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

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The Importance of Screening the Information

On November 4, 2016, as we knew, there was a massive demonstration in Jakarta involving hundreds of thousands of people who demanded the inactive Governor of Jakarta, Basuki Tjahaja Purnama alias Ahok, to be processed for suspected religion blasphemy. And as usual, when there is a national incident then the social media with internet forums are full of opinions and comments from the sudden analysts, and Facebook instantaneously becomes full of pro – contra debates whether Ahok is guilty or not.

Before the news of Ahok demonstration spreads, you may still remember if there was a big demonstration involving taxi drivers who refused the existence of online taxi and motorcycle taxi some months ago, it eventually led to turmoil. The social media became full of the sudden ‘transport experts’, some of them might spend their time reading the legality of online taxi and others, to support their argument they said when they debated the matter with their own friends on FB. Previously, Jakarta was also surrounded by a mass of workers who were demonstrating to demand a wage increase, and many people made an opinion and debated the problem whether how much they needed to have, and so forth.

One of the photos during the demonstration of the online taxi, some moments ago, and the issue is now completely forgotten. Courtesy www.timeindonesia.co.id

Briefly, when there is a major and significant event and it concerns many people, then many opinions and comments related to it will spread, whether it comes from the sudden analyst or the true experts. Then, on certain condition the articles of opinions, comments, and rumours are more ubiquitous and more widespread than the news or information which is the facts and data, and the condition eventually leds people make their own versions of information about what is happening. For example it is the Ahok demonstration mentioned above: It does not matter how hard you argue that Ahok is guilty, or not, then there is always another person who makes the opposite argument. And when it happens then who is the right one? Your argument or the others’ arguments?

Okay, what is the relation between the events with stock investment?

If recently many people are fighting over the demonstration of Ahok on social media, then you have to remember the time when a big event which becomes a national issue doesn’t occur: There are fewer people debating over a matter, aren’t there? Briefly, on certain occasion many people who unfriend their friends because of different arguments over a certain matter, but they are just fine on the other times, because the significant event doesn’t occur which led them to debate.

How about the stock market? Well, ‘debate’ takes place every day, because there is an investor who always has a different view with another one over certain prospect and the value of the stocks, market direction, macro economy progress, and so on.  Also, the stock transaction occurs when different arguments happen, when A sells his stock to B, then A argues that it may fall later (that’s the reason he sells it), meanwhile B thinks the stock is going to rise (that’s the reason he buys it).

The stock market from the past time till the recent time, and in future time, is going to be full of opinions and arguments which are different from one another, the information which is likely to be only an opinion will be more widespread than the one which is based on facts and data. The difference is, if you had invested since 1990’s, then Facebook, Whatsapp, and even mobile phones didn’t exist and the owners were not that much. Then the information spread related to stocks or JCI, most of it was the opinion (or rumor), was very limited.  And if you had been capable of analyzing the financial statement and others, you would have got the facts and valid information, and not the ‘I heard that’ or ‘they said that’ (who did say that?). 

But the opposite happens nowadays: The advance of technology makes the information spreads fast, including the invalid announcement or information which is only rumor and opinion, if you forget to analyze because you pay your attention to the rumor, it is certain that your portfolio will be a mess. I often hear other investors’ stories who are stuck because they bought a random stock at an expensive price, because the stock becomes ‘a hot topic’, or ‘it is recommended by the analysts’. And sadly it’s not only the new investors who do not know how to analyze a stock, but the experienced ones sometimes might be ‘fooled by rumor’, and as a result they trade their stock not based on their own analysis they make earlier.

So in the past it’s different in which the investors might face difficulties getting the valid information (if they wanted to get the financial statements then they needed to find the hard copy, they could not download it as easy as for now), now the investors have to screen every information available, then they need to distinguish which information is the valid/factual one, and not only the opinion or rumor.

And that’s the reason, a professional investor/fund manager often detaches themselves from the others and acts indifferently, he might not want to join a group or a forum, is hard to call, is reluctant to comment on anything and rarely talks about anything, and does not want to listen the analysis/investor because he is confident enough with his analysis (except the analysis or suggestion from one or two people that he trusts, for example like Warren Buffet who always asks for suggestion from Charlie Munger). The investor might rarely read daily news or sentiments, but instead he focuses on company analysis, JCI analysis, and the macro economy. It includes the important issue or event which may affect the movement of certain stocks or JCI, for example there was a big demonstration yesterday (which might make the market went down), but he would focus on analyzing how much effect the demonstration might cause on the market, and not to waste his time reading ‘analyst’s opinion’ or receiving broadcast with a title ‘according to the news’ that its source was unknown.

That was the only way, his thought would only consider the information and analysis that had a certain quality, valid, and accurate, with the valid information he would be able to decide to trade the right stock, to lower the loss risk and to heighten the possible profit, and the most important was that he would not be easy to get sad or worried because of unreliable news.

So, do you want to join this ‘nerd investor’ club? By the way, you may note that if someone is a bit uninterested when he is invited to discuss the stock, it does not mean he is antisocial or anything like that. Including if you meet me in the coffee shop, then I would be pleasant to talk about culinary, the latest video game, football, philanthropy up to macroeconomic and business developments. But if you just want to ask, ‘Dear Sir, can you tell me what stock which is going to rise tomorrow?’

Then I will kick your ass!

Original article was written (in Indonesian Language) in November 7, 2016. For inquiries, please contact the author by email teguh.idx@gmail.com

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