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Stock Prices

9 min read

1. Stocks

Understanding Stocks and Stock Prices

1. What is a Stock?

  • Stock represents ownership in a company.
  • Owning a share of stock means you own a fraction of that company. For example, if a company has issued 8 shares in total, owning 1 share means you own 1/8 of the company.

2. Shares Outstanding

  • Companies can issue millions or even billions of shares.
    • Facebook has about 3 billion shares outstanding.
    • Alphabet (Google’s parent company) has around 700 million shares.

3. Types of Stock

  • Common Stock:

    • Represents basic ownership in a company.
    • Rights of Common Shareholders:
      • Dividends: Payments made to shareholders from a company’s profits.
      • Voting Rights: Shareholders can vote on important company matters like the election of the board of directors.
      • Limited Liability: Shareholders cannot lose more money than they invested if the company goes bankrupt.
      • Liquidation Rights: If a company is liquidated, common shareholders receive a portion of any remaining assets after debts and other obligations are paid.

  • Preferred Stock:

    • Fixed Income: Preferred shareholders receive a fixed dividend, meaning a consistent amount of money annually.
    • Priority: They get paid before common shareholders if the company distributes dividends or is liquidated.
    • No Voting Rights: Generally, preferred shareholders do not have voting rights in company decisions.

4. Profit from Stocks

  • Capital Gains: One of the key reasons to invest in stocks is the potential for capital gains, which is the profit you make by selling a stock for more than you paid for it.

Summary

Owning stock in a company means you have a stake in that company’s future success. Depending on the type of stock you own, you could receive dividends, vote on important matters, or enjoy the potential for capital gains. However, ownership also comes with different levels of risk and responsibility. Understanding these concepts helps you make informed investment decisions.

2. Clarifying Key Terms in the Stock Market

1. What is a Security?

  • Security: A financial instrument that has monetary value. Examples include:
    • Stocks
    • Bonds
    • Options

2. Types of Securities

  • Debt Securities:

    • Definition: Represent money that is borrowed and must be repaid.
    • Examples:
      • Government or Corporate Bonds
      • Certificates of Deposit (CDs)
    • Characteristics:
      • Often called fixed-income securities because they promise regular income through interest payments.
      • Interest may be at a fixed rate or determined by a specific formula.

  • Derivative Securities:

    • Definition: Financial instruments whose value depends on the price of another asset.
    • Examples:
      • Options:
        • A contract giving the buyer the right (but not the obligation) to buy or sell an asset at a specified price (strike price) on or before a specified date.
        • Example: Employee stock options, where employees can buy company stock at a lower price and potentially sell it later for a profit.
      • Futures:
        • A contract that obligates the buyer to purchase, or the seller to sell, an asset at a predetermined price on a future date.
        • Example: A dairy farmer locks in a price of $2 per gallon for 200 gallons of milk next month, protecting against price fluctuations.

  • Equity Securities:

    • Definition: Represent ownership in a company.
    • Stocks: The most common type of equity securities, giving shareholders ownership in a firm.
    • Equity: The value of an owned asset minus any debts or liabilities.
      • Example: If you own a car worth $15,000 and have a $5,000 loan on it, your equity in the car is $10,000.
    • Private Equity: Represents ownership in a private company, as opposed to publicly traded companies.

Summary

Understanding these terms is crucial when discussing the stock market. Securities can be broadly classified into three types—debt, derivatives, and equity—each with distinct characteristics and implications for investors. Debt securities focus on income through interest, derivatives derive their value from other assets, and equity securities represent ownership in companies. Each type plays a unique role in financial markets, offering different opportunities and risks.

3. Getting Started with Stock Investment

1. Finding a Brokerage

  • Brokerage Company: A middleman that connects buyers and sellers of stock.
    • Fees: Brokers typically charge fees or commissions for their services.
    • Direct Purchase: Some companies allow you to buy stock directly, bypassing brokers.
      • Pros: No commission fees.
      • Cons: Less control over the price and timing of the purchase.

2. Tracking Your Stock

  • Ticker Symbol: A unique symbol representing a company’s stock on the market.

    • Examples:
      • Alphabet (Google): GOOG
      • Apple: AAPL

  • Price Graphs and History:

    • Price Patterns: Stock prices fluctuate over time, often unpredictably.
    • Historical Analysis: The history of a stock’s price can provide insights into its potential future performance.

3. The Origins of Stock Markets

  • Early History:
    • Roman Republic: Early forms of stock trading can be traced back to private companies contracting government services.
    • Dutch East India Company (1602): The first company to issue bonds and shares to the general public, establishing the Amsterdam Stock Exchange.

4. Understanding Market Bubbles

  • Market Bubble: Occurs when the price of a stock or asset is driven above its intrinsic value by market participants.

    • Tulip Mania (1630s): A historical bubble where the price of tulip bulbs skyrocketed.
    • Dot-com Bubble (Late 1990s - Early 2000s): A more recent example where technology stocks were overvalued.

  • Patterns in Bubbles: Both bubbles show similar patterns in price spikes followed by crashes, illustrating the cyclical nature of market speculation.

5. Further Reading on Market Phenomena

  • Books and Theories:
    • Charles Mackay: Extraordinary Popular Delusions and the Madness of Crowds (1841) explores historical financial bubbles and the psychology behind them.
    • Robert Shiller: His work delves into behavioral economics, explaining market bubbles through psychological factors.
    • Nassim Taleb: Known for his theories on risk and uncertainty in financial markets, particularly in his book The Black Swan.

Summary

Investing in stock starts with choosing a method of purchase, either through a brokerage or directly from a company. Tracking the stock’s performance using its ticker symbol and understanding its price history is crucial for making informed decisions. The history of stock markets reveals patterns, especially in phenomena like market bubbles, where asset prices can become inflated due to speculation. For a deeper understanding of these concepts, exploring works by influential thinkers like Robert Shiller and Nassim Taleb is recommended.

✅ Common Stock (Saham Biasa)

Characteristics:

  • Voting rights: Shareholders can vote in the General Meeting of Shareholders (RUPS).

  • Dividends: Not guaranteed; paid after preferred shareholders.

  • Residual claim: Last in line during liquidation.

  • More common in Indonesia.

Example in Indonesia:

  • PT Bank Central Asia Tbk (BBCA)

    • Trades on the IDX under the ticker BBCA.

    • Issued only common stock.

    • Shareholders vote on key decisions, and dividends are declared annually based on profit.

✅ Preferred Stock (Saham Preferen)

Characteristics:

  • Priority dividends: Fixed or higher-priority dividend payments.

  • No/limited voting rights: Usually no voting rights.

  • Convertible options: Can be converted into common stock (in some cases).

  • Rare in Indonesian public markets, but more common in private placements or venture financing.

Example in Indonesia:

  1. PT Bank Rakyat Indonesia (Persero) Tbk (BBRI)

    • Issued subordinated debt and hybrid securities, some of which have preferred-like features, especially to institutional investors.

  2. Private Companies & Startups

    • Gojek (now part of GoTo Group) before going public:

      • Issued preferred shares to investors like Sequoia Capital and SoftBank, with liquidation preference and convertible rights.

      • These gave early investors protection and benefits before IPO.

Regulatory Context (Indonesia):

  • Governed under UU No. 40/2007 on Limited Liability Companies.

  • OJK (Otoritas Jasa Keuangan) regulates the issuance of both common and preferred shares.

  • Companies must disclose share types in their Anggaran Dasar (Articles of Association) and prospectus.

Summary Table:

FeatureCommon Stock (Saham Biasa)Preferred Stock (Saham Preferen)
Voting RightsYesUsually No
Dividend PriorityAfter preferred shareholdersPriority/fixed
Liquidation PriorityLastBefore common shareholders
Listed on IDXYes, common for public companiesRarely listed; more private placements
ExampleBBCA, BBRI, TLKMGojek (pre-IPO), Private startups

Options

  • Definition: Financial contracts giving the right (not obligation) to buy/sell at a set strike price before/at expiration.

  • Call Options: Right to buy at the strike price.

  • Put Options: Right to sell at the strike price.

  • American Options: Can be exercised anytime up to expiration.

    • ❗ Istilah “American” tidak berarti hanya diperdagangkan di Amerika.

  • European Options: Can only be exercised at expiration date.

    • ❗ Istilah “European” juga tidak berarti harus diperdagangkan di Eropa.

  • Relevansi di Indonesia:

    • Bursa Efek Indonesia (BEI) mulai memperkenalkan instrumen derivatif seperti opsi, namun likuiditas dan adopsi masih terbatas dibandingkan pasar Amerika/Asia lainnya.

Forwards and Futures

  • Kesamaan: Keduanya kontrak untuk membeli/menjual aset di masa depan dengan harga yang telah ditentukan.

  • Futures:

    • Distandarisasi

    • Diperdagangkan di bursa resmi (futures exchange).

    • Contoh: Kontrak CPO (minyak sawit) di Bursa Berjangka Jakarta.

  • Forwards:

    • Non-standar, disesuaikan antara dua pihak.

    • Biasanya tidak diperdagangkan di bursa.

    • Digunakan oleh perusahaan Indonesia untuk lindung nilai (hedging), misalnya terhadap fluktuasi nilai tukar.

Public vs Private Equity

  • Public Equity:

    • Saham perusahaan terbuka, diperdagangkan di bursa saham (contoh: BEI di Indonesia).

    • Bisa diperjualbelikan dengan mudah, memungkinkan reaksi cepat terhadap informasi.

  • Private Equity:

    • Kepemilikan pada perusahaan tertutup, tidak diperdagangkan di bursa.

    • Contoh: Investor institusi membeli saham startup lokal seperti Gojek sebelum IPO.

  • Fokus utama materi: Public equity (saham di bursa).

Market Bubbles

  • Definisi: Ketika harga aset naik jauh melebihi nilai intrinsiknya, lalu tiba-tiba jatuh.

  • Contoh: Bitcoin Bubble (2017–2018):

    • Naik dari <$1,000 → >$17,000 (Jan–Dec 2017)

    • Turun jadi ~$6,000 (Juni 2018)

  • Konteks Indonesia:

    • Fenomena serupa terjadi pada saham-saham “gorengan” di BEI, yang naik ekstrem karena spekulasi lalu anjlok.

Stocks & Shares

  • Stock: Aset yang menunjukkan kepemilikan dalam perusahaan; memberi klaim atas aset dan laba perusahaan.

    • Di Indonesia: Saham perusahaan tercatat diperdagangkan di Bursa Efek Indonesia (BEI).

  • Share: Satuan dari kepemilikan saham; menunjukkan proporsi kepemilikan dibanding total saham yang beredar.

  • Common Stock (Saham Biasa):

    • Hak suara dalam rapat pemegang saham.

    • Berhak atas dividen, meski bisa berubah-ubah atau tidak dibagikan.

  • Preferred Stock (Saham Preferen):

    • Tanpa hak suara, tapi prioritas atas dividen dan aset jika perusahaan dilikuidasi.

    • Kurang umum di pasar saham Indonesia, tapi ada pada perusahaan tertentu.

Returns & Profit

  • Dividend: Pembagian laba perusahaan kepada pemegang saham.

    • Contoh Indonesia: BBRI, UNVR, dan TLKM dikenal sebagai saham yang rutin membagikan dividen.

  • Capital Gains: Keuntungan dari penjualan aset (seperti saham) di atas harga belinya.

    • Di Indonesia, keuntungan modal dari penjualan saham dikenakan pajak final.

Types of Securities

  • Security: Aset keuangan yang bisa diperdagangkan (misalnya saham, obligasi, dll).

  • Equity Security: Menunjukkan kepemilikan; contoh: saham.

  • Debt Security:

    • Berbentuk utang yang harus dibayar kembali.

    • Contoh: obligasi pemerintah (ORI, SBN) dan obligasi korporasi.

    • Di Indonesia, diterbitkan oleh pemerintah (Kemenkeu) & perusahaan melalui pasar obligasi BEI.

  • Derivative Security: Instrumen keuangan yang nilainya berasal dari aset lain.

    • Contoh: opsi (options), kontrak berjangka (futures).

    • Di Indonesia, pasar derivatif masih dalam tahap perkembangan.

Contracts

  • Option Contract:

    • Hak (bukan kewajiban) untuk membeli/menjual aset pada harga tertentu hingga tanggal tertentu.

    • Belum umum diperdagangkan secara luas di Indonesia.

  • Futures Contract:

    • Wajib membeli/menjual aset di masa depan pada harga yang telah ditentukan.

    • Contoh lokal: kontrak berjangka minyak sawit (CPO) di Bursa Berjangka Jakarta (BBJ).

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