IMPLEMENTATION OF MAGIC FORMULA AND ACQUIRER’S MULTIPLE STOCK INVESTMENT STRATEGY IN THE INDONESIA STOCK EXCHANGE

• Main Author: Indrapratama, Arif
• Format: Theses
• Language: Indonesia
• Subjects: Manajemen umum
• Online Access: https://digilib.itb.ac.id/gdl/view/69930
• Institution: Institut Teknologi Bandung

The Indonesia Capital Market has experienced a significant increase in investors from 2019 until now. The increase in the number of new Indonesian capital market investors is dominated by people under 30 years who prefer to invest in stocks and mutual funds. This increase in new investors does not follow by high financial literacy. Research regarding financial literacy and investment return in Indonesia showed that financial literacy affects investment return. Therefore, Indonesia new investors will most likely experience losses due to their lack of financial literacy. Even though there are equity funds for novice stock investors that help them minimize the error they would make if they invest themselves, they cannot choose the equity funds randomly since most equity funds cannot beat the market benchmark. This study proposed using the Magic Formula and Acquirer's Multiple as an investment strategy for new investors in Indonesia. Magic Formula builds a portfolio from stocks considered good companies at a fair price, whereas Acquirer's Multiple builds a portfolio from cheap stocks. The implementation of both methods was tested in this study using actual annual portfolio returns from 2016 to 2022. The Sharpe ratio also assesses portfolio performance based on risk-adjusted expected returns annually. Both Magic Formula and Acquirer’s Multiple generated an average annual return greater than the market and Indonesia Equity Funds listed since 2016 with a return of 26,24% and 26,32% annually. The Sharpe ratio of both methods also generated a higher ratio than the market and equity funds, where Magic Formula generated an average Sharpe ratio of 0,930 annually, while Acquirer’s Multiple generated an average ratio of 1,038. The Acquirer's Multiple methods outperform Magic Formula regarding the average actual return. Acquirer's Multiple also outperforms Magic Formula in terms of risk-adjusted return. Both methods outperform the market and equity funds, but Acquirer's Multiple is recommended for novice investors because it outperforms the Magic Formula and the market in terms of actual annual returns and risk-adjusted returns.