RELEVANCY TEST OF WARREN BUFFETT INVESTMENT METHOD IN INDONESIAN CAPITAL MARKET

• Main Author: MUJUR (NIM : 29107020 Program); Pembimbing: Erman Sumirat SE., AK, M.Buss, RONALDUS
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/19366
• Institution: Institut Teknologi Bandung

Warren Buffett is one of the most successful investors throughout the history of the world of investment,since the year 1967 - 2006, the investment performance outperformed the S & P 500 in 27 out of 31 years, with an average of 11.4% year. Considering that almost all of Warren Buffett’s investment activities were done in the United States stock market, the relevance of this method on developing country’s stock market is therefore questionable. This study aims to test the relevance of Warren Buffett investment method on the stock market of Indonesia. The method’s relevance is measured through the fitness characteristics of the market, the availability of proper companies in the stock market that can meet the Warren Buffett investment criteria, and market performance of the constructed portfolio. Method used in this research consists of several stages. First stage is analysis towards Indonesia stock market’s characteristic, second stage is company selection using financial characteristic analysis to total companies listed in the Indonesia Stock Exchange in 2003. Next step is portfolio construction in several scenarios based on return potential which market performance will then be tested using Benchmarking and Sharp Ratio method. According to the research, Indonesia market has characteristics that differ from the stock market in the developed countries, and during the research period there are 6 companies that meet the financial characteristic criteria as required, and portfolio that constructed concentratedly based on the level of investment return projection, outperformed the overall market return; the more concentrated, the higher the return. High return level which is followed by high deviation of the market price resulted in all constructed portfolio’s performance measured using Sharpe Ratio lower than overal market performance. The low score of Sharpe Ration is caused by high price deviation, and not because of the low return level. Conclusions can be drawn is that the Warren Buffett method is relevant in Indonesia stock market, considering that the method does not use price deviation to measure risk.