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.

But if we ask professional investors, including fund managers in the mutual fund company, then there is only one motive: To record an annual performance that is higher than the average performance of the market. So, let's say JCI rose 5% in a year, then you may be said to have succeeded in achieving your goals if you earn gain of 15%, aka 10% above the market average.

Outside the motive, there are no other motives. Professional investors usually do not ever think that if they later generate huge profits from their investments, then they will spend the money for a crib or such. Although you might be able to see that some of successful investor has a glamorous lifestyle, but for investors who are truly successful, they are usually low profile.

However, the motive number five (of the first paragraph), ie to have savings that is secure from the threat of inflation, it is also a very good motive. If you have some idle money, which you do not have plans to use it for certain purposes, then of course it is a good idea to place it on stock investments, to avoid inflation. I have two bank accounts whose balance is just enough for my family daily needs. While the rest of money? Placed in the stocks, and also a small portion of insurance.

Okay, now we back to the question above: If I have any advice for students who want to invest in stocks, then you should first decide what your goals are, and then focus on those goals. Perhaps I should say that to be 'focus' is the most difficult part of the job. Because when you aim to hedge your savings from inflation, for example, then you will not take a long time to realize that even though your savings are now relatively safe from the risk of inflation, but not safe from the risk of market fluctuations and fluctuations in the stock price itself, where the risk is much greater. And when you realize that, then usually you will break your focus, where you will start to think about how to survive when the market goes down, and otherwise, how to achieve maximum profit when the market goes up.

Then how about 'to protect my savings from inflation'? Well, it's a story of the past, I had it forgotten!

So in the end, the most ideal purposes/objectives for a student when he started his investment in the stock market, is to learn about the world of the stock market itself. Trust me, even if you read a 10 thousand-pages-book about the stock investment, you will not understand anything as long as you do not practice the investment itself! So do not always think about the profit of billions, cruise ships, or the like, the important thing is just to learning by doing (about the investment).

I think you are very lucky if you are already aware of the importance of this investment issue while you still attending the college, or in other words, when you are still young. Because although you'll need a fairly long time to learn and eventually be able to make consistent performance, but you have the 'time'. For any investor, 'time' is an extremely valuable asset that you could never get it back after spending it. Do not get discouraged just because you have capital of only Rp5 million (equal to US$ 500, a minimum deposit to open an account of securities) or even less than that, because you have an advantage over other investors in the form of 'time' earlier! And also remember that any big investors are never started their investment career with fund of billions, but only use a small money first.

Do I need to buy gold or other hedging instruments?

I do not know about anyone else, but I did not do it. All my assets, except my house and some money for my family daily needs, is placed in the stock. So if at any time the market dropped as it was in 2008, then at least I would still have a place to take shelter and survive until the market eventually recovers. Because in the end, all stock indices including Jakarta Composite Index will always continue to rise in the long term. There are many famous investors who have been through many periods of crisis, but they are still living well, and even have a longevity.

What is your opinion about investment strategy of Dollar Cost Averaging (DCA)?

I do not agree with such investment method as it is ignoring the valuation factor, which you are advised to buy stocks whenever you have the money, not when the stocks are in an undervalued position. In addition, DCA method is only effective for stocks that represent well established companies with very good fundamentals, but usually the price of this kind of stock is never undervalued enough to buy.

However, to some extent, the DCA method was proven successful where the profits could be higher than the market average. So if you want to apply this method, then choose stocks with great financial performance/fundamentals, which its intrinsic value is higher than the book value of the company itself. For example, Bank BRI (BBRI), Bank Mandiri (BMRI), Astra International (ASII), Semen Indonesia (SMGR), Indofood (INDF), and Perusahaan Gas Negara (PGAS).

I am a housewife, and I've just transferred my son’s education unit-linked-insurance to stocks (I have just opened an account in securities). But honestly, I am still confused whether I should buy the stock of BBRI, JSMR, UNVR, PGAS, KLBF, or what? But the thing is, my son will get into college in 7 years, so I intend to place the fund for a long-term investment. Any suggestions?

When a person transferring his or her assets, whether it from the previous form of unit-linked-insurance, mutual funds, fixed assets such as land, etc., into the securities like stocks, the aim is certainly to make these assets to become more productive, aka to be able to generate more profits or greater increase in value than before. However, keep in mind that when an investment is capable of generating larger profits, the its risk to suffer a loss (or impairment) is also becomes larger. It is necessary to consider it seriously, especially if you are using not idle funds for your investment, like, your son’s education fund.

Therefore, you should put your investments in a low risk type of stocks, and it means the banking and consumer goods, plus some companies in other sectors with a long term good track record. The gain from these stocks may be very little each year, but if it accumulated in seven years in the future, then it is very likely that the value could be much bigger than you can imagine.

For this year of 2014, I would prefer the banking stocks rather than consumer, because in the past year of 2013, the price of consumer stocks have rose a lot, while the banking were almost unchanged (so that the current valuation is lower than last year, because during the last year, the performance of listed banks were good and growing). So you may follow the same steps. About the composition of the portfolio, you can spread your funds in 7 to 10 different stocks, or a maximum of 12 stocks. Based on my experience so far, such diversification strategy was quite effective where there is not one particular stock that had too much weight on the performance of the overall portfolio, while we could keep an eye on all the stocks effectively, one by one.

But sir, this was almost a year passed after I open my account, and I already deposited some fund as well. But I still do not dare to buy the stocks, I was scared! What should I do?

Um.. when I was little I was afraid to go to the pool because I think there is a big shark that was swimming in it. By the age of six years, when I was going to the school for the first time, I was afraid to get into the classroom. When I learned to ride a bike, I was afraid I would fall off, and I actually fell and got some scratch. By the age of adolescence, I was afraid when I, for the first time, had to take a bus alone to the city of Bandung to continue my study (I was born and raised in Cirebon, West Java). Graduated from college, I was afraid when I had to face the HR of a company where I applied for a job there. When I've got a job, I was scared when my prospective father-in-law is in front of me and asked, 'Are you ready?'

And lastly, a few years ago when I was for the first time had to go pretty far from the city, I'm totally afraid when I arrived at the airport, getting on the plane, the plane took off, until when I was already in the air. At time there was only one thought in my head: What if this plane crashed??? The thought were eventually dissapeared only when the plane landed safely.

Then on the later flights, I never be afraid again.

In essence, ladies and gentlemen, if you are afraid when you are for the first time doing something totally new, it is natural as human being. And the only way to overcome the fear is.. to do it immediately! Just do it! If you are intend to start investing in stocks at this year, but then you put it off until next year because of your fear, then trust me, in the next year you will be afraid as well! But if you are immediately stood and get it on, the fear will eventually go away by itself, and in the next year you will be more confident in your investing activities.

By the way, in the last few months I received many emails from newbie investors, who complained that they are suffering big losses, along with the decline of JCI in the last six months, just right when they started their investing ventures. However, although it is hard to say, I think it is better to suffer a loss at the beginning so that you are aware that you need to learn, rather than obtain a large profit so you feel like a ‘genius investor’ and do not want to learn more, sometimes up to belittle others. In the end, the market would go up or down, it is a matter of course. But if you've lost the mental as an investor, then it's one mistake for all.