IMPLEMENTATION OF WARREN BUFFET’S INVESTMENT STRATEGY TO INDONESIAN STOCK

• Main Author: Zaky Fajrin, Muhammad
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/46994
• Institution: Institut Teknologi Bandung

The awareness of people in Indonesia regarding the importance and benefit of investing in stock is relatively low. However, in the past years, it can be seen that many people have shown his or her interest towards investing. The benefit of investing in stock is not only for the person itself, but also it can help to grow the economy as a whole. The main reason that people avoid to invest in stock in Indonesia is that because many people still do not fully understand the way of the stocks work and how to minimize the risks and maximize the expected profit. The purpose of this paper is mainly to encourage the Government’s program in order to increase the awareness of people regarding the stocks and how to minimize such risks. This research is focused on value investing, where an investor will hold particular stocks in a long period time. Value investing will consider the intrinsic value of the stocks at that time, therefore, this research is started by selecting samples for ten, five, three, and one year period using Warren Buffet’s screening test. Warren Buffet’s screening test considers several things, such as Price-to-Earning Ratio, Price-to-Book Ratio, and Debt to Equity Ratio. After selecting the samples, the author continued the research by calculating the intrinsic value of selected stocks, the margin of safety and expected returns of each stocks. Besides the quantitative analysis above, the author also considers other things, such as the understanding of the business itself, the condition of the industry or market on that time, and the internal condition of the Company. Based on the analysis above, it can be seen that Warren Buffet’s investment strategy could be applied to Indonesian Stock Exchange. An investor can select the value stocks by considering its P/E, P/BV, and D/E ratios and calculate the intrinsic value of the stocks. If the intrinsic value is still below the market price, it can be said that the stock is undervalued and safe to invest. An investor should also consider the margin of safety of each stock. The higher the margin of safety means that the stock is safe to invest. Recommendation for the readers in determining value stocks in order to invest is to consider the P/E, P/BV, and D/E ratios, understand the business and industry, analyze the current condition of the Company through its annual report, calculate the intrinsic value, determine the margin of safety, and calculate the expected return. The results of this study can be used as a reference in stock picking in the value investing.