In the world of investing, Stocks are among the most sought-after and widely purchased instruments. But what exactly are Stocks?
Stocks represent ownership in a company. When investors buy Stocks, they gain a claim to a portion of the company’s earnings, proportional to the number of Shares they hold.
Compared to other investment instruments like Money Markets and Bonds, Stocks come with higher volatility but also the potential for higher returns. Because of this, Stocks are generally more suitable for investors with an aggressive risk profile, low liquidity needs, and a longer investment horizon.
In General, Shares Are Traded on Two Markets:
- Primary Market / Initial Public Offering (IPO): the market where Shares are sold for the first time after obtaining an effective statement from the Financial Services Authority (OJK).
- Secondary Market: the market where Shares are traded after the primary market phase, and all transactions take place on the stock exchange.
Basic Information About Stocks
- Stocks represent ownership in a company, not debt securities.
- Shareholders have voting rights at the General Meeting of Shareholders (GMS).
- When a company earns profits, part of those profits may be distributed to investors as dividends.
- Information about a company’s dividend policy can be found in the Prospectus, but dividend distributions depend on each company’s policy and are not mandatory.
Types of Stocks
- Common Stock: represents an individual’s or entity’s ownership in a company.
- Preferred Stock: offers fixed dividends, and preferred shareholders have priority over common shareholders when it comes to dividend distribution.
Stock Categories
- Cyclical Stocks: Stocks which performance moves in line with economic conditions, making their price movements more volatile. Sectors in this category include consumer discretionary (tertiary goods such as clothing and leisure), property, technology, automotive, and financials.
- Defensive Stocks: Stocks with consistent and relatively stable performance across different economic conditions. Sectors in this category include consumer staples (FMCG), healthcare, and utilities.
- Income Stocks: Stocks that provide investors with regular income in the form of dividends that are higher than the market average.
- Growth Stocks: Stocks with the potential for price increases that are significantly higher than the market average.
- Value Stocks: Stocks that are purchased at a price lower than their intrinsic value.
Based on market capitalization, Stocks can be classified into:
|
Big Cap (Large Capitalization) |
Small-Mid Cap (Small-Medium Capitalization) |
|
|
Market Capitalization |
Large (> IDR 100 trillion) |
Small to medium (≤ IDR 100 trillion) |
|
Volatility* |
Price volatility tends to be higher due to high trading volume from a wide range of investors. |
Price volatility is sometimes lower because trading values tend to be low. These Stocks are often traded by fewer investors. |
|
Valuation |
Tends to be higher |
Tends to be lower |
|
Liquidity |
More liquid |
Less liquid |
|
Growth Potential |
Stock prices tend to be high, so the potential for further price increases is more limited. |
Stock prices tend to be lower, so the potential for price increases is greater. |
*Volatility is measured based on the standard deviation of the benchmark index movement during the 2021 to 2024 period.
Advantages and Risks of Stock Investment
When investing, investors naturally expect to earn a return. However, it is important to remember that the higher the potential return, the higher the risk. Below are the advantages and risks of investing in Stocks.
Investors can purchase Stocks through a Securities Company or by visiting a BCA branch, which can help provide a referral to BCA Sekuritas. In addition to direct purchases, Stocks can also be bought through Mutual Funds, one of which, through Equity Mutual Funds in myBCA. For more detailed information, click here.