The Irrationality of Investors Tricked the Stock Market
By: Prof. Dr. Budi Frensidy – Professor of Finance and Capital Market FEB UI
KONTAN – (13/9/2021)
A webinar themed Rotate Back to Big Caps was held by Samuel Sekuritas for its customers last week. We agree that many big caps stock prices are lagging behind. Currently, the big caps performance difference continues to widen.
Big caps stocks are synonymous with prime issuer stocks. On the IDX, we can use the IDX30, LQ45, or IDX80 indices to measure their performance. The LQ45 is most often used to reflect big caps.
This simplification is not entirely correct because there are several big caps stocks that are not included in the LQ45. For the time period, I used the period from early 2010 to the end of 2019, 2020, and 2021 running until last Friday.
In a period of almost 12 years, from early 2010 to last week, the JCI has gone up 140.5%, but the LQ45 only rose 74.7%. On an annual basis, the average increase in the JCI was 7.8% and the LQ45 index was 4.9%. If we look at the three observation periods, we obtain confirmation that the LQ45 index always loses to the JCI.
This means that the performance of small and medium cap stocks always beats the big caps. If we assume the weight of the LQ45 stocks in the JCI is 75%, it means that the weight of non-LQ45 stocks is only 25%.
Compared to the non-LQ45 index, which was formed with the above assumptions, the LQ45 index’s loss was more severe. For 11 years and 8 months, the non-LQ45 index rose 337.9%. For the period of 2010–2019, 2020, and this year, the nonLQ45 index consistently grew by 283.6%, 3%, and 28.6%.
At the same time, the performance of the LQ45 index was only 103.6%, minus 7.8%, and minus 7%. It’s been almost two years that big caps stocks have been sluggish, when digital bank stocks have been enjoying themselves. If in 2010–2020 the difference is in the range of 11%, this year the difference is up to 35.6%.
LQ45 stocks are now not getting the attention by investors even though many have good fundamentals, regularly pay dividends, and realize growth. The cheapest PER of 10 LQ45 shares is only 5.3 to 8.8 times. The average PER is 7.1 times and PBV 1.19 times this year.
This is in stark contrast to digital and technology bank stocks, which even though they are still posting losses, are still on top. All of the top 20 gainers with returns of 408% to 10.595% and an average of 1.348% year to date are non-LQ45 stocks. The average PER and PBV of the 20 shares were 612.3 times and 39.7 times, after issuing shares that had losses (six issuers) or negative equity (two issuers).
There are five digital bank stocks in the top 20 gainers, namely BBYB, BINA, BBSI, BABP, and BBHI, each of which provides returns between 423% to 1,691% with an average of 734.49%.
However, learning from other countries, very few digital banks have survived and emerged as winners. Banks’ main advantage comes from the spread or net interest margin, which is to disburse large amounts of credit at a small cost of funds (high CASA). Meanwhile fee-based income has never been a mainstay.
What are the implications of the above findings? First, traders are more dominant than investors on the IDX. Second, the irrationality of investors and traders makes the stock market even more inefficient and more like a place of speculation. It is irrational if there is a loss stock with negative equity but the price is up 583%.
Third, as an investor you must be super careful in buying stocks whose fundamentals are not clear, such as negative equity, still losing, very high PER and PBV, and do not pay dividends.
Fourth, buying shares of good companies at low prices will give you a good night’s sleep because the downside risk is small. On the other hand, buying a stock at a loss at a high price will make your life uneasy.
Fifth, what goes up must come down. In the long run the price will converge in value. Congratulations to traders and please be patient for fellow investors.
Source: Kontan Daily. Edition: Monday, September 13, 2021. Ribrik Bursa – Wake Up Call. Page 3.
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