On January 8, when the Jakarta Composite Index (JCI)
was on 4,500’s, I wrote an article entitled ‘After the Despair, Then What?’,
where the point is that JCI was in a period of consolidation, and this period can lead to a bull or further bear
market. But considering the economic conditions etc., I said that the
consolidation would lead to a bull market, or at least the JCI would move
several percent higher (you can read again the article in here). And here we are: When this article was written,
the JCI has gained significantly and is now on 4,800's.
But today we will not discuss about the JCI. In
that January article, I displayed the following image, click the image to
enlarge:
Now pay attention: In the picture above, it is
mentioned that there are three groups of investors in the capital market. They
are ‘smart money’, institutional investors, and public investors. Smart money
has been buying stocks long before the two other groups, that is, when the
stock index is still low, precisely below the line of the mean.
While institutional investors only start buying
when the JCI has taken off, or in term of technical analysis, break out. Finally, public investors, they
only start buying after the JCI has gained steadily until it eventually ignite
the enthusiasm of the people in the market, or in other words, when the JCI has
been in bullish period. From here it is quite clear that the group of investors
who generate the largest profit is the group of smart money, while most of
public investors only enjoy relatively little profits, because they only bought
shares when the price of stock was not cheap anymore.
So who is this ‘smart money’? And how could they
buying early when most people are still undecided about the direction of the
market?
A smart money can be anyone, whether it be
institutional investors with billions of asset under management, or individual
investors with small funds. However, there is one thing that distinguishes them
from most market participants: Smart money is able to focus on economic
fundamentals rather than the JCI itself, just as they were able to focus on the
fundamentals of a company’s financial performance, rather than the fluctuations
of stock prices of the companies concerned.
While most investors and traders, they only look
at the position of JCI and stock prices, often without looking at factor of
fundamentals at all, that if the JCI was falling down they would panic and rushing
out from the market, and conversely when JCI has gone up, they would enter the market again. Easy example, in
March 2015, the JCI continued to break new high to a 5,400’s, so the stock market
seemed good, so that the people kept buying stock although the Rupiah continues to weaken, people's
purchasing power fell, and any business started to slowing down (we once
discussed about it in
here). And when the market actually fell in late April 2015, only then the people
rushed out, but it was too late!
A few months later, the JCI and also Rupiah continued
to fall, until people began to worry that Indonesia could fall into serious crisis
like 1998, whereas the economic slowdown
that occurred was not that bad (we've discussed it in
here in September 2015, in which I said that although the Rupiah continues
to fall, but it wouldn’t lead into a crisis). The climax happened in August and
September, where the condition of the market at the time was completely
opposite to what happened in March: Panic selling!
Luckily, entering the third quarter of 2015 until
the beginning of 2016, the economy is slowly but surely improving, the
performance of listed companies also began to recover, and JCI are also slowly
but surely started to rise although with several setbacks, one of them was in
January in which the JCI is dragged down by a decline in Shanghai Stock Index and
Dow Jones. And again, the people fell in panic just because the stock index fell
slightly, without able to see that it was precisely an opportunity. The most
recent, when several days ago a state official said that the NIM
of Indonesian banks would going down, some good quality banking stocks like
BBRI, BBNI, BMRI, and BBCA immediately dropped, and some people instead selling those stocks at low prices
when they should buy, just because they didn’t understand what happened!
In short, when most people only see the position
of JCI and hence became optimistic/pessimistic, the smart money can always steal a start, where they sell early
before the JCI fell, and conversely, they buy early before the JCI rose. When most
people somehow see BBRI as ‘bad company’ when the shares are sold at a price of
Rp8,000, ASII at 5,000, and UNVR at 34,000, then that's when the smart money
secretly entered the market. And when a few months later people finally busy
talking about the rise in certain stocks, and analysts began to say that ‘The JCI
is going to 5,000', but the smart money has taken positions in advance, of
course, at a much lower price, and consequently they generate much larger
profit.
Going forward, regardless that the JCI is going to
go up or down once again, but the smart money will always focus on fundamental
factors, which, if the performance of the listed companies do not match
expectations and the economic development seemed to worsen again, then even if the
JCI is trying to break new high, they'll leave. But if there are no fundamental changes, they’ll hold
their positions.
How to be smart money?
Now, how do we become smart money? Well, the key
is that you should be able to resist the psychological
current of the market. But it is not easy, and I myself is still learning to
do that. But based on experience, here's what you can do:
The first, and this is the umpteenth time I say
this, do not ever buy stocks without
analysis.
And related to the movement of JCI, you should be
able to analyze the fundamentals of the national economy, and able to do the
field research on the development of business, able to identify important economic
issues, then assess how they affect the stock market. Plus, you also must be
able to identify issues of global economy, such as the
decline in oil prices, the Fed
Rate hike, the falling of the Shanghai
Stock Exchange in China, and so on. In short, you must read a lot. As an investor, you should invest your time to broaden
your horizons, instead of watching the ups and downs of the stock all day.
Second, enrich
your experience. In above I said that most people only see the position of
JCI in which they would be euphoric when stock index rose, and panic when the
stock index sag, while the smart money is able to focus on something that far
more important, namely the economic
fundamentals.
But to be focus like that then you’ll need
considerable knowledge and experience. If you have only been 1 – 2 years in the
market, you will usually be easy to panic when others panic, and otherwise easy
to feel the euphoria when others are euphoric, and it is completely normal, where all you have to do is to keep going, keep investing and learn
everything about capital markets, until finally you will come at a position
where you become more patient and not easy to panic.
Only indeed, if you've been long enough in the
market, say over 5 years but until now you are still easy to ‘suffer’ a heart
attack, then try to check, maybe this time you use the wrong method in buying
stocks.
And third, be careful with the rise in stock
prices that is not supported by fundamental factors. When the market dropped
then almost all shares, no matter with good or bad fundamentals, usually also
dropped, and some people might make the mistake of selling good stocks at a low
price, just because of fears that they would dropped further.
Meanwhile, when the market is rising, then almost
all stock, no matter with good or bad fundamentals, will go up. In this
condition some people may buy a ‘bad stuff’ just because they amazed by its excellent
rise (tens of percent, or even more) in just a matter of days. Actually, there
are some speculators that are specialist of this kind of ‘flying stocks’ by
completely ignoring the fundamental factors, and they might successfully
generate large profit by swing trading. But like it or not, most of those
speculators will suffer losses and also stress,
because they have to keep watching their stocks at all times. Well, I do not
suggest that you should feel stress like that because, trust me, the profit we
gained from the stocks will be sweeter if we make it by way of sit back and
relax all day, travelling, or while still doing whatever your activities in the
office or at home as usual :)
Okay, I think it's enough. Unless there are interesting
topics, next week we will discuss one stock that the market is still pay no
attention to it, but based on the rule of value investing, it actually offers an
opportunity of decent profit with a low risk plus in a medium term.
Any inquiries about investment in Indonesia Stock Market, please send an email to teguh@averepartners.com
No comments:
Post a Comment