There are many types of investment vehicles, including stocks. If you have decided to invest in stocks, what are the steps to follow? If you are a beginner, there are 11 important things you need to understand before you start investing.
Stocks tend to be riskier than other investments like gold, government bonds, or even mutual funds. However, quite a few people are comfortable with that risk or willing to take big risks for big gains.
Then how do invest in stocks for beginners? Here are 11 important things you need to know if you want your investment to be safe and secure.
What is stock?
Of course, before you spend any money to invest in stocks, you must first understand what stocks are. Stocks, according to IDX, can be defined as a sign of an individual’s or party’s (company’s) equity interest in a corporation or limited liability company. With this capital participation, the party has a claim to the income and assets of the affiliated company and is entitled to participate in the general meeting (AGM).
Essentially, by owning stock in a company, we become one of the owners of the company. We have the right to know the company’s business plans and to share in the profits. In addition, we are of course exposed to the same risks as the company.
Each company’s stock price is different, reflecting the financial performance and fundamentals of that company.
What are the advantages of stocks?
Since stocks are a type of investment vehicle, as mentioned earlier, there are certainly benefits and risks. There are two benefits investors can reap from owning stocks, and they come in the form of dividends and capital gains.
Dividends are profit shares granted by the company from the profits generated in the last year. Dividends are paid after obtaining shareholder approval in the GMS. To receive dividends, a person must own the shares within a certain period to be recognized as a shareholder entitled to dividends.
Dividends are also divided into several types. Each shareholder will be paid a cash dividend in the form of cash. There’s also a stock dividend, which, as the name suggests, is paid in the form of shares.
Now, if the dividend is paid directly by the company whose stock we are buying, then the capital gain is made from the selling and buying of stock that we transact. Capital gain can be interpreted as the difference between the buying price and the selling price of the stock. For example, we buy shares of Company A for Rp. 2,000 and then sell them for Rp. 2,500 per share, which means that we received a capital gain of Rp. 500 for each share sold.
What are the risks of stocks?
Investing in stocks – no matter how good the company – investors big or small will always face risk. As with the benefits of investing in stocks, the risks are of several types. The first is the loss of capital, i. H. a loss incurred after buying and selling shares. For example, we buy shares in company B for Rp 1,000 and then the share price falls further to Rp 600. Fearing that the price will fall further, we sell it for Rp 600, resulting in a capital loss of Rp 400 per share.
There is also the so-called liquidation risk. This risk arises if the company in which we own shares is declared bankrupt or dissolved by a court. In the event of bankruptcy, the shareholders have the last priority after all of the company’s liabilities have been settled.
For example, if Company A goes bankrupt, its assets will be auctioned off to settle all debts and obligations to its creditors. If there are any remaining funds from the result of this auction and the fulfillment of this obligation, the funds will be distributed proportionately to the shareholders. However, if there is no balance at all, the shareholders receive nothing and the money invested does not come back.
Classification of economic sectors and sub-sectors
Companies whose shares are traded on the IDX are classified into the following economic sectors:
Farming includes farming, animal husbandry, fishing, forestry, and so on
Mining, which includes different types of mining and quarrying, such as coal mining, oil mining, nickel mining, salt mining and quarrying, and so on
Basic industry and chemistry, which includes the processing of basic materials into semi-finished products or the processing of finished goods for further processing in other branches of the economy. For example the chemical industry, cement, packaging, ceramics, and others
Various industries include the business of manufacturing heavy and light machinery and its components such as automobiles, clothing and textiles, cables, etc
Consumer goods, including processors into finished goods, whose products can be directly consumed by individuals or households, such as food and beverages, pharmaceuticals, tobacco, etc.
Land, real estate, and building construction, which includes the real estate sector and residential construction, commercial buildings, office buildings or others
Infrastructure, Utilities, and Transportation, including provision and construction of infrastructure and its supporting services, energy supply, transportation, and telecommunications
Finance, including bank and non-bank financial institutions such as insurance, multi-finance, etc
Trade, services, and investments, including trade with large and small parties or retail, service-related businesses such as hotels, advertising, printing, etc.
Before getting an investor in a specific stock, it is very important to understand the business segment in which the company operates. So you know what business you are running and what risks arise from these industries.
Stock Listing Board
Currently, the stocks traded on the IDX are divided into three stock listing boards, namely the Main Board, the Development Board, and the Acceleration Board. This listing board shows the size of the business and the number of shares issued by each company on the market. With this split, companies that are still relatively small in scale will not be placed on the same board as those whose capitalization has reached thousands of trillions of rupiah. Investors can also more easily monitor the stocks they hold.
The existence of the Accelerating Committee is intended to help companies whose assets are still small or medium-sized, more specifically between Rp 50-250 billion, to obtain financing from the capital market. This method aims to help these companies grow faster.
Companies on the Acceleration Board have initial public offering (IPO), also known as stock exchange access, requirements that are much more relaxed than other companies. For example, submit a maximum forecast for the sixth year of operating profit rather than the last year as on the main board and the initial offer price is over Rp 50 rather than Rp 100 as on the other two quotation boards.
How are stocks traded?
Several steps must be completed before starting a stock sale and purchase transaction. First, you need to open a stock account with a broker or securities firm that is an Exchange Member (AB). Then open a Client Funds Account (RDN) with the bank along with opening a stock account with the broker.
Next, deposit funds into RDN to start the transaction. After that, all you have to do is place a buy or sell order through the stock trading application with the investment firm where you open a stock account.
How is the stock trading mechanism?
Stock trading on the IDX uses a facility called JATS NEXT-G and can only be conducted by Exchange Members (AB) who are also KPEI Clearing Members. AB is a securities firm that makes it easy for its customers – investors like you – to buy and sell stocks. So, to become a stock investor, you need to hire the services of an investment firm.
Here are some things you need to know related to the process of buying and selling stocks:
Stock trading takes less than 24 hours. Normally trading hours last two sessions. The first session takes place from 09.00-12.00 WIB, while the second session takes place from 13.30-16.00 WIB.
However, since the pandemic began, IDX has reduced trading hours by 90 minutes. With this change, the first session will take place from 09.00-11.30 WIB and the second session will take place from 13.30-15.00 WIB. This conversion was made to accommodate Bank Indonesia’s (BI) also shorter business activity in processing securities and capital market transactions.
There are three types of stock trading markets namely regular market, negotiated market, and spot market. The regular market is a type of market where investors make buy and sell transactions according to the price listed in the price fraction list. So, in the regular market, there are price limits that both the seller and the buyer have to respect.
A negotiation market is a market where the seller and buyer are not tied to the upper or lower limit of the stock price (fraction of stock). The rules are looser as the mechanism is conducted directly by the parties, although it is still under the supervision and approval of the exchange. Since the price negotiations are conducted in person, the number of shares per lot does not even have to be 100 shares as in the regular market.
Well, for the cash market, the actual terms of the price and the number of shares are the same as in the regular market. The difference is that the payment must be made on the same day (T+0) while in the regular market the payment is made two days after the transaction (T+2).
As mentioned above, stock trades in the regular market and the cash market follow price fraction conditions. This price fraction is the limit of price changes in each nominal price of the shares traded.
There is also the term automatic rejection, which means that trading in certain stocks will be temporarily suspended if there is a sudden significant rise or fall. The aim is to protect investors to avoid speculation and large losses.
Given the complexity of stock market risks, investors are protected by the relevant authorities.
In short, if investors lose their assets held in securities firms or custodians, Indonesia-SIPF will compensate the lost assets. The amount of compensation for investors’ assets is IDR 100 million per investor. Complete information on Indonesia SIPF can be found here.
Learn to analyze
After all the technical stuff is done, there is one more thing beginners need to do and that is learning to analyze financial statements as well as the economic and political situation. By reading and analyzing financial statements, you can learn about the performance of the company whose shares you are buying. To find out if the company’s fundamentals are good, at least know how the company has grown over the past 5-10 years.
It is also important to consider the economic and political situation in the country where the company operates. Because stock price movements are very dynamic, rumors and news that may seem insignificant at first glance can have a major impact on prices.
In short, if investors lose their assets held in securities firms or custodians, Indonesia-SIPF will compensate the lost assets. The amount of compensation for investors’ assets is IDR 100 million per investor.