Stock players must know who Lo Kheng Hong (LKH) is. If you don't know about LKH, you can re-read my post here: Lo Kheng Hong, Indonesia's Warren Buffet & Investment Strategy. Lo Kheng Hong is a legendary Indonesian stock investor who is dubbed the Warren Buffet of Indonesia.
One of the shares held by Lo Kheng Hong with a sizeable portion was PT Petrosea Tbk (PTRO). LKH owns 117.8 million PTRO shares. LKH owns 11.68% of the total outstanding shares of PTRO.
PTRO's stock price has continued to move up since being in the 200's until it formed an uptrend pattern to the price of 1,310. Previously, PTRO was actually in the 1,400's, but due to the sluggish economy, especially since PTRO is a business related to coal mining contractors, PTRO's stock price automatically fell drastically.
Until now, the calculation of LKH profit at PTRO is 44.78 billion. The total capital of LKH in PTRO is Rp144.95 billion. Then, what is LKH's strategy in choosing investments in PTRO shares? What are the considerations? In fact, when buying PTRO, PTRO's share price actually experienced a drastic decline.
First, look at the book value of the company. LKH sees that PTRO has a book value of Rp2,261. Meanwhile, the price of PTRO had dropped to Rp. 300. Therefore, PTRO's share price of Rp. 300 per share is very cheap. This means that the market price is still far below the company's intrinsic value.
LKH has not sold its shares even though on paper it has made a profit of 45 billion, because the price of PTRO is still in the range of 1,230. Also read: How to Find the Book Value of a Company (company equity / number of shares outstanding).
Second, do averaging down. Averaging down is actually a generally "forbidden" strategy, as doing so is tantamount to increasing your risk. Especially, for novice traders, I strongly discourage you from doing this strategy. For more details, read the following post: Which is OK: Averaging Up or Averaging Down?.
However, averaging down can be done if stock players have very mature calculations. And this strategy must be carried out by stock players who are really proficient. PTRO's shares have been falling steadily since the price of 4,700 in 2012 to 1,000 in 2013, and PTRO dropped back to 280 in 2015.
LKH did not cut loss, instead LKH increased its ownership percentage when PTRO fell (averagin down) several times. Some of them, LKH did averaging down in large numbers in 2014 and 2016.
LKH dares to averaging down, because LKH believes that when the PTRO price drops, the PTRO price is really discounted and cheap. The main reason LKH dares to buy PTRO at an averaging down price is because it is like the first point I mentioned. As a fundamentalist, LKH has a strong belief that PTRO will still be able to return far beyond its initial price.
After you understand the 2 investment tips of the LKH method, there is still one way LKH can make big profits from PTRO. This one method is a method that is rather difficult to implement. Want to know the answer? Read part II in the next post: Lo Kheng Hong and How to Profit from PTRO Shares - Part II.
