PNIN IJ and EMH

Once, there are 2 people walking together.

One is a value investor (we call it VI). While the other is a professor of finance (Prof).

As they both walked through the park, suddenly VI's eyes saw a $ 100 bill lying on the sidewalk.

VI: Professor, look! There’s $ 100 cash there!

Prof: That is impossible. You must be mistaken.

VI: Why is that? It really looked like $ 100 in my eyes.

Prof: If there were really $ 100 there, it must have long been taken by others.

VI walked over to the money, picked it up and put it in his pocket.

VI: It's really $ 100, professor. Let me treat you a cup of coffee?

Prof: No, thank you. I still have to catch the time to teach on campus.

VI: Oh ok. Sorry professor, remind me again, what subject do you teach on campus?

Prof: It is an “Efficient Market Hypothesis” (EMH) theory.

About a year ago, I recommended the shares of PT Paninvest Tbk. (PNIN IJ) to my team. 

One of my main reasons for recommending PNIN IJ is because its valuation is so cheap.

At that time, PNIN IJ was only traded in the range of 0.2x BV and 5x E. A very cheap price level.

As well as the $ 100 money lying in the park, shares PNIN IJ long enough to sit at the level of IDR 600.

My feelings for the shares of PNIN IJ, identical to the feeling of value investor in the fictional story above.

But many of my friends do not care about my recommendations.

Some of the classic reasons are:

1. The stock is not liquid.
2. Panin's group shares are value traps (concern on GCG).
3. No catalyst.

People rarely aware that there is no a truly perfect investment.

If PNIN IJ is liquid, GCG is good and has a catalyst, do you still think PNIN IJ will be trading at 0.2x BV?

Have you ever thought, that all the bad things, actually been reflected in the stock price valuation?

With a 0.2x BV valuation, PNIN IJ's shares traded well below its liquidity value. And most of PNIN IJ's assets are liquid assets, which do not require big discount to know its real market value.

Indeed, most of its assets are paper assets (stocks), whose value can fluctuate and can very quickly generate profits, but also losses.

But in fact, historically, PNIN IJ is able to generate a stable yet substantial profit.

And when it comes to the stability of assets and profits, isn’t the instability, also experienced by commodities companies? But the fact is that commodity stocks can become liquid and fly when the time comes. Clearly there has been massive discrimination against PNIN IJ shares.

Suddenly in the past few days, PNIN IJ's shares have risen remarkably to IDR 1,415/share, with very high trading volume (liquid).

A 135% profit in a year.
At IDR 1,415/share, I am more than happy to take money off the table.

That's why I'm not too worried about the growing trend of passive investment (index fund) and or artificial intelligence (AI/robotic investing).

Ultimately, all judgments and final decisions, leads to humans.

And man is subjective.

Therefore I am pretty sure, in the future that will come, the market will still create opportunities like the $ 100 money lying on the ground.

In fact, with the increasingly widespread passive investment (index funds), the more inefficient a stock market.

In the long run, the stock market is always right, but that does not mean it is always fully efficient in its journey.

Disclaimer: This article is not a recommendation to conduct transactions on the intended securities. Any consequences arising from this writing are beyond the responsibility of the author.