in this video I will explain How value investing works in five levels of increasing complexity this video was inspired by the Swedish investor channel I will put the link in the description we will start with an explanation of the most basic definition then increase each level to the most comprehensive level before that we must first know why investment must use valid investing not other streams valid investing itself is the most reliable investment philosophy and has been proven out there in the country for example there is Palo kenhong whose investment has increased 5,000 times since 1998 or the investment rate has reached 47% per year Mr. Lu have you ever calculated it from 98 Mr. Lu continued to withdraw until before the 2020 pandemic what is the percentage increase cagr let me calculate quickly 1000 times plus another 5 times I think 5,000 times there are 5000 KP and there are still many more successful value investors for example Mr. Robert Susilo there are three cofounders namely Mr. John Wen Mr. Sumadi and Mr. Billy abroad we know the name Warren Buffett who has implemented value investing for more than 5 decades and has an investment return of around 19% per year, this strategy is what led me to be able to buy good stocks at low prices and sell them when they return to normal prices. So let 's start the video level 1 explaining value investing to investors who are just starting out. Just imagine when you want to buy a house, value investing can be likened to bidding on a house from a seller, for example, you find a house that you really like and the owner sets a price of Rp10 million, but after doing research you find that a similar house in the same complex can be bought for Rp200 million. In addition, you also know that the owner of the house is in need of money. You start the bargaining process with the owner of the house. After several negotiations, you finally reach an agreement at a price of Rp150 million. You are satisfied because you managed to get your dream house at a price below market value. Well, the process of buying stocks with value investing is similar to the bargaining process when buying a house. You need to know the real value of the asset and be patient until you can buy it at the right price. For example, when you are going to buy a house, you need to know the land area, the building area, the price of land per square meter, and the total cost of building the house to calculate its fair value when there is an opportunity to buy something of value. Rp100,000 for Rp50,000 we will automatically buy as much as possible This process requires patience and discipline because finding quality assets at low prices is not always easy and requires in-depth analysis so it can be said that value investing for new investors is buying assets at low prices but buying is only half of the value investing strategy there is also an aspect of selling a value investor sells his assets when the price of the asset is no longer cheap so when we buy something for 50,000 which is actually worth Rp100,000 and then someone else is willing to buy it back at a price close to or equal to Rp100,000 we will get profit from the difference between the selling price which is higher than the purchase price at level 1 this value investing means buying assets at low prices and selling them when the price returns to normal level du explains value investing to beginner investors The next question for beginner investors is When is an investment asset considered cheap and where can I find it let's first see what makes the price low the answer is cash flow Val true investors always follow assets that generate cash flow or generate money boarding house owners for example get money or cash flow from rent payments minus all kinds of costs bond investors can get money from coupons received stock investors can get money from annual net profit or earnings per share where some of the money is received in the form of dividends and some is used for expansion well the fair value of an asset should reflect the asset's ability to generate money in the future Let 's try to look at these two investment assets the first asset is a bond for example the fr80 series with Rp100 million then the investor can make money which is around 6.75 million per year after tax or equivalent to a return of 6.75%. The second asset is Mayora shares or mor at a price of 2,370 with Rp100 million we can get 42,194 shares where Mayora's EPS is 160 per share. This means we get a cash flow of 6.75 million and this is equivalent to a return of 6.75% per year. This 6.75% figure is called I perp or earnings per price ratio but actually we are more identical to the price to earning ratio or pe ratio 1 / 6.75% which is 14.8 times, so FR bonds also have a pe ratio of 14.8 times. Well, for FRR bonds, the figure of 6.75 5 million per year is fixed but unlike Mayora shares, there is an element of uncertainty. Mayora's profit could grow but it could also not. But if we look at historical data since 2011, Mayora's profit has continued to rise from the initial 471 billion to 3.2 trillion. So it is natural that Mayora's profit in the future will also increase. At this second level, we can modify the definition of valid investing to buy assets that generate cash. flow at a low price and sell when it is no longer cheap, for example, using the same example as Mayora. Suppose the price of 2,370 can drop to 1,600 as in 2022, meaning that with Rp100 million, which previously we could get 42,194 sheets, now we can get 62,500 sheets with an IPS of 160, then our Rp00 million can generate a cash flow of Rp10 million, higher than the previous Rp6.75 million. This is equivalent to an I perp of 10% or higher than 6.75% and a Price to earning ratio of 10 times or lower than 14.8 times. Level 3 explains value investing to the average investor. If asked to choose to have Rp1 billion today or Rp1 billion in 20 years, the answer is clear, of course today, the Rp billion received today is more valuable than the Rp billion received in 20 years with a bond interest rate of 6.75% per year. The Rp billion in the next 20 years is actually only equivalent to 270 million. Nowadays it is important not only from how much cash flow we receive from investment but also when we receive it, the sooner it is received, the more valuable the investment price is. Well, this is the essence of discounted cash flow or dcf analysis where we use the discount rate to reduce the value of cash flow in the future, the discount rate figure. Usually we use a figure above the bond interest rate, some use between 10 and 12% which reflects the return from ISG from the start. Well, for a very risky business, for example a small profit business, the sector is also not good, then the discount rate must be set quite high. Well, we can update the value investing formula at this level to buy assets with discounted cash flow at a low price and sell when it is no longer cheap. The problem is that the use of the dcf model uses many assumptions, a small error in assumptions can produce a significant difference in results, therefore many investors rarely use the dcf model in their analysis. The late Charlie Manger once said that although his partner Warren Buffett often talked about discounted cash flow, he personally never saw Warren Buffett use the dcf model. This dcf is more philosophical in nature, yes, companies whose future cash flow is growing and stable should will be valued more expensively compared to companies whose cash flow is stagnant and whose profits fluctuate, for example, Bank BCA will certainly be valued more expensively in PII when compared to Bank Danamon, well, the cheapness of the shares must be really obvious, as if the shares are calling us to buy them, simply if we have to use the dcf model to verify that this is a good investment opportunity, it means that the opportunity is not good enough, I use one example of my investment in stock bid, I bought samp BNI at a price of 4,600 in 2020 or currently equivalent to 2,300 after the stock split at a price of 2,300, bbni's market capitalization is around IDR 85 trillion and assuming bbni's fair profit in 2020 at that time was IDR 15 trillion, then the price turing ratio or P ratio of bbni's class is only valued at IDR 5.6 times. Well, just by looking at this without having to use dcf, it can be seen that bbni's price is very, very cheap. The fourth level explains value investing for investors. Advance value investors are always looking for ways to get maximum returns with low risk when they find low assets. High gain risk is what is called under value. Unfortunately, an asset is not equipped with a label that shows the level of risk directly. For example, when buying BRI at a price of 6,000, investors will not have information like this. Investing in BRI at a price of 6,000 can provide a potential return of 10% more, but the risk can drop to 30%. Well for capital market analysis risk is more interpreted as volatility or the rise and fall of stock prices they usually use beta indicators where if the beta is high then the volatility will be higher so that the rise and fall of the stock is increasingly wild therefore a stock will be considered increasingly risky but for value investors risk has a different definition there are three types of risk the first is business related risk this risk arises when the business in the future changes for one reason or another or we ourselves wrongly predict how much cash flow the business will get because the assumptions we build turn out to be wrong or our assumptions are too optimistic so that the most beautiful of this risk do not focus only on the ratio or financial matrix but focus more on qualitative aspects find out who the competitors are how the management is whether there are changes in supplier regulations How customers still want to buy or not the second risk is the risk of buying too expensive this risk arises if we pay too much for the assets we buy for example you can check Unilever which in 2018 could be purchased at a price of IDR 10,000 at that price Unilever's price turning could be above 50 times Well the third risk is self-risk this risk arises when we are not ready when the price drops which resulted in a loss-making sale or cutloss when I bought BBNI at an average of 2,300. BBNI still managed to drop to 18,800 and I saw for myself that my investment in BBNI had dropped by 22%. if I Cut Los at that time then I will lose money permanently so that we avoid the important risk of buying stocks with a certain level of security or the term is margin of safety margin of safety is needed because the future cannot be predicted and investors are also humans who can make mistakes compliance with the concept of margin of safety is what distinguishes Val investors from other flow investors or also speculators Where they pay less attention to the risk of loss when value investors see a brand for example that continues to rise every day even once it had reached a price of 11,000 overtaking the market cap of bbca value investors will actually avoid it far away True Val investors certainly will not buy Sam bbri at a price of 6,400 this year we will start buying when the stock is discounted or has a margin of safety of 40% or even 50% of its fair value well back to the example of bbni that I bought at a price to 5.6 times at 2300 stocks in the same class as bbni should have a fair pe ratio of around 12 to 13 times meaning At that time I was buying bbni at a margin of safety of 55%. This means the same as goods that should be priced at IDR 100,000 but we buy at a price of IDR 45,000 or when I bought Total Bangun Persada at a price of 307 where at that time the market cap was 1.04 trillion, my assumption is that the fair profit from the total in the normal cycle is IDR 200 billion, meaning I bought the total with a pi of 5 5.4 times, the total has a fair P ratio in my opinion of around 10 times or more or less the fair price is at 590, meaning I bought it with a margin of safety of around 46%. This means the same as an item that should have a price of Rp100,000 but I bought it at r54,000. Now we can update our explanation of value investing at this level to buy assets with discounted cash flow at a low price using a margin of safety and sell when there is no more margin of safety. The fifth level explains value investing to expert investors when the value of an asset is so clearly visible that it is difficult for us to get a discount. Take for example BBCA. This company is probably the best company on the stock exchange today. Its business is very wonderful. It is managed by competent management. Profits are very stable and consistently increase even though its profit level is already in the tens of trillions. When profits from other banks fell a lot during the pandemic due to problematic credit, BBCA is one of the safe ones. It only fell a little. So of course trying to bid on BBCA at a low price with a discount of up to 30% is very, very difficult. That is why value investors prefer to hunt for stocks that are not liked or stocks that are ignored. Searching for stocks that are not liked or stocks that are ignored is certainly not in stocks that are breaking all time highs such as the safe Cuan brand, tpia, and others. That's why there are quotes about being fearful when others are greedy and be Greedy when others are fearful so where should we look for the following ways some V investors can find stocks that are not liked or ignored the first we can start searching for stocks that have experienced a significant price decline in a certain period of time such as a year 2 years or even the last 5 years but their performance has not dropped much or even increased the second pay attention to stocks from certain sectors or industries that are not popular, it could be because the sector is in the lowest cycle but the name of the cycle can go back up again in the future or maybe sectors whose commodity prices are falling can be investigated Who knows find hidden Jem the third investigate stocks from companies that are experiencing temporary problems that make them ignored by investors for example there is a threat from regulation or competitors both domestically and abroad the fourth can also check the sam-sam whose valuation is low with growth potential that may be mediocre so that it is ignored by the market well the value investing formula at the fifth level can be changed to buy assets that are not liked or ignored with discounted cash flow at a cheap price using a margin of safety and sell when there is no longer a margin of safety but in this part it is very difficult to distinguish which is cheap and which is cheap Is it really disliked because the fundamentals have changed permanently or is it just a temporary issue There are many things that can sharpen our process in analyzing and making decisions starting from reading a lot of financial report books, not infrequently we also need community discussion partners or learning media that can support us in stock investment I have explained many learning media I started from favorite books to favorite investment lecture playlists on the Dodi channel talking about investment Well here I want to share again one place I have studied for years, namely at think think is a stock investment community that provides all in one solution related to stock investment education and currently think shares a lot of free education on YouTube about investment, especially about stocks so don't forget to come to Ting's YouTube and keep watching the free content every week Okay, I hope my explanation about value investing for five levels can be easily understood and For those who want to support the Dodi channel talking about investment, there is currently a dbi merge that has been sold on Tokopedia, the link will be in the description See you again in the next videos bye i