company is already well-established or not, ie the company's retained earnings. To put it simply, if a company has a large retained earnings, which is the accumulation of company’s past earnings, then the company is well established as it can be seen from its accumulation of profits. For example? Kalbe Farma (KLBF). In the third quarter of 2013, KLBF had the retained earnings of Rp7.6 trillion, versus the paid capital of only Rp508 billion. This means that the KLBF’ shareholders paid Rp508 billion for the company’s capital, but so far the company's accumulated profits has been far greater than the paid-up capital itself.

That's why if you notice - the company whose shares are categorized as blue chips, which on average is already well established and settled, their retained earnings are usually large. The following data is the value of retained earnings compared to the company's paid-up capital, from the ten largest listed companies on the Indonesia Stock Exchange. Note that if these companies never paid dividends during their life, or paid but in a much smaller value, then the value of their retained earnings would be much greater.

A Stupid Story about Oil and Gas

In your opinion, what are the main commodities of Indonesia? Is it coal? Or crude palm oil (CPO)? Both are correct, but there is another commodity that the value of its export is greater than both coal and CPO. And if you still remember, we've been studying this thing ever since we were still in elementary school. Yup, that commodity is oil and gas.

Based on recent data from the BPS (Badan Pusat Statistik, the central bureau of statistics of Indonesia), in the period of January to November 2011, Indonesia had exported oil and gas worth US$ 37.7 billion. This figure is greater than the export value of coal and CPO, which were US$ 24.7 and 19.7 billion respectively. In detail, the oil and gas export of US$ 37.7 billion is consisted of US$ 20.8 billion of gas, US$ 12.4 million of crude oil, and US$ 4.4 billion of processed oil.

A Must Read Investment Advice

Some time ago, I met and discussed with a friend who is a senior investor. Yep, I tell you, the best thing of having a blog like this is that we could meet those who are senior investors, so we can learn a lot from them. And I think, the opportunity to learn is the most valuable investment, rather than stock investing itself.

Well, here is a story shared by a friend of mine.

Stock Investing for College Students

I am a 4th semester student who just started investing in stocks. Any advice? I started to invest in stocks because I was aware that if I keep my savings in the bank, then the value of it will be eroded by inflation.

The days in colleges is the time when a young person is looking for his or her identity. Therefore, when a student decides to invest in the stock market, the motive and purpose can vary, often because he did not know what he really wanted. Some of these purposes, for example: 1. Want to have a side income every month, or just want to make some money, 2. Want to learn about the stock market itself, because I am very interested about the subject, 3. Want to be famous like Warren Buffett, 4. Want to be rich, have luxury cars and cruises, and 5. Want to have savings that is secure from the threat of inflation, as mentioned above.

Calculating the Intrinsic Value – in a Buffett Way

The concept of margin of fafety (MOS) in value investing is actually very simple: MOS is the difference of the price of a stock with its intrinsic value. So, let's say a stock has an intrinsic value of Rp1,500, and if you buy it at a price of Rp1,000, then the discount or here called the MOS is Rp500. Based on this concept, an investor may be said to have done a right decision on his investment, if he bought the stock at a lower price than its intrinsic value, the lower the better of course. But of course this raises a new question: What is the intrinsic value? And how is it calculated?

The concept of MOS was first introduced by the investment guru, Benjamin Graham, and his partner, David Dodd, in 1928 (or 1927), where the main point of the concept is to determine the intrinsic value which mentioned earlier. Graham’s most famous protege, Warren Buffett, could be very successful in his investment career because of his exceptional expertise in determining the intrinsic value of a stock.

The Spirit of 'Fresh 2014'

On Monday, December 30, 2013, the Jakarta Composite Index (JCI) had closed at 4,274, so for the year of 2013, the JCI has decreased by 1.0% not including dividends. The decline of course seems small, no more than one percent. However, if calculated from the peak position of 5,251 in May, then the index was down 18.6%, or already dropped substantially.

The movement patterns of JCI throughout the year 2013 has remind me of the more or less same situation that occurred in the Dow Jones in 1987, which known as the crash of 1987 (my investment career began in 2009, but I was quite familiar with the history of the economic crisis and stock market crashes since the case of the Tulip Mania in the 17th century). In 1987, at the beginning of the year, the Dow opened at 1,897, and then slowly continue to rise until it reaches its peak at 2,722 in August, or an increase of 43.5% in less than ten months.