THE IMPLEMENTATION OF VALUE INVESTING USING BENJAMIN GRAHAM CRITERIA (A CASE INDONESIA MARKET)

• Main Author: Fahmi Rachmattulah, Mohammad
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/72447
• Institution: Institut Teknologi Bandung

Capital market has become increasingly popular as an investment instrument in Indonesia. In 2015, it was estimated that the percentage of stock investors have grown up to 43%. Consequently, the number of local investors in Indonesia reach to 420 thousand investors. Utilizing data of publicly listed companies on the Indonesian Stock Exchange for the period spanning from 2006 to 2015, the present study examines the profitability of stock selection criteria of Benjamin Graham in the Indonesian capital market. Benjamin Graham with his assistant, David L. Dodd, introduced the concept of value investing .Value investing is currently one of the most famous investment strategies available in the world of investments .Graham and Dodd define value investing as the process of finding and purchasing securities that are selling below their true value (or intrinsic value), based upon fundamental analysis. Benjamin Graham also proposed the concept of “margin of safety” as the core principle for operationalizing value investing. Margin of safety is the difference between the stock?s intrinsic value and the market price. Graham and Dodd introduce margin of safety into ten criteria. Which is 1-5 criteria present the Reward and 6-10 present risk for screening for value stocks.The different risk-reward combinations of the 10 Benjamin Graham Criteria and the minimum number of criteria to be fulfilled by a stock in order to provide excess returns to the investor are examined using independent sample T-test, Sharpe ratio, Treynor ratio and the capital asset pricing model (CAPM). The results show ample evidence that almost all of the risk-reward combinations portfolio proposed by Benjamin Graham can be used by investors (Indonesia) in order to obtain excess returns except for the combination of discount to net current asset value (NCAV) and consistent past earnings growth.Then, stocks which meet at least two Graham criteria can yield excess returns to investors if such stocks are held for the period of 24 months. For further study, other researchcer can also construct various portfolio holding period such as 12 month or 60 month. Meanwhile,added trading cost would be provide more closer result into the real market condition.