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

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Buy on Weakness, Sell on Strength? Really?

If you often travel throughout Indonesia by plane, you must be familiar with the famous Lion Air.. but ain’t famous in a positive sense, but famous as an airline that sucks, where its flight schedule are often delayed. Because of its bad reputation, when several years ago I began to travel frequently by plane, I deliberately avoid Lion Air and prefer other airlines like Garuda Indonesia, Air Asia, Citilink, and Sriwijaya Air. And indeed, I have never been in trouble with those airlines, especially with Garuda which always provided excellent services (though its tickets also not cheap).

But about two years ago, I was forced to use the services of Lion Air for the first time, because in the flight route (Bandung - Yogyakarta), there was Lion only at the time. I was worried at the beginning, but the flight went very smoothly: The plane did not delayed, the flight was comfortable enough (although the distance between my seat with the front seat was too close), and the flight attendants were very friendly.


Since then I become a loyal customer for Lion. And, I don’t know with the others, but during this time I always satisfied with the airline, and never had delays or other problems (it always on time). Including, last night I just returned from the event of Market Outlook in Surabaya to Jakarta using Lion, and once again it was on time, plus it looks like the plane was brand new, so the flight was very smooth (plane had experienced turbulence as it goes through the rain clouds, but the turbulence was lesser than usual). The flight attendants were very, very polite, where they patiently warned some recalcitrant passengers who still use phone calls, even though the plane will immediately take off.

The point is, if the company asked for testimony, I will be happy to say that, considering the aspect value for money, Lion Air is one of the best airlines in Indonesia. If there were some flights that delayed or experiencing other problems, then as an airline that serves almost all route in the country with hundreds of flight everyday, of course some of the flight can not serve the passengers optimally. But statistically, how many flights that experienced delays, compared to flight that on time? And if Lion is really that bad, then why the seats are always full?

In this case I also remember the cheap restaurant, Solaria, which has the same issue like Lion Air: Got a bad reputation. If you read on the internet, there are many stories about Solaria diners who either found a cockroach in the food served, had waited a long time only for a small meal, the food served is not well cooked, and so on. But, I don’t know, just like the case of Lion Air, I also never experienced a problem when eating at Solaria, but rather always satisfied because, just imagine: a crab fried rice, with large portion and good taste, but the price is only US$ 3, and the restaurant was so cozy!

In short, if not because I dare to ignore the bad opinions about Lion and Solaria, but decided to try it myself, I would never know that these two companies has good services. Just like Lion, Solaria also always full, and it might not happen if the restaurant’s service is that poor, right?

Okay, then what is the relation of this issue with our investment in stocks?

Most investors, either because he is still a beginner or have not really able to analyze the stocks, in making the decision to buy or sell, they usually rely on the analysis or opinion from the others, either security analysts, independent analysts/advisors (like me), or the opinions of the 'experts' which were posted on social media.

The problem is not related to the accuracy of the opinion/analysis, because an analyst/investor could be right and wrong at any time, in making analysis/investment decision. The problem is, most of the ‘analysis’ is not based on the fundamentals of the stock in question or the JCI, but based on ups and downs of the market at the time. So if JCI is gaining significantly in two or three days in a row, then everyone suddenly become optimistic and they spend a lot of cash to buy stocks, and analysts from brokerage houses became enthusiast in recommending stocks A, B, C, and so on, to their clients. Even fraud stocks like Sekawan Intipratama (SIAP), when he again rise then there must be a recommendation that the analyst.

But when one day the JCI dropped, the stocks fall down, that’s when these analysts suddenly disappear. All encouraging stories, say like Window Dressings which are often touted at the end of the year, suddenly vanished in a matter of days, replaced by horror stories such as the hike of Fed Rate, impairment of Rupiah, bla bla bla. So if you do not do your own stock analysis and only follow inconsistent daily analysis like that (in yesterday the analysis was optimistic because the JCI was gaining, but today, after the JCI dropped back, almost everybody suddenly thinks that Indonesia is in the crisis.. dafuq?), then you will confuse yourself. There are too many cases where an investor buys a stock when he should sell, and sell when he should buy, because when the JCI in green, every good news that popped encourage him to buy. But when the stock index fell, all the good news turned bad and sound like terror, so instead of buying good stocks at bargain price, an investor may sell his stocks in losses.

So like the stories of Lion Air and Solaria above, where if you believe the bad news too much and never try it by yourself, then you will probably never know that the two companies actually have a good service. And similarly in stock investment: If you only hear about what people say but do not ever analyze the stock by yourself, then you may sell the shares that you should buy, and also buy stocks that you should never touch.

But different from the consumer opinions on Lion Air which is partly right, where the flight of the airline is sometimes delayed, daily stock recommendations are often inconsequential at all, where the buy recommendation delivered after the stock/JCI rose, and vice versa, sell recommendation delivered after the stock went down. Well, if it works that way, then how how could you generate profit? Should not we buy stocks on weakness, and sell it on strength? Why do we do exactly the opposite???

Only that, it is not that easy to be confident, to not selling the good stocks which you own when the JCI was hit by a correction, or otherwise to hold yourself from buying when the JCI was high and the valuation of shares already too expensive. But trust me, as long as you can ignore the ups and downs of the stock market as well as the excessive reaction of the people on it, as long as you can stay focused on fundamentals and valuations of the stocks thay you hold, then over time, the result will be enormous :)

Any inquiries about investment in Indonesia Stock Market, please send an email to teguh@averepartners.com

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