How to start investing in stocks.
    Category: Smart Investing 2016 By : Teguh Hidayat Read : 520 Date : Monday, June 20, 2016 - 03:13:04

    If you type the word “investment” in Google, the first article that would appear is about investing in stocks, not in real estate, precious metals, government securities, or other. Yup, in the last few years, stocks became popular as an investment instrument that is easy, cheap, can be done anywhere and at anytime (as long as you have Internet connection), and can generate satisfactory profit. So if you or your companies have some free cash, then rather than placing it in the form of bank deposits, you can put it in stocks, either directly or through mutual funds. Large tech corporations such as Facebook, Apple, and Twitter, have also put some of their cash in marketable securities, rather than bank deposits.

    But the question of course, if I do not understand at all about stock investment, then how do I start? What if the shares, instead of going up, goes down, so we suffer losses? Well, in this regard, here’s a simple analogy: If you have a child in elementary school or junior high school, then you certainly will not give him too much pocket money, will you? But if your child is in high school or college, only then can you give him more pocket money, and you might as well buy him a motorcycle or car.

    In stock investment, the principle is the same. Basically, every beginner in the stock market is like elementary school children who do not understand anything, no matter how big the initial funds that they have. And because they still do not understand anything, they could easily suffer a loss. But these beginners will slowly learn about a lot of things, ranging from fundamental analysis, the share price movement, how to calculate the fair price of the shares, and so on. As time goes by, they will rise to a further stage and learn about patience, the courage to buy stocks when others are panic, cash management, stock diversification, market timing, macroeconomics, etc. And years later, these investors can not be called a novice anymore, because they are already quite experienced, already understand about stock investing from A to Z, and have usually been able to generate consistent profits in the long term (not big, but consistent). And of course: They manage much more money.

    So if you absolutely know nothing about stock investments, then how do you start? That’s right, by using small amounts first. How small? Well, small enough that if you bought wrong stocks and lost half of these funds, you would not be upset. Just remember, in this stage, you are still an elementary school child, and not allowed to hold “big money.” Do not think about making profits, just try to survive first. Use the time to learn, such as by reading the annual letters written by Warren Buffett (which can be downloaded at www.berkshirehathaway.com), or trying some method of investing that you have learned (trial and error), and then find which method most suitable for yourself. If you ask me, my method is value investing, just like Warren Buffett and many other famous investors, but the implementation of the value investing itself can be different for every investor.

    Then after one or two years, after you master how to analyze and pick stocks, only then you can deposit more funds into your account, and so on until you will reach a point where you have enough experience and are able to produce consistent profits, and that’s when you can be considered as the college kid who can hold big money. And you can invest all of free cash you have into the stock market.

    But there may be a question: What if I do not have enough time to learn about the stock analysis? If so, you can invest through a mutual fund. Alternatively, you can also encourage your child to learn to invest, leaving some funds for him/her to manage. To analyze a stock is actually easy, just use simple math like multiplication, but sometimes middle aged adults are less able to calculate properly than the youth.

    Okay, then what are the benefits of investing in stocks? Well, here I tell you. The Jakarta Composite Index (JCI) has grown an average 12.4% per annum since its inception in 1982 until 2015, or greater than the interest on deposits or government bonds, and that’s not including dividends. Some good stocks of course scored a bigger gain than the JCI. For example, Bank Central Asia (BCA), which in mid-2004 was at Rp 1,750, is now traded at Rp 13,000’s per share, making profits more than seven-fold in twelve years, once again, not including dividends (which, if reinvested, the profit would be even larger). I mean, how do you think the Hartono Brothers became the richest men in Indonesia, if it was not for their investment in BCA? But you do not need to buy majority ownership in BCA to generate extraordinary profits in the long term, because you can buy shares in the market.

    The fun fact is that the top three richest persons in the world—Bill Gates, Carlos Slim Helu, and Warren Buffett—are all stock investors, whether they buy companies as a whole or only a part of it. While not everyone can be rich, investing in shares of good companies has been proven to be one way to generate a sizable fortune, so why don’t you just try it? Once again, take baby steps with small amounts first.



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