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The Most Effective Stock

Trading Strategy in Indonesia
Equity Market
Published on April 22, 2019

Gilbert Sanjaya 2 articles

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Corporate Finance & Development at Grab

Ever wondered which stocks to buy at IDX? Is it blue chip and large
caps stock? Or is it stock that have growing income?

In Indonesia, people often say "buy cheap stocks" or "beli saham

yang harganya lagi jatuh". The question here, however, is that there
are so many stocks that have fallen so deeply far from its historical
price. Which "cheap stock" to buy remains the unanswered
question.


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Result

After realizing the limit of fundamental analysis when the IDX was
experiencing recession in latter half of 2018, I switched my investment
strategy in early 2019. Using this strategy, I have gained on average
20++% return across my "cheap" indexes so far in 2019 (if
annualized, it would be ~60%). You may think that the January Effect
may have come into play. However, one of my stocks that falls in this
criterion (DYAN.jk), yields more than 30% return when IHSG was
bearish in February and March 2019. Never once have I cut loss
whilst implementing this strategy. All indexes traded under this
strategy have yielded me large positive returns (>+15%).

Disclaimer

Before discussing my strategy, it is important to highlight some

important disclaimers:

1. I am not saying that this strategy would work all the time, but it
works often quite well in my case. This is still a high-risk high-
return game.

2. This trading strategy should be implemented primarily in Indonesia

equity market (IDX).

The Strategy [Buy "Cheap-Potential" Stocks]

The seven fundamental criteria are as follow:

 1. Experiencing deep punishment (Price has dropped by >40% from
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its highest point)

2. Cheap (Price to book value [PBV] < 1)

3. Solvent (Debt-Equity Ratio [DER] < 1)

4. Liquid (Current Ratio [Current Asset / Current Liability] > 1)

5. Profitable and generating Cash (ROE > 0 and Cash Flow from
Operation > 0)

6. Low ownership of retail investor (shareholders composition are

primarily institutional investors a.k.a "bos-bos besar")

7. Small-medium capitalization (see IDX Small-Medium Caps

index)

You can easily find abovementioned accounting-related information if

you google the index of your choice. However, finding the specific
stock that fulfill all abovementioned criteria may be difficult. It is
wise to consider stocks that fulfill some, but not all, the above criteria
and decide which one comes the closest one to our criteria.

Note that criteria #1 and #2

are absolute must have in
any situation

The stocks that fulfill abovementioned criteria are rarely discussed by

brokers or securities firms because they are illiquid, have small caps, or
have bad fundamentals / future outlooks on papers. They are not even
worth mentioning to potential investors.


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The Strategy in Action

In early 2019, I noticed WIIM, a cigarette manufacturing company

whose products are deemed so obsolete (cigs for old men) such that
it has no growth potential.

When I found out about its financial condition (among else, 0 long-
term debt, positive cash flow and income, etc.), I am convinced
that this stock is the ultimate hidden gem.

At around January 7th, I noticed significant upward movement in

WIIM (unheard of for the past few years), signalling the
accumulation by the market maker.

Then, I decided to sell all my blue-chip Construction stocks

(which constitutes ~80% of my portfolio) and dumped all my
money in WIIM. The rest was a history.

Why does this strategy work?

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The crucial thing that we must note here is the characteristic of

Indonesian equity market. Indonesian equity market is not efficient,
and the stocks that fulfill my criteria are highly inefficient. When you
have stocks with good fundamentals (low debt, positive cash flow,
etc.), there is no reason as to why your stock has to be punished
continuously. It must and will go up eventually.

My strategy works mainly because the existence of players (e.g.: rich

institutional investors, broker in securities firms that has lot of money,
etc.) that can drive stock price by placing massive orders in the
market and attracting traders to take position. In Indonesia, we call
them market maker or "penggoreng saham".

Now, let us turn back to my "cheap stock" criteria. The stock that has
low debt, has significant asset, generates cash, and is solvent has
minimal probability of going bankrupt. If we hold this stock, chances
are that it will go back to their high point. We are waiting here,
patiently, for the market maker (penggoreng saham) to find our
stock and start attracting people to enter here.

In essence, my strategy is to
identify stocks that are about
to be manipulated
("digoreng") far before they
are being manipulated

Quite frankly, blue-chip [large] stocks, like TLKM, are traded so

frequently with large volumes, making them difficult to be
manipulated. However, small caps index with high ownership
concentration are often time inefficient and can be easily
manipulated. This is why criteria #6 and #7 are important components
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to our strategy. Our stocks are inefficient, and we need market
maker to enter and force the price back to its efficient price.

What if, against all odds, the company looks to be discontinued? In this
case, their high asset value and cash relative to liability will make them
attractive potential acquisition target. If they enter M&A deal, it is
almost always our win.

Bottom Line

The bottom line to this strategy is patience. We would never know

when these unethical penggoreng saham join the game. One of the
challenges of this strategy is to manage the movement of the stock once
penggoreng enters. In my case, I often sold the stocks before it
reaches its highest point, because they are being manipulated upward
far above my expectation. The key to win the Indonesian equity market
game, therefore, is to maintain awareness of the gorengan game and
to win it.

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Published by
Gilbert Sanjaya 2 articles Follow
Corporate Finance & Development at Grab
Published • 2y

The Most Effective Stock Trading Strategy in Indonesia Equity Market - my take

#investment #stock #trading

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Filip Ferdi •
2nd 2y
Commercial & Financial Modeling Specialist at PT Trakindo Utama

Hello gilbert i found your article very interesting. One thing that i notice from my
thesis research Indonesian company is full with "trust account" ownership. For
example, Credit suisse trust account ### it holds more than 5% ownership. I think
this kind of ownership that can be considered "bos besar" this is account that is
owned by someone else but using credit suisse name. I found this interesting as a i

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Gilbert Sanjaya •
2nd 2y
Corporate Finance & Development at Grab

Of course. No trace of ethical integrity exists among these bos2 besar. They
can manipulate any stocks to their will.

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Sandy Adhitia Ekahana •

3rd+ 2y
PSI Fellow at Paul Scherrer Institut PSI

good insight, bert

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Gilbert Sanjaya
Corporate Finance & Development at Grab

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