SPAC Info

In part 1 of this 2 part series on investing in Indonesia stock market, I already gave a brief explanation on Indonesia and list several blue chip stocks traded in Indonesia Stock Exchange.  In this part, I will continue with explaining several ways an American can choose from to invest in Indonesia stock market.

An investor can select one of four ways to invest in Indonesia:

• Open an account with Asian based brokers. It is actually not easy for retail investors to open accounts with these brokers, because most of them only serve foreign institutional investors. But you should check Kim Eng Group if you want to take this path.
• Invest in Van Eck Global Market Vectors Indonesia Index ETF (NYSE:IDX).  This is an exchange-traded fund listed on NYSE that gives investors exposure to the Market Vectors Indonesia Index. This Index tracks the overall performance of companies that are domiciled and listed on Indonesia Stock Exchange.
• Invest in Aberdeen Indonesia Fund (NYSE:IF). This is a closed-end fund listed on NYSE, having Indonesian equities and debt securities as its underlying assets.
• Buy an Indonesian company’s ADR traded in the United States. Unfortunately, there is only one Indonesian stock that has an American Depositary Receipt that trades in NYSE. It’s Telkom (NYSE:TLK), the telecommunication company I mentioned in part 1 of this series.

If you want to avoid complexities involved in buying shares in a foreign country, investing in the funds or the ADR should be easy enough, as long as you already have an account with a US broker.

Indonesia is the largest country in South East Asia region. Having population of more than 240 million, which is growing steadily, Indonesia is a really promising market. The large number of population create huge demand for goods and services. As a result, the GDP growth of the country is driven mainly by domestic consumption.

Indonesia has only one stock exchange, the Indonesia Stock Exchange (IDX), which is based in Jakarta, the capital city. IDX has listed 399 public companies, with market capitalization reached about $250 billion in April 2010.

Below is a list of several blue chip stocks in IDX that an emerging market investor should be aware of.

• Telekomunikasi Indonesia, or Telkom (NYSE: TLK) (IDX:TLKM). Telkom is the  largest telecommunication group in Indonesia which offers both fixed line and fixed wireless telephone, data and internet services. Telkom also offers mobile cellular services through its subsidiary, Telkomsel.
• Unilever Indonesia (IDX:UNVR).  The largest consumer goods company in Indonesia that was founded during the Dutch’s occupation in 1933.
• Astra International (IDX:ASII). The leading automotive company which also engages in other business lines: agribusiness, information technology, financial services, heavy equipment, mining and energy.
• Indofood (IDX:INDF). A total food solutions company, producer of the most popular instant noodle brands in Indonesia
• Perusahaan Gas Negara (IDX:PGAS).  A state owned company that engages in transmission and distribution of natural gas to residential and industrial customers.

This concludes part 1 of Investing in Indonesia Stock Market. In the next part we will look at how an American can invest in Indonesia stock market.

In a previous article, we already discussed briefly what was meant by fundamental analysis and what made it different from its counterpart, technical analysis. In this article, we dive into more detail on fundamental analysis and learn about the term “Capital Structure”, which is a measurement often used by analysts when evaluating the balance sheet of a company.

Capital structure is a composition of a company’s long-term or permanent capital, which consists of some combination of equity and debt. Equity can be further categorized as common stock, preferred stock or retained earnings. When it comes to debt, financial analysts have different opinions on what constitutes the debt component in a company’s capital structure. Some analysts only consider long-term debt, while others argue that short-term debt should also be considered to be part of the capital structure.

When analyzing a company’s capital structure, analysts use several different ratios that compare the company’s debt to total financing. The most popular ratio is debt-to-equity ratio, which is often referred to as the company’s leverage. Rating agencies such as Moodys and Standard & Poor’s use Retained Cashflow (RCF)/Net Debt ratio and Funds from Operations (FFO)/Net Debt ratio. For example, please have a look at Reuters Group (RTRSY) Capital Structure, that shows the capital structure of Reuters Group from year 2005 to 2007.

As stock investors, sometimes we need to know how a company’s capital structure changes over time. Of course, we can always search through SEC filings to find it, but there’s an easier way. We can use the new feature provided by Wikinvest, which pulls sections from annual reports and matches them up, as can be seen in NRG Energy (NRG) Capital Structure. Another example is Transocean (RIG) Capital Structure. This Wikinvest feature will save us time and effort when analyzing a company’s financial statements.

If you are new to stock trading and eager to learn, there are so many resources out there to help you learn the basics. Online courses, seminars and even personal training are available. But sometimes the best way to learn is the old-fashioned way – reading a book.

The most obvious advantage of reading a book is that it’s substantially cheaper than most courses and seminars available. By reading books, concepts that are not immediately understood can be reread as many times as necessary. The question is, which trading books are the best?

Be suspicious of any book that makes unreasonable claims in its title or cover “Become a day trading pro in an hour!” or “Turn $1,000 to $1,000,000 in a month!”.  It is likely these books will not teach you the fundamental risks associated with trading. Risk management is even more important than stock picking. No point selecting winning stocks only to have all your profits wiped out because of one trade where risk management was neglected.

There is a common misunderstanding that trading is a fast paced, exciting activity very similar to gambling rather than a calculated, measured activity. Any good trading book will give calm, reasonable, practical advice on trade selection, money management, risk management and trading psychology. This restraint suggests that author knows the market and is simply explaining what he/she has learned.

On the other hand if the language is fast paced, sensational and overwrought it is an indication that the author has written the book as entertainment rather than as trading education. The author’s goal is to sell books rather than educate the reader on trading.

Pay attention also to the book’s presentation. Are there many grammar and spelling errors? Is it an e-book sold by some guy off his web site? If it is, it may not have been professionally edited. Does the author offer the book with a 100% money back guarantee for a reasonable amount of time? If it doesn’t the author is unwilling to put his/her money where his/her mouth is. After all, they are making money following their own advice aren’t they? They should be able to offer a guarantee.

When considering a trading book, it’s worth taking a few minutes to search the author’s name in the search engines and see what comes up. Are there reviews of the book written by actual readers (not just testimonials on the author’s web site)? Has the author been mentioned in any news and forums? Does he/she have any real world trading experience, or do they just write trading books?

The best trading books will treat trade selection, money management, risk management and trading psychology as equally important to becoming a successful trader.

“Support” and “resistance” is slang popular with business professionals on Wall Street.

“Support” applies generally to a stock that is directed downward in the short term, but may be a long-term uptrend or downtrend. It refers to the price level at which the stock seems to bounce back up over time. You may consider support as a floor that the stock did not seem to break for a long time.

Staying with the above example, “resistance” is like a ceiling. It ‘s the price level at which the stock seems to bounce back down once it is reached.

The good news is that once a stock finally penetrates through the resistance, you can go to the moon. Traders love a stock that breaks through the ceiling because there is nothing holding it from going higher.

Similarly, once a stock falls through the floor, it is likely to go down and down until it finds a new support. This could be a support level at which the stock previously had stayed several times in the past.

Stocks that face resistance or support usually don’t break the level easily. Trading professionals generally like to buy stocks that are in a long-term uptrend and are just bouncing up from support. Or better yet, they like to buy a stock when it breaks through its resistance.

Trading is a completely different business compared to investing. When you invest, you should look for companies with a sound business plan, having share prices close to their minimum of 52 weeks.

Your goal is to hold the stocks for a minimum of 1-5 years or even longer. An undervalued stock with a price unfairly knocked down is a good thing for a patient investor.

By contrast, stocks reaching new highs of 52 weeks are more appropriate for trading. This is because traders are more interested in the stock chart patterns than in its business. As a trader, you’re trying to keep a stock for up to a month or two, but more likely for days, hours, or even just a few minutes.

Trading can be exciting, and it can be nerve-racking. Not everyone is cut out to become a trader – it takes a person with a gut of iron and nerves of steel. Above all, the business requires discipline.

Is The Stock Trending Up or Down?

You could have a trading insight from a news story or even an instinct, but you should never really place an order without analyzing the stock’s chart.

A stock that is in a general downtrend is rarely appropriate for trading.

You can determine the stock’s trend by looking at its one-year chart, and connecting the peaks over time and its spikes down over time (its depressions). In general, professionals only risk their capital in stocks that are trending up over time.

The definition of day trading is “The purchase and sale of a position in an account during the same  day.” A day trading can be a short sale followed by a short covering also known as a buy.

A day trading refers to the practice of buying and selling financial instruments within the same trading day so that all positions are usually closed before the close of the market of that particular trading day. Traders who carry out day trading are referred to as day traders.

History of  Day Trading

Day trading has its origins in the birth of the computerized, over-the-counter NASD, in 1971. Fourteen years later, NASD created the Small-Order Execution System, or SOE, which made it easier for individuals to perform actions and tasks automatically, provided that the orders were for 1,000 shares or less. So, for day trading, with the use of phone lines, orders were placed in a matter of seconds instead of minutes.

The modern trade is no longer limited to SOEs. In fact, the most popular tool for the day trader today is the electronic communications networks, which are established to manage customer groups who make large blocks of stock trades. Thereby facilitating all members to trade directly with other members of their network, placing buy or sell orders electronically. Then, the electronic media has become an instrument of great help for day traders.

In the previous article, we already discuss three kinds of investing styles, growth investing, value investing and GARP investing. This article will continue the discussion of stock picking strategies by describing the final two stock picking strategies, fundamental analysis and technical analysis.

Fundamental Analysis

Fundamental analysis is a stock picking strategy whereby an investor or analyst tries to estimate the intrinsic value of a company based on financial facts. Although this strategy requires time and effort, it is more suitable for long-term investors.

Through fundamental analysis, investors seek to understand the trends of earnings of a company and expected future profits rather than market sentiments. In addition to revenues and earnings, investors also focus on factors such as, ROI (Return on Investment), ROE (Return on Equity), cash flows and P/E ratio etc.

Technical Analysis

Technical analysis, also known as chart analysis, is an investment strategy through which investors predict the future price movement of a stock based on past performance. Technical analysis mainly depends on supply and demand for particular stocks and trading volume.

Technical analysis is completely opposed to fundamental analysis. Technical analysts or chartists do not care much of the intrinsic value of the specific title.

Despite the advantages and disadvantages of each stock picking strategy, many investors are making millions regardless of the strategies they choose.

A choice of investors of a particular strategy should depend on its market knowledge, industry trends and potential for business growth. Above all, investors devotion of time and ability to calculate risk play important role in the choice of a particular stock-picking technique.

Effective stock picking strategies are vital for an investor to grow her assets significantly. An investors stock picking strategies depend on several factors including the performance of companies, market and industry trends, and share prices.

In this article we are talking about some of the stock picking strategies based on various investing styles.

Growth Investing

In this investing style, investors focus on fast growing company, with significant increase in revenues and profits. Investors who focus on this strategy aim to make money from the significant increase in the price of the shares of particular companies they choose to invest.

Normally, the profit from growth stocks are much higher than other types of stocks. However, the risks associated with this type of action are higher than others. Growth investors select young and rapidly growing companies, despite the expensiveness of these stocks, as investors bet on future growth potential of the companies.

The basic idea of growth investing may vary from sector to sector and company to company.

Value Investing

In this style, investors invest in value rather than invest in growth. Value investors focus on stocks that are trading below their intrinsic value. Value investors look at fundamentals of the company carefully and believe that the market undervalues these stocks.

Value stocks are cheaper than the net asset value of their respective companies. Value investing does not mean choosing  a low cost stock, but investing in undervalued stocks that have good growth potential.

GARP Investing

GARP (Growth At Reasonable Prices) is a combination of  value investing and growth investing strategies. Through the GARP investment strategy, investors focus on stocks that are reasonably priced  and at the same time has a strong growth potential.

In laymans terms GARP investors do not go for either growth stocks that are at high risk or low price stock prices, which are in difficulty. Thus, GARP investors avoid costly high-growth stocks. The important barometer for investors GARP is the PEG ratio, which is the PE ratio divided by growth.

When everyone you know is gossiping about the latest hot stock, it can be difficult to resist the urge to buy. Maybe your neighbor invested huge amounts in some fancy new bioethanol stock. Perhaps the newspaper is praising a certain company as “the next big thing.”  Regardless of where the stock tip comes from,  investing in stock tips can easily have negative consequences.

Following the hot stock tips is almost always a bad idea for a number of reasons. The first is very simple. Many stocks become hot because the company is liked by the people . Unfortunately, sympathy and financial viability are two very different qualities. If a company does not operate under a sound business plan, it will not do well in the long run, no matter how many investors put their money. The technology bubble of the late 1990s is an excellent example of that. During this period, it became relatively easy for almost all Internet-related companies to acquire funding. This has led to dozens of well-financed companies with business plans that do not actually include practical strategies for becoming profitable. While a few healthy companies pulled through, a large number of companies that went public during this period are no longer in existence.

While it may be possible to avoid the trap of accepting stock suggestions, there is an inescapable truth. Unless you know a person who is financially active and very literate, your ‘hot-tip’ will probably ‘stone cold’. Since stocks can be traded instantly, new information is reflected very quickly in the price of an asset. If you’ve heard a bit of stock in the newspaper, investment newsletter or a friend, there’s a good chance that many others have heard the same thing, and that the market price has already adjusted to these expectations. Although the stock tip you received was followed up by enough investors, prices could temporarily become inflated, causing even greater losses when prices readjust.

Despite the fact that most hot stock tips is not worth acting on, invest in individual stocks can be a fun and rewarding hobby for those who can afford the risk. Since hot stocks are so hard to choose, however, it is important to be aware of the true risks and significant. Do not be seduced away from sound investment principles to follow up the latest hot stock tip.