Stock Investment: Understanding, Benefits, Risks, Strategies and Fundamental Analysis

One type of long-term investment that many people choose to invest in is stocks. Then what to invest in stocks? For example, is it the same as investing in gold?

Investing is the people's choice to prepare for future finances. Even though stocks are more liquid than gold, their potential returns are just as good. Many rich people in Indonesia because they have large stock investments. What are the real advantages of this investment? 

Definition of Stock Investment

Stock is a financial investment of a person or an entity in a business. Then what is stock investment? One type of equity investment is stock investment. Investors have the right to attend relevant company meetings and have rights over company assets.

The purpose of this stock investment is to set aside money for the future. Long-term income that you can set aside for your company's capital afterwards.

When will you be ready to buy shares? The criteria are having income that is greater than current expenses, not having consumptive or productive debt, and being used to having emergency savings.

Shares can be seen as a general indication of individual or party ownership interests in a company or limited liability company, including business entities. Parties who have registered equity participation have the right to claim the profits and assets of the company and have the right to attend the General Meeting of Shareholders (GMS). 

As a result, if you invest in stocks, you may receive an indirect return on the money you originally used to buy shares of one or more companies. However, you must realize that the money you share for stock investments serves to support the demands of increasing the company's or business's economy. Profits generated from economic expansion will later be distributed to investors or stock investors.

Please note that these stocks represent different sectors of the economy. Therefore, your chances of benefiting from this investment activity will increase if you choose the appropriate stock investment. The Indonesia Stock Exchange tracks the information and reports that there are approximately 711 businesses with listed shares which are further classified into 9 sectors.

• Agriculture
• Mining
• Basic industry & chemicals: 
• Miscellaneous industry (business of making heavy or light machines, along with their supporting components)
• consumer goods industry
• Property, real estate, and building construction
• Infrastructure, utilities, and transportation
• Finance
• Trade, service, and investment

Common stock and preferred stock are two categories of stock investments. Common stock is a type of stock investment that often appears as securities that identify a person as the owner of the company.

In contrast, preferred stock refers to shareholders who get dividend payments before owners of common stock. Buying preferred stock gives you the opportunity to control company policies, which is an advantage.

Stock Investment Benefits

As already said, investing in stocks can be very rewarding. These benefits are as follows, among others:

• Investment Diversification

One of the advantages of stock investment, according to Good Financial Cents, is that it can be used to diversify the investment portfolio. To be able to handle the significant risks associated with stock investing, it is very important to diversify one's investment portfolio.

It can maximize assets by purchasing shares in separate companies. In addition, buying shares of various companies can lower the risks associated with investing.

• Future Share Value

It can be claimed that stocks win over inflation. The value of the stock goes up as a result. Yes, stock values ​​can go down, but usually the decline isn't that sharp. 

• Dividends and Capital Gains

As previously stated, dividends and capital gains are two potential advantages of investing in stocks. Please note that investing in gold will not yield dividends or capital gains.

Both of these are exclusive to stock investing. The benefit of this one is passive. Dividends, which are profits for a certain period of time, are given to each shareholder according to their percentage of ownership in the company's balance sheet.

These dividends are often distributed as a monetary value. Although capital gains are gains in capital. When you sell an asset at a higher price than when you bought it, you get this advantage. 

Investors like capital gains significantly more than dividends. In fact, one of the factors that influence investors' decisions to buy stocks is the financial benefits. As a result, the benefits of investing in stocks on this one are very tempting.

• Have Easy Access

Advances in technology in particular have made life easier in many ways, especially when it comes to investing in stocks. You can now quickly assess the market when you want to invest in equities.

Besides, anyone can analyze it; You don't need to be a trader or an investor. When you want to make this investment, the Indonesia Stock Exchange or IDX is a trusted source.

Another benefit of investing in stocks is that they are easy to buy. It's not just a matter of study. You can acquire shares from a variety of sources, including brokers, financial planners, and internet retailers. For those of you who want to start investing, it is very suitable because the access is very easy.

• Strong Liquidity

A high level of liquidity is another benefit of investing in stocks. High liquidity makes it easy to buy and sell any product on the stock exchange.

Now shares are traded on one of the stock exchanges, this corporation plays an important role. When this happens, there will be a lot of liquidity, which will make it easier for investors to buy and sell shares.

• Very High Returns

When compared to other investment options such as deposits and bonds, investing in stocks provides peace of mind for investors. This convenience offers a much better rate of return. Of course there are advantages to investing in stocks when you can minimize risks and increase profits.

Stock Investment Risk

• Capital Loss

As opposed to capital gains, capital losses can occur as a result of selling at a lower price than the initial purchase price.

Investors may wish to sell at a lower price for various reasons, such as losing confidence in the company in question due to declining performance or being under pressure to sell quickly to attract their investment.

• Bankruptcy

Every business runs the risk of not being able to pay off its debts before the court declares bankruptcy. Investors will only get a portion of the remaining asset value in the event of bankruptcy after all liabilities have been settled.

The risks associated with this kind of stock investment usually arise when a company's performance declines to the point where the company's earnings are insufficient to meet its debt obligations.

• Stock Liquidity

If the company's stock can be easily traded on the stock market, the stock is said to be liquid. Some shares, henceforth, are referred to as sleeping shares. That is, low investor interest in these shares results in low transaction volume of these shares.

Long-term investors may not find this risk too concerning because they would not be selling their shares right away. Poor liquidity is a concern for people who invest for the short term or trade frequently.

• Forced Delisting

This occurs when the shares of a corporation are forcibly taken from the IDX market. This occurs due to poor financial performance or violations of IDX regulations by the company.

• Suspension

Trading in the company's stock was once suspended for unknown reasons. The risk of suspension, which usually results from unusually high transaction volumes or from companies violating IDX regulations or financial reporting, is known as this.

Some suspensions are unlimited, while others are just short. Given that investors may resume trading later, a temporary suspension may not have significant impact. However, a suspension without a clear end date poses a significant risk because shareholders simply cannot sell their shares without a time frame in place.

• Market Risk

Market risk is a type of risk that can impact the performance of the entire market, not just a single stock or business. This type of stock investment risk is often referred to as unavoidable risk, which indicates that it, without exception, affects all investors, novice and experienced alike.

Changes in interest rates, government regulations, and the nation's socio-political climate are some examples of market hazards. Without limiting the types of shares, this risk has the potential to impact the movement of the stock price as a whole.

• Unique Risk

Unsystematic or unique risk is a hazard that only a particular firm faces, such as the threat of a new competitor or the possibility of manufacturing or production errors. Investors can still mitigate this particular risk.

Investors with more experience will often be better able to manage specific hazards. This is because they can tell which businesses are doing well and which are not.

How to Choose the Right Stock

• Find a Successful Company

Choose a company whose profits are increasing. In addition, when looking at the statistics for the last 10 years, you must pay attention to the stability of the issuer's income and profits.

Apart from that, you have to pay attention to operational activities and cash flow posts. You can claim the company is doing well if the cash flow figures are close to net profit.

•  The Importance of Return on Equity (ROE) Compared to Bank Loan Interest 

Choose stocks with a return on equity (ROE) greater than the bank's interest rate. For example, the selected ROE shares must be better than the 11 percent loan interest from the bank.

•  Debt to Equity Ratio Receivables 

Debt to equity ratio (DER) is a requirement for almost all issuers, but the quantity and debt to equity ratio (DER) must be taken into account.

This strategy is basically the same as sharia-style stock investment, where you avoid issuers with high debt levels or a debt to equity ratio greater than two.

• Purchased Regularly

Active stocks or issuers with LQ45 classification are your choice. Blue-chips or issuers with a high market cap are usually recommended.

• Checking Banking Records

You can learn more about the management of your target company by using this technique. It can be said that the company's management is bad if the net profit is positive but the cash value is negative.

Stock Fundamental Analysis and Stock Technical Analysis

Stock Fundamental Analysis

Investors with long-term stock investment objectives utilize fundamental analysis that measures financial performance, company economic conditions, industry conditions, connected sectors, as well as macro and microeconomic analysis.

How to do fundamental stock analysis? There are two ways to approach fundamental analysis: top-down and bottom-up.

Top-Down

Top-down analysis involves assessing the state of the business using a general description. Four factors are examined: domestic and international macroeconomic environment, sector growth prospects, and company fundamentals. When everything points to business success, it's safe to conclude that company stock has a great future.

Bottom-Up

Bottom-up analysis only focuses on companies that want to sell their shares by identifying financial performance, products or services, as well as competitive conditions with competitors, which have an impact on company conditions. It ignores general economic conditions and market cycles. This strategy is based on the idea that businesses can thrive and perform well even when their sector is struggling.

Stock Technical Analysis

Using certain charts and indicators, including line charts, bar charts, and candlestick charts, technical analysis evaluates a stock's performance and predicts the future direction of its price movement. Short term investors and traders usually use this technique to trade stocks in a shorter time frame.

How to do stock technical analysis? There are three ways, namely:

Determines how the stock price will move

When is the right time to buy or sell stocks for maximum profit potential? This can be answered by looking at the peak of the current price movement on the chart or chart of the stock in question. By taking advantage of the POEMS Chart feature, you can do that.

Identify support and opposition

Backing is the lowest share price allowed for a certain amount of time. The best time to buy a stock on sight is when the stock hits a support level because there is a good chance the price will bounce back once it does. The price will fall back to find a new support point, if the stock price breaks the support level (breakdown).

Resistance, on the other hand, is the maximum price limit of a stock over a certain period of time. Stocks will continue to rise in price and meet a new resistance point if they break through that resistance point (breakout), so this situation is considered the best time to sell stocks. Stocks will also experience a decline and signal the time to take profit when the stock movement fails to penetrate the resistance level.

View transaction volume

The histogram charts used to illustrate stock price charts usually show trading volume below the price chart. Deteriorating conditions are indicated by high volume followed by a decline in stock prices. High volume and rising prices, on the other hand, signal a bullish or strengthening scenario.

Long Term Stock Investment Strategy

• Dollar Cost Averaging Strategy 

A dollar cost averaging strategy allows you to regularly invest the same amount of money over a certain period of time. Dollar cost averaging has the advantage of allowing the investor to continue investing the same amount without having to factor in a bearish or bullish situation, reducing the danger of emotional exhaustion.

• Pay Attention to Company Management

Whether a company can expand in a better way or not depends on the business management. The movement of the company's stock usually predicts how the company will perform in the future. You should research the business' performance over the last five years, including its financial performance. You don't need to hesitate to invest long-term funds in issuers if the company is managed properly and stock liquidity is maintained.

• Do Repeat Evaluation

Even though your investment goals are long-term, you still need to review them to maintain the stability of your portfolio. By monitoring market information, analyzing company behavior, policies, and financial reports, you can assess your stock portfolio. You don't need to sell the selected shares if after being evaluated they are still good.

• Dividends Obtained must be Reinvested (Compounding Interest).

Companies with a steadily increasing dividend payout ratio demonstrate their financial stability. Reinvesting dividends is a smart move if the company you invest your money in pays you dividends because it will increase the value of your investment over time.

Short Term Stock Investment Strategy

• Select Instrument

Choosing the type of investment should not be arbitrary. We advise you to have knowledge of various investment instruments. Determine which one is the most profitable for you and the most detrimental. Learn how it works too.

You will be able to determine which instrument is best for you after learning all of them. After investing investment funds, keep track of assets.

• Diversification

Diversifying your portfolio is very important, especially when making short-term investments. This is done to prevent you from easily losing the form of investment that has been inherited.

Let's say you buy a stock. But overnight, the stock price dropped. All your assets are reduced or may be lost. You won't lose too much if you diversify. To illustrate, invest 60% in stocks and 40% in money market mutual funds. Then, based on the following circumstances, this situation could be changed one more time.

• Do not panic

Never worry when investing. Even if the value of your investment diminishes, resist the urge to sell out of emotion. We don't know if things will improve in the future or not.

Share Portfolio Diversification

By investing across a variety of financial instruments, industries and categories, portfolio diversification helps investors reduce their investment risk. Portfolio diversification is a strategy to divide the portfolio by investing in different sectors and other investment vehicles that can offer balanced returns. 

This is because if you only have one type of investment, then your chances of losing will be even greater. You can lose all your funds if something unprofitable happens to your investment.

Risk Management in Stock Investment

Any investment will always carry a certain amount of risk. Not understanding the risks, investors are losing instead of making a profit. Investing in stocks, gold, real estate, or other assets is an example of an investment.

Everyone who invests needs to be aware of these dangers and understand investment risk management. This is important because it affects the success or failure of an investment. What about risk management in investing? 

Before that, we need to know what investment risk management is. Investment management specific risk management procedures and frameworks are referred to as investment risk management. This refers to risk management of capital expenditure (Capex) in the corporate environment, starting with the decision-making process and moving on to project implementation and asset utilization.

Process elements, indicators, and investment risk criteria are all included in the construction of the investment risk management framework. Then, key risk indicators (KRI) which can function as early warning indicators are used in the risk monitoring process along with performance indicators.

Investment risk management covers various hazards that exist during the Capex investment and project planning process, from partners and project procurement to licensing to the project implementation stage. This includes acquiring project resources and managing connections with stakeholders that may have an impact on project sustainability. 

Then what about the risk management strategy in investing? Investment risk management is the process of identifying the hazards inherent in investment assets and then implementing the most effective control measures.

An investor must be able to distinguish between risks that can be controlled and those that are not. mitigating the potential risk in the asset portfolio is another important step.

To manage investment risk effectively, the following 4 stages must be followed:

• Understand the risks associated with a potential investment.

• What alternatives are there to reduce investment risk.

• Maximizing risk management techniques for investment.

• As long as you invest in certain assets, develop a risk management strategy.

There are several ways to manage investment risk. Techniques for managing investment risk include portfolio diversification, dollar cost averaging (DCA), and thoroughly researching assets before investing.

DCA denotes a long-term commitment by an investor to make a number of investments often with the aim of rounding up the best average priced blue-chip companies.

The Role of Stock Brokers in Stock Investment

There are many names and words used to refer to stockbrokers. They include brokers, brokerage representatives (WPPE), registered representatives, investment advisors, and brokerage dealers (PPE).

These brokers serve as a bridge between investors and market capital and are businesses or people with the legal right to buy or sell shares. In order for transactions between issuers and investors to take place on the stock market, buying and selling services must be provided by corporations or individuals.

Therefore, in order for a transaction to occur when you want to buy shares but cannot be done directly from business people or the stock market, a broker is needed to act as an intermediary or intermediary for your purchase.

These brokers can be securities companies, issuers, or even securities company employees who have received permission from the Financial Services Authority (OJK) and are registered as stock exchange members. When performing their job, they will represent clients and be compensated on a commission basis.

Then the role of the stockbroker in the world of stock investment includes:

1. Carry out investors' instructions

Although the investor sometimes submits his trading activities according to the broker's advice, it is primarily responsible for carrying out the investor's instructions. Brokers often carry out these instructions by helping execute transactions according to orders after investors have set the volume and target prices needed to buy and sell stocks and other assets.

2. As the main consultant

A professional broker will serve as the main adviser to investors, therefore knowledge and experience is undoubtedly required. A broker must be adept at evaluating risks and potential uneven returns alongside the overall state of the market. It is necessary to offer advice, advice and recommendations for the best equities that investors should sell or acquire.

3. As an effective communicator and instructor

Brokers not only function as consultants but also teachers and effective communicators. They will provide information about the capital market according to the needs of investors, as well as serve as a knowledge base and forum for investors' inquiries regarding equities. This means that these participants must not only have professional knowledge and competence in their industry, but also be reliable when engaging and exchanging information.

4. Build alignment

Skilled service providers are essential in promoting peace between clients and employees. Pilang is responsible for all job descriptions apart from upholding positive customer relations.

One of them is maintaining and securing important data related to investors, such as account transaction data, tax information, and withdrawal data. Brokers also contribute to ensuring the smooth operation of the capital market by ensuring the flow of funds and information.

Stock Investment Opportunities in the Capital Market

Opportunities for investors in the Indonesian capital market in 2023 still have opportunities. Reporting from CNBC Indonesia, according to Rudy Utomo, Chairman of the APEI General Committee, said that stock investment has the opportunity to influence capital market investment activities in 2023 during the election year. JCI is expected to increase to 6.300–7.700, and this situation is seen as an opportunity for investors and investment managers to pursue potential profits. Agreeing with APEI, Marsangap P. Tamba, Chair of the Presidium of the APRDI Council, stated that Indonesia's macroeconomic conditions had encouraged the development of the country's capital market.

The Difference between Stock Investment and Other Investment Instruments

• The difference between stocks and mutual funds

Stocks and mutual funds are two separate types of investments with different returns and risks. In terms of portfolio diversity, ease of investing, and high liquidity, mutual funds offer advantages. On the other hand, stocks have greater profit potential but also carry greater risk.

• Difference between Shares and Deposits

Saving deposits is the same as lending money to the bank, which will then rotate the funds and repay them later in the form of interest at the interest rate that has been decided by the bank. Securities that represent ownership in a company are shares.

• The difference between Stocks and Bonds

Shares are a symbol of ownership of a person or company in a corporation or limited liability company. A bond, on the other hand, is a written statement that the issuer of the bond has recognized the debt for at least one year.

• Difference between Shares and Property

In terms of risk and return, stocks and real estate are two different types of investments. Stocks carry significant risks due to price changes on the stock exchange in addition to the large potential returns from ownership in the company. While property investments in houses or land offer the benefits of stable income and investment security (low risk), the potential returns are lower than stocks, and require significant capital and time to succeed.

• The difference between Stocks and Gold

Gold is a good choice if you want to invest safely over a long period of time because of its penchant for price stability and resistance to economic downturns. Stock investment is perfect for those of you who like to take chances and dare to think about getting bigger profits.

Well, that's a summary of everything about stock investing. Hopefully you understand more and understand about stock investment. So are you interested in investing in stocks now?