PARTICIPATING IN THE MARKET

PARTICIPATINGINTHEMARKET§  Brokeragefirms§  Margins§  ShortSales

Sellingandbuyingsecurities• Onewaytogetstartedinvestingistoopenanaccountwithasecuritiesbroker,suchasMerrillLynch•  Theaccounttheniscalledbrokerageortradingaccount• Openingatradingaccountisstraightforwardandreallymuchlikeopeningabankaccount•  Youwillbeaskedtosupplysomebasicinformationaboutyourself,andsignanagreementthatspellsoutyourrightsandobligations,andthoseofyourbroker• Anyonewhowantstoinvestmustunderstandthateverytransactionsinstockmarkethavetobeconductedthroughbrokers

ContohperusahaansekuritasIndonesia

•  CIMBSecuritiesIndonesia•  BNISecurities•  RelianceSecurities•  ValburyAsiaSecurities•  SinarmasSekuritas• MandiriSekuritas•  JPMorganSecuritiesIndonesia• MegaCapitalIndonesia•  PacificCapital•  CitigroupSecuritiesIndonesia

Choosingabroker(1)Accordingtothelevelofservicesprovidedandcommissionstheycharge,brokerscanbedividedintothreetypes:1.  Deep-discountbroker•  Theonlyservicesprovidedareaccountmaintenanceandorderexecution(buying&selling)

•  Dealingwiththisbrokercanbedoneoverphoneorwebbrowser2.  Full-servicebroker•  Theyprovideinvestmentadvice,regardingthetypesofsecuritiesandinvestmentstrategiesthatmightbeappropriatetoconsideroravoid

•  Largerbrokeragefirmsdoextensiveresearchonindividualcompaniesandsecurities,andmaintainlistsofrecommended(ornotrecommendedsecurities)

•  Theyhaveofficesthroughoutthecountry•  Youcanstopinandspeaktothepersonassigntoyouraccount

Choosingabroker(2)3.  Discountbroker•  Thisbrokerfallsomewherebetweenthetwotypesofbrokersabove

Whichtypeofbrokershouldyouchoose?§  Itdependsonhowmuchadviceandserviceyouneedorwant

§  Ifyouarethedo-it-yourselftype,thenyoumayseekoutthelowestcommissions

§  Ifyouarenot,afull-servicebrokermightbemoresuitable§ Ofteninvestorsbeginwithafull-servicebroker,then,astheygainexperienceandconfidence,moveontoadiscountbroker

Choosingabroker(3)DiIndonesia,memilihbrokerperlukriteria:§ Memilikiijin§  Pengalamandantelahlamaberoperasi,lihatposisimodaldanpemegangsahamnya

§ Memilikikemampuandanfrekuensirisetyangkompeten,netral,objektif,ketepatanrekomendasi,jumlahanalissahamyangmumpunibanyak

§  Bersihdarisanksidariotoritasbursa§  Jumlahinvestorterlalubanyakbisamengurangimutulayanan§ Modalkerjabersihdanjumlahtransaksibesar,likuiditasbaik§ Menyediakandatarealtime§  Biayakomisi/transaksirendah,jumlahdepositminimal,bungayangakanditerimadariadanyadeposit

§  Transaksijualbelitercatatsecaratransparan§  Fasilitasmargintrading,laporanpenempatandananasabah,kejelasanalirandana,laporantahunan,rekomendasiportofoliodanmanajemenresikonya

Onlinebroker•  Themostimportantrecentchangeinthebrokerageindustryistherapidgrowthofonlinebrokers(knownase-brokerorcyber-brokers)• Withanonlinebroker,youcanplacebuyandsellordersovertheinternetusingawebbrowser•  Tohaveunderstanding,youcanuseportfoliosimulationsuchasStarTrack

CashAccountorMarginAccount?Theaccountexecutivewillneedtoknowifyouwantacashaccountormarginaccount1.  Cashaccount•  Thesimplestarrangement•  Securitiescanbepurchasedtotheextentthatsufficientcashisavailableintheaccount

•  Ifadditionalpurchasesaredesired,theneededfundsmustbepromptlysupplied

2. Marginaccount•  Theinvestormayborrowapercentageofthepurchasepricefrombrokeragefirm(purchasesecuritiesoncreditusingmoneyloanedbythebroker)àitiscalledmarginpurchase

•  Theinterestrateyoupayonthemoneyyouborrowisbasedonthebroker’scallmoneyrate(theinterestratebrokerspaytoborrowbankfundsforlendingtocustomermarginaccounts)

Moreconceptsonmarginpurchases1.  Margin

§ Whenyoupurchasesecuritiesoncredit,someofthemoneyisyoursandtherestisborrowedàtheamountisyoursiscalledthemargin

§ Usuallymarginisexpressedinpercentage2.  Initialmargin

§  Itistheminimummarginthatmustbesuppliedonasecuritiespurchase(whenyoufirstpurchasesecuritiesoncredit,thereisaminimummarginthatyoumustsupplyàinitialmargin)

§  Forstockpurchase,theFederalReservesettheminimumpercentageofinitialmargin,buttheexchangeandindividualbrokeragefirmsmayrequirehigheramounts

3.  Maintenancemargin•  Itistheminimummarginthatmustbepresentatalltimesinamarginaccount(afterthepurchase)

•  Ifyourmarginfallsbelowspecific%,typically30%,youmaybesubjecttoamargincall

IfyoubecomeasubjectofmargincallMargincallàademandformorefundsthatoccurswhenthemargininanaccountdropsbelowthemaintenancemarginTherearetwooptions:1.  Buybacksomeorallofthestockandreturnit2.  Addfundstoyouraccount

Otheraccountissues(1)•  Ifyoudonotwishtomanageyouraccountyourself,youcansetupanadvisoryaccount.Youpaysomeoneelsetomakebuyandselldecisionsonyourbehalf.Youareresponsibletopayanycommissionsorothercostsandmanagementfees•  Brokeragefirmshavebeguntoofferwrapaccounts.Youchooseamoneymanager,allofthecosts,commissions,andexpensesassociatedwithyouraccountare‘wrapped’intoasinglefeethatyoupay.•  Youcanauthorizeyourbrokertotradeforyou.Inthiscase,youdoneedtopaymanagementfee,butyouarestillresponsibleforanycommissions.Thisarrangementistermedadiscretionaryaccount

Otheraccountissues(2)• Mostoflargebrokeragefirmsofferaccountsthatprovideforcompletemoneymanagement,includingcheck-writingprivileges,creditcards,andmarginloans.Thisaccountiscalledassetmanagementaccount.Anyun-investedcashisautomaticallyinvestedtoearninterest,anddetailedstatementsareprovidedonaregularbasistoaccountholders.•  Ifyoudonotwishtoactivelybuyandsellsecurities,butyoudowanttoownstocks,bonds,orotherfinancialassets,thereisanalternativetoabrokerageaccount:mutualfunds.Itmeanscombiningorpoolingthefundsofalargegroupofinvestors.Buyandselldecisionsaremadebyafundmanager,whoiscompensatedfortheservice

ShortSales:Longvsshortposition§ Wheninvestorsestablishapositioninasecurity,theyaresaidtohavealongposition,iftheypurchasethesecurityfortheiraccount

§ Thereasonistoprofitonanincreaseinpriceovertimeand/ortoreceivedividendincome

§ Sometimesinvestorsanticipatethatthepriceofasecuritymaydropinvalue.Theymaysellouttheirposition.Thosewhohavenopositionatallmaywishtotakeashortpositiontoprofitfromtheexpecteddecline

Shortposition• Whenyoushortasecurity,youareborrowingthesecurityfromthedealerandsellingitwiththeobligationtoreplacethesecurityinthefuture• Ashortsalerepresentsthesellingofasecuritythatyoudonotown,withtheanticipationofpurchasingthesecurityinthefuturetocovertheshortposition• Question:howyoucansellsomethingyoudon’town?•  Yourbrokerwillsimplylendyouthesecurity• Onceyougoshort,youbeginhopingthatthepriceofthesecuritywillgodown,soyoucanbuyitbackandreplacethesecurityatalowerprice

•  Investorswouldonlyengageinashortsaletransactioniftheybelievedthesecuritywouldbegoingdowninpriceinthenearfuture,sotheycouldbuybackthesecurityatalowerpricetocovertheshortsale•  Shortsellersaresometimesemotionalandmayoverreacttothemarket•  Thereisabuilt-indemandforstocksthathavebeensoldshortbyinvestorswhowillhavetorepurchasethesharestocovertheirshortposition• WallStreetJournalreportsontotalshortsaleforNYSEaswellassecuritiestradedonthoseexchange

Shortinvestors

Shortsalesratio•  Itisalsocalledasshortinterestratio•  Technicalanalystscomputearatioofthetotalshortsalespositionstoaveragedailyexchangevolumeforthemonth•  Thenormalratioisbetween2.0and3.5• Aratioof2.0wouldindicatethecurrentshortsalespositionisequaltotwicetheday’saveragetradingvolume• Aninvestorwithalongpositionbenefitsfrompriceincreases,aninvestorwithashortpositionbenefitsfrompricedecrease

CashflowsfrompurchasingVsshortsellingsharesofstock

Technicalpointsthataffectshortsales

1.  Dividends.Theshortsellermustpayanydividendsduetotheinvestorwholentthestock.Thepurchaseroftheshort-salereceivesthedividendfromthecorporation,sotheshortsellermustpayasimilardividendtothepersonwholentthestock

2.  Shortsellersmustpostthesamemarginasaninvestorwhohadacquiredstock.Thismargincanbeincashoranyunrestrictedsecuritiesownedbyshortseller

Investorobjectives,constrains&strategies

1.  Riskandreturn2.  Investorconstrains

a.  Resourcesb.  Timehorizonc.  Liquidityd.  Taxes

3.  Strategiesandpoliciesa.  Investmentmanagement(manageyourselforhiresomeoneelse)b.  Markettiming(buyingorsellinginanticipationofoveralldirection

ofamarket)c.  Assetallocation(thedistributionofinvestmentfundsamongbroad

classesofassetsàhowmuchinstocks,howmuchinbonds)d.  Securityselection(selectionofspecificsecuritieswithina

particularclass)

ActivevsPassivestrategy?Micro-levelactivityàfocuson

individualsecurities

SecuritySelection

Active Passive

Macro-levelactivityàfocusonwholemarketsorclassesofassets

AssetAllocation

Active I II

Passive III IV

StrategyIàmovemoneybetweenassetallocationbasedonourbeliefsandexpectationsaboutfutureperformanceandpickthebestperformersineachclassàfullyactivestrategyStrategyIVàinvestorfollowfullypassivestrategy,neitherchangingassetallocationverymuchnorchoosingindividualsecuritiesinanattempttoidentifythelikelybestperformers