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Stock Investment Makes Profit. Here’s the Profit Calculation!

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Amid uncertain economic conditions due to the pandemic, stock investment activities are increasingly popular because they are considered to provide large profits. Not a few also think that stock investment is an instant way to get rich quickly financially.

This assumption is not entirely wrong because several successful investors have managed to raise money through stock investment. One of them is Lo Kheng Hong, a seasoned value investor who is dubbed the Warren Buffet of Indonesia.

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His work in the world of capital markets deserves thumbs up. Departing from relatively mediocre family background, LKH has had assets in the form of shares worth IDR 2.5 trillion.

So, what is stock investment, and how does it work? You can see the complete discussion below.

What is a stock investment?

In general, investment is an investment activity sought to generate profits in the future. This investment can be made through several investment instruments, including stocks.

According to the Indonesia Stock Exchange (IDX), shares signify a person's or party's capital participation (business entity) in a company or limited liability company.

So, it can be concluded that stock investment is an investment activity whose funds are allocated to stock instruments. By owning some shares of a company, stock investors claim the company's income and company assets and are entitled to attend the General Meeting of Shareholders (GMS).

Compared to other types of investment instruments such as mutual funds or bonds, stock investments offer the highest returns. This ultimately triggers the notion that stock investment can be a solution to get rich quickly.

But even so, you also need to know that stock investments also have the highest level of risk of loss. “High return, high risk” is more or less the right word to describe this stock investment.

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How stock investing works

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Because it has a higher risk of loss than other investment instruments, a potential investor needs to know in advance how the stock investment itself works to minimize losses.

As explained earlier, when you buy shares or invest in a company, you automatically become a partial owner of the company.

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So, if the company you invest in has 500,000 shares that are open to the public and you buy 5,000 of them, it means you own 5% of the company's shares.

Generally, the more people who buy the shares of a company, the higher the price. Conversely, if many people sell shares of a company, the share price will be lower or lower.

Therefore, you should also be selective in choosing which company you will invest in if it has good performance and still has promising prospects in the future.

Stock investment profit calculation simulation

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In investing in stocks, every investor can get profits or returns, which are divided into two types; Capital Gains and Dividends.

Capital Gain is the profit obtained from the difference between the purchase price and the stock's selling price. This difference can occur due to fluctuations between the supply and demand of these shares in trading activities on the stock exchange.

Therefore, you are required to research the company's performance before buying shares to find out if there is a potential profit in the form of Capital Gain.

Meanwhile, dividends are profit sharing for shareholders given by the company, where the nominal is adjusted to the number of shares owned by the investor in a company.

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Capital Gain profit calculation simulation

Budi is an investor who bought A share at IDR 3,000 per share in 2019 as many as 10 lots (1 lot = 100 shares).

In 2021, the price of A's share will increase to Rp. 3,500 per share. So the simulation of the calculation of the Capital Gain profit obtained by Budi is as follows:

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Selling Price – Purchase Price x (Number of shares owned)
IDR 3,500 – IDR 3,000 x (1,000) = IDR 500,000
That way, the total money that Budi has after investing in shares for three years is IDR 500,000 (net profit) + IDR 3,000,000 (capital) = IDR 3,500,000.

Dividend profit calculation simulation

Company A has a total of 5,000,000 shares and managed to score a net profit of Rp. 1,000,000,000. The company's Dividend Payout Ratio (DPR) policy is that 30% of net profit is distributed as dividends.

Thus, the calculation of dividend profits that investors per share will obtain is as follows:

Dividend = Net profit x DPR, then IDR 1,000,000,000 x 30% = IDR 300,000,000.

Dividend per share = Dividend / Shares outstanding, then IDR 300,000,000 / 5,000,000 = IDR 60/share.

From this calculation, if Budi owns 10 lots of shares, he is entitled to a nominal dividend of IDR 60 x 1,000 = IDR 60,000.


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