Investment Alternative Through PT Pacific2000 Investindo

Common Stocks

Among financial equities traded in the stock exchange, common stock is the most well known in society. From company point of view, common stock is also the most favorable instrument to gain capital from society. Thus, common stock is the most favorable instrument for investors and companies.

What is a stock? Simply speaking, stock could be defined as a proof of ownership of a person or an entity in a company. The form of a stock is a piece of paper which defined that the owner of that paper is the owner of the company. It is similar with saving account in a bank. Every time we deposit money, we get a certificate which explains that we have deposited an amount of money. If we buy stock, then we will receive a certificate that explains that we own the company which offers the stocks.

Preferred Stocks

Preferred stock is a stock that has a combined characteristics of bonds and common stocks, because it could give fixed income (such as bond’s interest) but could also generate a profit for investors. Preferred stocks are similar with common stocks in two things, which are: having the ownership of the equity and published without due date written on the stocks, and it pays dividend. Meanwhile, preferred stocks are similar with bonds in three things: the existence of claims for profits ; fixed dividend for the lifetime of the stock; having a redeem right and convertible with common stocks. Preferred stocks are traded based on the results offered to investors, thus practically preferred stocks are considered as a fixed income equity and as competitive as bonds in the market. However, corporate bonds are superior then preferred stocks.

Basically there are two benefits of buying or owning stocks:

1. Dividend.

Which is profit sharing by the company which offers the stocks. dividends are given after the agreement from stock holder meetings. If an investor would like to earn a dividend, then the investor should owns the stocks in a relatively long period of time, which is until the ownership of the stocks in a range where the owner of the stocks are approved as the rightful owner. Generally dividend is one of the attractor factor for investor with long term orientation such as institutional investors, pension funds, etc. dividend could be given out in a cash form - which means each stock holder would be given a dividend in form of cash in certain amount for each stock - or it could be in stock dividend which means each stock holder would be given a dividend in form of stocks therefore adding the stock amount the investor owns.

2. Capital Gain.

Capital Gain is the difference between buy and sell prices. Capital gain is formed by the trading activities in the secondary markets. For example, an investor bought ABC stock with the price of Rp. 3.000 per stock then sold it for a price of Rp. 3.500 which means the investor has a capital gain of Rp. 500 per stock. Usually, investors with short term orientation are pursuing profits through capital gain. For example, an investor bought a stock in the morning and then sold it again in the afternoon after the price has increased.

Stocks are known with a high risk - high return characteristic. Meaning, stocks are equities which could give high profits but also carrying a high risk. Stocks enables the investors to get return or profits (capital gain) in a large amount in a short time. However, along with the fluctuation of stock price, then stock could also give investors a big loss in a short time.

What are the risks the investors face by owning a stock:

1. Not earning dividend.

Company will share the dividend if the operation of the company is profitable. Thus, company could not give dividend if the company is in a loss. The potential of the investors in earning dividend is decided by the company performance.

2. Capital Loss.

In stock trading activities, investors are not always earning a capital gain. There are times where investors must sell the stock with a price lower than the buying price. Thus, the investor is having a loss. For example an investor is owning Indosat (ISAT) stocks with the buying price at Rp. 9.000 but then after a while, sold them at Rp. 8.000 which means the investor is having a capital loss of Rp. 1.000 for each stock. Sometimes in stock trading, investors are willingly to sell stocks on lower prices to avoid bigger losses with the declining stock price. This action is known as cut loss. Besides the above risks, investors have to deal with other potential risks, such as:

3. Company goes bankruptcy or Liquidated

A bankrupt company will directly effect the stocks. According to the stock exchange rules, if a company is declared bankrupt or liquidated, then automatically the stocks will be taken out from the exchange, also known as de-list. In term of liquidated, stock owners hold the lowest position compared to creditors or bonds holders, which means after all company’s assets being sold, it will be 1st divided to creditors or bond holders, and if the rest would go to the stock holders.

4. Stock is de-listed from stock exchange

Another risk faced by investors are the risk of the stock being de-listed from the stock exchange. A stock would be de-listed from the stock exchange if the performance is not satisfying. For example in a certain period of time were never traded, experiencing losses for several years, not paying dividend for several years, and other conditions according to the stock exchange rules. A de-listed stock could not be traded on the stock exchange, however it could still be traded outside the stock exchange, with the consequences of not having a clear price parameter and if sold normally it would be far from previous price.

Right Issue

Right Issue (RI) is an equity that gives the investor the right to buy a new stock. RI is a derivative investment tool of stock. A company offers RI in order to add the amount of available stocks, to increase the company’s capital. By issuing the new stocks, investors should buy the RI, thus adding the company’s capital. RI does not obligate the investors to buy the stock. This is different with bonus stocks or dividend stocks, that automatically will be received by the investors.

Buying RI is buying a right to buy stock, if the investor is exercising the right, then automatically the stock is bought. Thus, the returns the investors will get by buying RI is the same as buying the stocks, which are dividend and capital gain.

There are risks the investor should face whether the right is exercised or not, which are the risk of the declining price of stock and dividend.

Warrant

Warrant is similar to RI is a right to buy common stock at a specific time and price. It is common for warrant to be sold together with other equities such as bonds or stocks. Warrant issuers must own the stocks that will be converted by the warrant holder. However, after the bonds or stocks that attached to the warrant enters the market, the three of them are sold separately. For example, PT B issues bonds with 5 years expiry date. Every bond holder will get 2 warrant. Then every warrant holder has the right to buy 1 piece of stock starting from the end of the 3rd year.

Warrant is issued so that the investors are interested in buying bonds or stocks the company also issued. At certain market condition, for example when bank interest rate is high, investors tends to put the money into bank. It would burden the company to issue bonds that gives higher interest than the bank interest. On the other hand, if the company issue bonds tht gives lower interest rate, then it would not be attractive. Thus in order for the low interest bonds are attractive, the bonds are accompanied by the warrant.

TRANSACTIONS

Before eligible for transactions, investors should become a client of PT PACIFIC 2000 INVESTINDO as a member of Indonesian Stock Exchange. Firstly, investor opens an account by filling account opening form. On the documents there are stated the complete client identity (including investment purpose and financial condition) and also notes about the investment.

Clients could sell or buy after approved as a client of PT PACIFIC 2000 INVESTINDO. We obligated clients to deposit a certain amount of money as a collateral that the client is eligible to buy or sell stocks. The obligated amount is Rp. 20 millions. In stock trading, the amount traded is in lot. At Indonesian Stock Exchange, 1 lot means 500 stocks, and that is the minimal amount of stocks trading. The capital needed for transactions are varied according to the stock prices that are listed on the stock exchange. For example, ABC stock price is Rp. 1.000, then the minimum capital needed to buy one lot of that stock becomes (500 times Rp.1.000) Rp. 500.000. As another illustration, if XYZ stock is Rp. 2.500 then the minimum capital needed to buy the stock is (500 times Rp.2.500) Rp.1.250.000

Equity transaction is started with an order for a certain price. The order is sent in written order or by phone and transferred to the company through sales / dealer. For example, an investor phone the dealer where s/he has become a client, and telling that s/he is interested in buying ABC stock for 2 lot (1.000 stocks) at Rp.3.000 price. After examined (whether there is sufficient capital, trading limitation, etc) the order is passed to floor trader to be executed.

The buy and sell orders from investors from different brokerage companies met at the stock exchange. After there is a match between orders, then the transaction is processed.

Stock buy and sell process could be explained as follow:

Transaction settlements are done in two different institution, which are LKP and LPP. At Indonesia Stock Exchange, transaction settlement uses T+4 scheme which means settlements are done in 4 days after the transactions. Investors who are buying stocks would get the stocks at the fifth day (trading day), vice versa for the selling order.

At Indonesia Stock Exchange, transactions are done at certain days which called Trading Days, which are: