/ investment

What is value investing?

Value investing in investing on something that has value more than its price and hoping its value will increase, not only its price.  The value of your investment must increase, regardless of the economic condition.  It must not be consumed by time, e.g. expired or rotten.

Why value investing?

To understand it, you will need to understand the difference between price and value.  Price is the price tag, while the value is the power required to buy!  The price of 1980 Honda Accord is around Rp 15.000.000,00 and the latest model of Honda Accord costs around Rp 400.000.000,00.  You see the price increases 28 times over 28 years.  So, you will need to increase your money by up to 28 times to get that car.  Can the bank deposit do it?  I doubt it!

How about the value?  1980 Honda Accord costs well over 1.5 KGs of 1980 gold, which is much more expensive in price compared to today's Honda Accord which costs about 1.5 KGs of gold on 19 May 2008!  If you invest in gold, say 1.5 KGs, your gold in 2008 will still be 1.5 KGs, no more or less (presuming you kept it safely).  And you can buy a brand new Honda Accord with that!

So - compared to a Honda Accord - you can conclude the gold value stays the same (or about same) from 1980 to 2008.  

Always invest in value, not numbers.

How to do it?

What can be value investment?  A value investment needs something stable.  Stocks from good companies and gold might be a sound investment, but not options, warrant or even your favourite bank's deposit!  Options are good for earning money and trading.  But they will expire in certain amount of time and become worthless.  It is better to make friends with time rather than racing with time right?

Owning a company's stock means that you own a company (well, fractions of it anyway).  The stock value is backed up by the company's value (assets, lands etc).  So the stock price will increase as the company's value increases.  My advice here is to buy stock when it is undervalued - the total company's value is more than (all stock * stock price) - or right valued.  Not when it is overvalued.

How about a car???  Can a car be a value investment?  Well, most of people will say no, however I had a slightly different view on this matter: 

Remember: I'm not talking antiques, that is a different discussion!

Car is technological device, most of its value will be the value of its technology and styling.  The value of today's car material will account for only 10-15 percent of total car's price, depending on the model (a Ferrari uses less material than a Ford F150, but it is 10 about times more expensive).  The value of today's technology and styling in the next 10 years will be zero! Over time the price of a car will decrease.

However the value of its iron, cooper or aluminium will increase with time.  This is what most people forget.  Therefore buying a 2nd hand very old car can be a value investment.  When the technology and styling value is zero, the price might be lower than the total material price summed.  And owning that car means owning a piece of metal that the price will always increase.  That is the point where you can invest. 

When the metal price surges, the car's body value will increase and therefore generating profits.  So buying a very old cheap car when the car price is less than the car's material combined is a value investment.  Just don't drive since the car could cost you money to fix things and usually old car wastes petrol.

Simple example

Do you remember the old heavy bronze based Rp 100 coin?  When the money was released back in 1978, Rp 100 is worth a lot more than the bronze price used to mint the coin.  However on today's money, Rp 100 is worthless, and probably worth a little less than the bronze used to mint the coin. 

That is why the old Rp 100,00 is now replaced by much lighter aluminium. 

By keeping the old Rp 100, instead of putting that on the bank, you already doing value investment!  In the next 10 or 20 years, probably you can't get anything from the Rp 100.  Just don't bring it to the bank, if you have a lots of them, probably the best way to make money is - as long as the law permits -  mint the coin to get solid bronze that can be sold for more!  Or sell it to a collector. 

How about the paper money?  It is funny money, bank it unless the number are special like AA 7777777 or BB 12345789 which can be sold to a collector for a good money.

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