Yanuar Dananjaya, Bsc.

, MM

Stock
Common Stock: Represent ownership of a company
Based on percentage of ownership

Stock Market

Right to vote in annual meeting mainly to

choose Directors (Komisaris) to represent stock
owner
Right to company profit
Preferred stock
In between stock and bond
Dividend is promised but will not be paid if
company has no money
No control on company

Yanuar Dananjaya, Bsc., MM

Stock
Stock vs. Preferred Stock vs. Bond
Maturity no maturity for preferred stock and
common stock

Stock Market

Claim of payment (coupon and dividend) Bond

holders must be paid before preferred stock holder,
the common stock holders are paid last.
Claim in event of bankruptcy Bond holder, then
preferred stock holders, then common stock
holders
Control to company only common stock
holders controls company

Yanuar Dananjaya, Bsc., MM

Stock as Instrument to give profit to stock

holders
Cash Dividend provide cash per share of stock.
The most common

Stock Market

Stock Dividend provide certain number of shares

per share of stocks
Stock Repurchase use profit to purchase stocks in
the market becomes treasury stock
All three options actually equivalent to stock holders

Yanuar Dananjaya, Bsc., MM

Stock as Instrument to control managers

Agency problems: Conflict of interest between owner
and managers
Give stock option as compensation for managers

Stock Market

Stock option: right to purchase stock in the future at a

pre-determined price

Yanuar Dananjaya, Bsc., MM

Stock
Initial Public Offering
Use the help of investment bank or security
company
For legal requirement

Stock Market

For valuation and pricing affect stock price

For advice on IPO timing
For marketing full commitment / best effort
Usually IPO price is set low buyer of IPO
almost always profit marketing strategy
Usually offered to big customers of investment
bank/security company
Create primary and secondary market

Yanuar Dananjaya, Bsc., MM

Stock Trading
Stocks are traded through Bursa Efek Indonesia
Only registered brokerage company can trade in BEI
Investors trade through broker by paying commission

Stock Market

Investors open account with broker, money held in

custodian bank
Can use margin borrow money from broker to buy
more stock higher profit, but also higher lost
Outside Indonesia can short the stock profit if price
go down
Stocks are traded in lot of 100 shares
Unlike forex and commodity trading, no spread

Yanuar Dananjaya, Bsc., MM

Stock Trading (cont)

IHSG: Indeks Harga Saham Gabungan to monitor
average increase/decrease of all stocks price in
Indonesia

Stock Market

Initially IHSG = 100

Change in IHSG is in proportion of stock market
capitalization (number of shares X price) big
company has more effect to IHSG compared to small
company
Other index: LQ45, Kompas100, Jakarta Islamic
Index

Stock Market

Yanuar Dananjaya, Bsc., MM

Stock Market

Yanuar Dananjaya, Bsc., MM

Yanuar Dananjaya, Bsc., MM

Stock Trading for Investors

Technical Analysis use graph of historical price to
predict future price not considered scientific
Support
Resistance

Stock Market

MACD
Etc, etc, etc ,etc, etc

Yanuar Dananjaya, Bsc., MM

Stock Trading for Investors (cont)

Fundamental Analysis use financial report to
determine the value of company
Can be divided into:

Stock Market

Value investing: Search for companies with price

below intrinsic value in the future price will be
corrected to the intrinsic value
Growth investing: Search for companies with
growing price in the future price will keep
growing

Yanuar Dananjaya, Bsc., MM

Efficient Market Hypothesis

Stock price is always in their intrinsic value
Implication:
There is no point in doing stock analysis
Impossible to always beat the market

Stock Market

WHY?
All investors continuously evaluate all stocks using
the same information averagely they will arrive in
same intrinsic value
Any stocks with price below intrinsic value will be
purchased until price = intrinsic value, and vice versa
All price movements are random: Random Walk
Hypothesis

Yanuar Dananjaya, Bsc., MM

Conditions for Efficient Market Hypothesis

All investors have access to same amount of data
violated in the form of insider information

Stock Market

All investors evaluate information and act logically (no

emotion) assumption of classical economy theory
Behavioral finance combine economy and
psychology in making economic decision, human is
affected by emotion
Warren Buffet: I would be a bump in the street with
tin can if market were efficient
Paul Kruggman: 3 factors that destroys market
efficiency:
Greed/fear, herding behavior, short term
timeframe