Dr. Rindang “Riri” Asmara-Petersen, M.D., MPH, is CEO of 1000 Days Fund, an organization she joined as a volunteer in 2021 after working in private hospitals — the team has since grown from 8 people to 56. Under her leadership, 1000 Days Fund now works across 7 districts and 106 villages in eastern Indonesia, has trained 60,000 community health workers, and recently received a Bill & Melinda Gates Foundation award as the only Indonesian grantee that round, selected from over 4,000 global applicants.

Disclaimer: Everything in this post is written for educational purposes and reflects data available as of July 11, 2026. It is not financial advice, and nothing here is a recommendation to buy, sell, or hold any security. Probability estimates are our own judgment based on public data — please do your own research before making investment decisions.

Update — July 13, 2026: after this post was drafted, S&P completed its scheduled review and affirmed Indonesia at BBB/A-2 with a Stable outlook — projecting ~5.1% growth for 2026, pointing to relatively low government debt and the H1 revenue recovery, and calling the current fiscal and external strains temporary. The JCI rose about 1.9% the next session. We’ve updated the relevant sections below; the rest of the analysis is unchanged.

If your group chats look anything like ours lately, you’ve heard the whisper: Indonesia is about to be labeled “junk.”

The rupiah has broken past 18,000. The stock market, from its peak, has at one point fallen about 40%. And in March, Fitch — one of the three big credit rating agencies — cut its outlook on Indonesia to Negative, weeks after Moody’s did the same. Somewhere between the headlines and the WhatsApp forwards, this has curdled into something close to panic.

So we did the unglamorous thing. We sat down with the actual rulebooks — S&P’s own criteria document, Moody’s official definitions, Fitch’s methodology, and an EU regulation that governs all three agencies — plus the history of every major country that has actually fallen to junk. Then we ran Indonesia through it.

TLDR: the fear is running well ahead of the math. Let’s get into it fellas.

First, what actually happened (and what didn’t)

A sovereign credit rating is basically a report card on one question: how confident are we that this government will pay back its debt?

Somewhere on that report card there’s a line. Above the line, your bonds are called investment grade — safe enough that the world’s most conservative money (pension funds, insurers, central banks) is comfortable holding them. Below the line, you’re in speculative grade — the unflattering nickname is “junk.”

Here’s where Indonesia actually stands today:

Notice two things. First, nobody downgraded Indonesia’s rating. What Moody’s (February 5) and Fitch (March 4) changed was the outlook — the weather forecast, not the weather. The grade itself, BBB, was affirmed by all three agencies — most recently by S&P on July 13, 2026, with its outlook still Stable.

Second, Indonesia sits two full steps above the junk line at all three agencies. Think of it like a football league table: we’re not in the relegation zone. We’re two wins clear of it. What happened this year is that two of the three referees said, “we’re watching you.”

That distinction matters more than anything else in this post.

There’s an actual rulebook for this — and it’s surprisingly strict

Most people imagine rating downgrades as a guy at S&P waking up grumpy one morning because they see unfavourable news on the headline.

The reality is bureaucratic to the point of being boring. And that seems like a good news, because at least boring is more predictable than guessing the mood of an S&P analyst.

Start with what “Negative outlook” officially means. This is from S&P’s own criteria document, word for word:

“Standard & Poor’s assigns positive or negative outlooks to issuer ratings when we believe that an event or trend has at least a one-in-three likelihood of resulting in a rating action over the intermediate term for investment-grade credits (generally up to two years)...”

Read that carefully. A negative outlook means at least a 1-in-3 chance (33.3%) of a downgrade over roughly two years. Flip it around: even by the agency’s own definition, the more probable outcome is that nothing happens.

There’s also a more urgent stage called CreditWatch (Moody’s calls it the “Watchlist”) — that’s when a downgrade has at least a 1-in-2 chance within 90 days. Indonesia is not on anyone’s watchlist. We’re at the “stern warning” stage, not the “pack your bags” stage.

And here’s the part almost nobody knows: rating agencies are not allowed to surprise you with the timing — except in genuine emergencies.

An EU regulation (which binds S&P, Moody’s, and Fitch) requires them to publish, every December, a calendar of sovereign review dates for the following year — capped at three per country, scheduled on Fridays, announced after markets close. Deviating from that calendar is permitted only where the agency’s own monitoring obligations force it to act, and every deviation must be accompanied by a detailed written justification (Article 8a of the EU CRA Regulation; ESMA’s guidance adds that deviations “should not happen” as a matter of course). And that scheduled review has now happened: on July 13, 2026, S&P affirmed Indonesia at BBB/A-2 and kept the outlook Stable, citing solid growth prospects, prudent macro policy, and relatively low government debt — and describing the current fiscal strains as temporary. Exactly the kind of boring, scheduled, no-surprise outcome this section describes.

To be fair: agencies can break the calendar — and can cut several notches at once

We’d be cherry-picking if we didn’t show you the exceptions, because they’re real. Here is every notable case of a sovereign getting the “emergency treatment”:

Look at the triggers: war, sanctions, currency collapse, default, coup. That is the admission price for skipping the queue. Now hold Indonesia against that list: no war, no sanctions, no default — the economy is growing ~5%, government debt is ~41% of GDP, the primary balance just posted a first-half surplus, BBB was affirmed by all three agencies, and the market’s own insurance price on Indonesian debt (~91 bps, more on this below) is nowhere near crisis levels. The gap between Indonesia and that table isn’t a few steps. It’s a different universe.

So yes — the emergency exit exists. But every country that ever used it was already on fire. Indonesia isn’t.

One more thing from the rulebooks that reframes the whole debate. When you look at what the agencies actually grade, the heaviest weight isn’t the size of government debt.

In Fitch’s model, governance and institutional quality carry more than half the total weight — more than public finances, external finances, and economic growth combined. Indonesia’s debt-to-GDP is around 41%, comfortably below the typical BBB country’s 58%.

Our problem was never the amount of debt. It’s that revenue is thin (roughly 13% of GDP versus 25% for BBB peers), the interest bill eats a growing slice of it, and this year’s policy noise — the fiscal program overruns, the pressure on Bank Indonesia, the Danantara questions — lands exactly on the governance box that the models weigh most heavily.

That’s what the outlook cuts were really about.

TL;DR — what the rulebook actually says:

• A Negative outlook is a warning, not a verdict. By S&P’s own definition it means at least a 1-in-3 chance (33.3%) of a downgrade over roughly two years — so the single most likely outcome is that nothing happens.

• The real alarm bell is CreditWatch (S&P) / the Watchlist (Moodys): The downgrade probability becomes at least a 50% chance within 90 days. Indonesia is not on it (yet).

• Falling to junk requires two more cuts, at two different agencies. Indonesia is two steps above the line at all three.

• No surprise ambushes in normal times. Review dates are published a year in advance — at most three per year, scheduled on Fridays. Agencies can act off-calendar or cut several notches at once, but historically only under extreme shocks (war, sanctions, default, coup) — and any deviation must be published with a written justification. S&P’s July review has since landed: rating affirmed at BBB/A-2, outlook Stable (July 13, 2026).

• The agencies grade governance hardest, not debt. Indonesia’s debt is low (41% of GDP vs 58% for BBB peers); the pressure comes from thin government revenue and this year’s policy noise — which also means the fix is within the government’s own control.

And here’s the encouraging part: the course-correction has already started. In June, President Prabowo ordered the budget of his own flagship program — the Free Nutritious Meals (MBG) — cut from Rp335 trillion to Rp268 trillion, a Rp67 trillion (≈$3.8 billion) trim, in the name of “budget efficiency.” Two weeks later, Reuters reported the National Nutrition Agency was weighing another Rp40–50 trillion cut, with fewer kitchens and a refocused list of beneficiaries.

Cutting your own flagship program’s budget is politically expensive — which is precisely why rating agencies read it as a genuine signal, not lip service.

And the first-half numbers suggest it's more than talk: state revenue grew +21.4% year-on-year (tax collection +24.6%, helped by the new Coretax system), the primary balance posted a Rp85.1 trillion surplus, and the first-half deficit came in smaller than last year's (0.76% vs 0.84% of GDP) — with the Finance Minister saying the full-year deficit "can still be pushed lower."

Okay, but what if the worst actually happens?

Let’s play out the nightmare scenario properly, because this is where the social media misses.

To actually become “junk” in a way that matters, Indonesia doesn’t need one downgrade. It needs two downgrades each from at least two agencies — because the big global bond indices classify a country using the middle rating of the three. One agency getting cold feet changes almost nothing mechanically.

And about that scary phrase you’ve seen by social media fear mongerering — “forced selling.”

The fear is that index funds would be required to dump Indonesian bonds the moment we lose investment grade. We went and checked the actual index rulebooks. Three facts:

• The largest pool of foreign money in Indonesian government bonds tracks an emerging-market index (JPMorgan’s GBI-EM) that has no rating requirement at all. Junk-rated Brazil and South Africa sit in it today. Nobody there is forced to sell anything.

• The index with the strictest rating rules (FTSE’s world government bond index) — Indonesia isn’t in it. You can’t be kicked out of a club you never joined.

• The one index that would matter (Bloomberg Global Aggregate) only ejects a country when two of the three agencies rate it junk — which is exactly why the two-step, two-agency math above matters.

Meanwhile, foreign investors hold only about 13% of Indonesian government bonds today, down from 39% at the peak in 2017-2019. The sellers, bluntly, have mostly already left. The buyers on the other side — local banks, insurers, pension funds, and Bank Indonesia — have absorbed everything foreigners have thrown at them for two years.

So where would a real downgrade actually hurt? Two places. First, state-owned companies: Pertamina’s and PLN’s ratings are chained to the government’s (agencies call this the “sovereign ceiling” — a company generally can’t be rated higher than its own government). Sovereign goes junk, they go junk, and their dollar borrowing costs jump. Second, the rupiah, through the one channel no rulebook can protect: confidence.

(And to be clear — the stock market has no rating rule at all. The separate scare you’ve read about, MSCI possibly demoting Indonesia from Emerging to Frontier market, is a different story with a different rulebook and a November deadline. Related mood, unrelated mechanism. Our friend Erik Hartanto has written a full analysis of that one: Will Indonesia get demoted to Frontier?)

What actually happened to countries that fell to junk

This is the part that changed how we think about the whole thing. Since 2015, four big emerging markets have lost their investment grade: Brazil (2015-16), Turkey (2016-17), South Africa (2017-2020), and Colombia (2021). We pulled the market data around each downgrade. The same pattern shows up every single time:

The crash happens before the downgrade. Not after.

• Brazil lost investment grade in September 2015, after its currency had already fallen 33% and its stock market had been sliding for over a year. The market bottomed in January 2016 — before the last agency (Moody’s) even pulled the trigger — and then rallied nearly 40% that year.

• South Africa dodged the final bullet for three years. When Moody’s finally cut it to junk in March 2020, bonds rallied within days. Everyone had seen it coming for years. It was fully priced.

• Colombia is the closest cousin to Indonesia’s situation: solid economy, fiscal slippage after COVID, a failed tax reform. When S&P and Fitch cut it to junk in 2021, the market reaction was a shrug — its bonds had been trading at junk prices long before, and the big EM index never ejected it. Stocks were higher a year later.

Three lessons, and they’re remarkably consistent: markets sniff out downgrades months in advance (credit markets start pricing them roughly 90 days early, per academic studies); the official announcement often lands near the bottom, because by then the fear has nowhere left to go; and the real damage in every case came from the underlying fundamentals — recession, politics, commodity crashes — not from the rating action itself. The downgrade is the thermometer, not the fever.

And here’s the test that matters for an investor: what happened if you bought on the very day the last investment-grade rating was taken away — the moment of maximum bad news — and simply held for one year? Measured in US dollars, so currency collapses can’t hide anywhere:

Approximate figures, measured with US-listed country ETFs in USD: EWZ (Brazil), EZA (South Africa), TUR (Turkey), COLO (Colombia) — 12 months from the date the last investment-grade rating was lost, rounded. Honest caveats: Turkey’s gains were later wiped out by the 2018 lira crisis; Colombia’s negative year includes the mid-2022 election selloff.

Three of the four delivered positive dollar returns — one of them spectacular — to whoever bought at the moment of maximum pessimism — not because junk is good news, but because by downgrade day the bad news had been priced in for months.

And one more fact that makes the point even sharper. None of these four countries has ever regained its investment grade — Brazil is now a full decade into junk territory, South Africa and Turkey close behind, Colombia five years. The countries that did eventually claw their way back needed years of reform: South Korea took about two years after the Asian crisis, Russia three, Greece thirteen, and Indonesia itself fourteen (junked in 1997, restored in 2011). Sit with the asymmetry: the ratings stayed down for a decade or more, while the markets bottomed within months. Ratings move in decades. Prices move in months. That gap is the whole story.

Nobody posts this on Instagram: Indonesia is already priced like a crisis

If markets move before ratings do, a fair question is: how much fear is already in Indonesian prices right now?

Here’s one way to measure it. Take Indonesia’s “too big to fail” companies — the biggest banks and the household names — and compare how the market values them today against the two worst crises of the past twenty years: the 2008 Global Financial Crisis and COVID in 2020.

A quick tool note: the cleanest yardstick here is price-to-book (P/B) — what you pay for each rupiah of a company’s net assets. (Price-to-earnings gets distorted in crises, because profits collapse and make the ratio look artificially high — so we deliberately use P/B throughout this table.)

Valuations for 2008 and 2020 taken around the trough of each crisis; “today” from Stockbit Key Stats as of July 11, 2026.

One honest caveat before you read too much into any single row: this table ignores company-specific fundamentals. Some of these discounts are deserved. UNVR is the clearest example — its ROE and profit growth have been declining for roughly a decade, so its de-rating from 56.8x is not pure fear; part of it is the market correctly repricing a weakening business. The same logic applies, in smaller doses, to several other names. Treat this table as a sensing tool for how much pessimism is embedded in the market as a whole — not as a list of fifteen bargains. Whether any individual stock is actually cheap still requires bottom-up work on the business itself.

Sit with this for a second. Every single one of the fifteen large-caps above is cheaper today than it was during COVID. Twelve of the fifteen are cheaper than during the global financial crisis of 2008 — a moment when the world’s banking system was genuinely collapsing.

No downgrade has happened. Indonesia is still rated investment grade by all three agencies, still growing at 5%, still running a nearly balanced current account. Yet the market has already marked its blue chips down to prices last seen when the global financial system was on fire. Whatever a downgrade is supposed to do to prices — a lot of it appears to be in there already.

What the market’s own insurance price says

One more sanity check, and it’s our favorite because it can’t be spun: the price of insurance on Indonesian government debt.

There’s an instrument called a CDS (credit default swap) — think of it as an insurance premium that big investors pay to protect themselves if a government fails to pay its debt. The riskier the market thinks a country is, the higher the premium. It’s the closest thing to an honest, real-money opinion poll on default risk.

Countries that are rated junk — Brazil, South Africa, Turkey in their post-downgrade years — typically pay premiums of 200 basis points or more. Indonesia’s premium today: about 91. Even at the peak of this year’s panic in March, it touched just 101 — roughly half the level Indonesia itself hit during the 2013 taper tantrum (~285) and COVID (~290), both times when the premium spiked briefly and came right back down.

In plain language: the people with the most money on the line are pricing Indonesia as a normal BBB country having a rough year — not as a junk candidate.

Probable Outcomes

Time to put numbers on it, with the honesty that these are estimates, not prophecy:

The single most likely bad outcome — a one-notch downgrade — would leave Indonesia exactly where Colombia, Brazil, and South Africa were years before their junk moments: still investment grade, with time and levers to fix things. And if the Colombia playbook holds, much of that scenario is already sitting in today’s prices.

Dates and numbers worth noting

• S&P’s scheduled review — resolved. On July 13, 2026, S&P affirmed BBB/A-2 with a Stable outlook and called the fiscal strains temporary. The bear case needed S&P to join the other two at Negative — it didn’t. Attention now shifts to the next scheduled Moody’s and Fitch dates.

• The 2026 budget deficit vs. the 3%-of-GDP legal cap. The government’s own revised outlook says 2.85%. The IMF projects 3.05%. This is the single most explicit trigger the agencies have named.

• How much of the bond market Bank Indonesia ends up owning. It already holds roughly a quarter of tradable government bonds. Escalation here is the reddest of red flags in the agencies’ models.

• MSCI’s November decision on Emerging vs. Frontier — different rulebook, same confidence channel.

• The CDS premium. If it climbs past 150–200 and stays there, the market has changed its mind about everything we wrote above. That’s the honest kill-switch on this thesis.

The bottom line

The narrative racing around social media — “Indonesia is about to become junk” — skips about four steps of a process that is written down, regulated, and scheduled a year in advance — and which, outside of war-, default-, or coup-level shocks, has historically been slower and less dramatic than the panic that precedes it.

Could Indonesia eventually lose its investment grade? Yes — roughly a 5 - 10% chance over the next two years, by our estimate, and the watchlist above tells you exactly what would change our mind. But history’s most consistent lesson about these episodes is uncomfortable for panic-sellers: by the time the downgrade becomes official, the fear has usually peaked, the prices have usually bottomed, and the people who sold into the panic have usually handed their shares to the people who read the rulebook.

Truth be told, fear is already at crisis levels.

The rulebook, the history, and the market’s own insurance prices are not.

Sources & references

Rulebooks & regulation (primary sources)

• Regulation (EU) No 462/2013 (CRA III), Article 8a — sovereign rating calendars, publication timing, and deviation requirements: EUR-Lex · ESMA interactive rulebook, Art. 8a

• ESMA, Questions and Answers on the CRA Regulation (ESMA33-5-87) — guidance on calendar deviations: PDF

• S&P Global Ratings, Ratings Definitions — official definitions of Outlook (≥1-in-3 over ~2 years) and CreditWatch (≥1-in-2 within ~90 days): spglobal.com/ratings

• Moody’s, Rating Symbols and Definitions — Outlook and Watchlist definitions: ratings.moodys.com

• Fitch Ratings, Sovereign Rating Criteria — Sovereign Rating Model pillar weights (governance ~53.7%): fitchratings.com/criteria/sovereigns

• Index rulebooks: J.P. Morgan GBI-EM (no rating requirement), FTSE World Government Bond Index (rating floor; Indonesia not a member), Bloomberg Global Aggregate (middle rating of the three; ejection requires two agencies at junk) — per each provider’s published index methodology.

Rating actions & history

• S&P Global Ratings — Indonesia Ratings Affirmed At ‘BBB/A-2’; Outlook Stable (July 13, 2026): press release · coverage: The Jakarta Post · IDNFinancials — JCI +1.92% on the news

• Turkey 2016 off-calendar action: Bloomberg — S&P cuts Turkey credit rating, Jul 20, 2016

• Russia 2022 multi-notch cuts: Bloomberg — Russia cut six levels to junk by Fitch, Mar 2022 · The National — S&P cuts Russia to CCC−, Mar 2022

• Brazil (2015–16), South Africa (2017–2020), Turkey (2016–17), Colombia (2021) downgrade timelines: agency press releases and contemporary Bloomberg/Reuters coverage.

Indonesia fiscal & policy

• MBG budget cut Rp335T → Rp268T: Jakarta Globe

• Potential further Rp40–50T cut: Reuters via TradingView

• H1 2026 APBN realization (revenue +21.4% YoY, primary surplus Rp85.1T, deficit 0.76% of GDP): Stockbit Snips

Market data

• P/B valuations (”today”, as of Jul 11, 2026): Stockbit Key Stats; 2008/2020 troughs from historical financial statements and price data.

• Post-downgrade 12-month USD returns measured with US-listed country ETFs: EWZ (Brazil), EZA (South Africa), TUR (Turkey), COLO (Colombia; the same fund formerly traded as GXG — full price history under COLO).

• Indonesia 5Y USD CDS levels (≈91 bps today; ~101 at the March 2026 peak; ~285/~290 during the 2013 taper tantrum and COVID-2020): market data.

• MSCI Emerging vs Frontier review context: Erik Hartanto — Will Indonesia get demoted to Frontier?

All data as of July 11–12, 2026 unless stated otherwise.

Disclaimer: Everything in this post is my personal opinion, written for educational purposes. It is not financial advice, and nothing here is a recommendation to buy, sell, or hold any security — or to hire or fire any particular advisor or fund manager. Track records, including the ones discussed here, do not guarantee future results. Please do your own research and consult a licensed professional before making investment decisions. And no, one good blog post is not a track record either.

In December 1989, Pete watched his favourite team lost to Crsytal Palace at Old Trafford. The manager from Aberdeen seemed promising at the start when he was signed to manage the club. But after 3 years being in charge, results didn’t show.

Pete decided that he has had enough of this manager. And he put up a banner demanding the club to sack the manager below.

And of course, the manager is none other than Sir Alex Ferguson.

I couldn’t imagine if they actually went on to sack him. My childhood would probably be destroyed without Cristiano Ronaldo, Paul Scholes, Rio Ferdinand, Wayne Rooney and so many other man utd star players who won so many trophies in the decades that follow.

But to be fair to Pete, I understand how he was measuring Sir Alex. At that time, Man Utd was the club of Sir Matt Busby. Five league titles in the 50s and 60s. The Busby Babes. The first English club to lift the European Cup, in 1968. That was the bar at Old Trafford — and by 1989, United hadn't won the league in over two decades.

Would you have sacked him?

Be honest. Because after understanding the context as such, I would at the very least have considered it. So Pete is definitely not out of his mind. He probably just had the wrong sample size. And the wrong benchmark. Sound familiar?

Investing has the exact same disease

We do this to investors constantly. Someone posts +62% in a year and the group chat crowns them a genius. A fund underperforms for six quarters and clients pull their money. A friend's portfolio beats yours in 2025 and you quietly wonder if your entire approach is wrong.

And we anchor on golden eras too, just like the Old Trafford’s most faithful fans. The investor who made 40% in the 2021 bull run would be tempted to judge every year after against that number.

Let me make the parallel with football explicit, because it's not only serving a fun analogy — it's the same mathematical problem. The reason I opened with football at all is that somehow, in football, we all intuitively get this.

You wouldn't go to Manchester United today and ask for $300K weekly wages after you scored ONE beautiful bicycle kick against Jordan Pickford (England’s goalie). Everyone — the club, the fans, probably even your parents — can see that one moment of brilliance is not a career.

Yet in investing, one +62% screenshot in a group chat and we hand out exactly those wages: our trust, our money, sometimes our life savings.

Worse, in investing that one bicycle kick comes with a business model. A couple of multibagger screenshots and suddenly you have the license to sell ridiculously priced investment courses — screenshots that conveniently leave out every item that would describe your true skill.

• The losing positions.

• The size of the bet.

• The risk taken.

• The years before and after.

It is also somehow intuitive to understand that in football, every single match result contains randomness. A deflected shot. A wrongly disallowed goal. The opposition striker having the game of his life. The better team loses all the time.

Investing is identical. There is a degree of randomness baked into every investment outcome at a point in time. The stock you bought went up — was that your thesis playing out, or a flood of liquidity lifting everything? The fund that beat the index this year — genuinely insightful, or one lucky concentrated bet? At any single point in time, skill and luck can produce the exact same looking number. You cannot tell them apart from one outcome alone.

Which means that if you evaluate an investor over a short window, you are not necessarily seeing skill. This is because you could be measuring an outcome from pure randomness.

So the natural question: how short is short? And how long is long enough?

A quarter is noise. A year is a single draw from the distribution. Even three years can be one uninterrupted bull run, which I believe, is the least informative environment there is. Here football actually has it easier: a manager gets 38 data points every season. An investor's true "season" — a full market cycle, from euphoria to panic and back can take years to complete.

And that’s the real answer. The minimum honest sample is not a number of years but at least one full trip through a good market and a bad one. In practice that usually means at least 3 years. Not because five is magic, but because that’s roughly how long the market takes to hand out both exams.

Why both? Because there’s a second problem, one almost everyone misses: in investing, the score alone is not the score.

Shape of returns

In The Most Important Thing, Howard Marks has a chapter called “Adding Value” that explains clearly how people can evaluate investors.

He sketches four types of investors, along two dimensions: how aggressive their style is, and whether they actually have skill. It’s worth drawing out, because once you see the quadrant, you can never unsee it:

Here’s the punchline of the quadrant: the left column is not adding anything. The aggressive investor without skill isn’t bold, he’s just turned the dial up. The defensive one without skill isn’t prudent, he’s just turned the dial down. In both cases the market is doing all the work, and their results are just the market’s results passed through a volume knob.

Skill only becomes apparent on the right column. And notice what both right-column investors have in common: their good years and bad years are not symmetrical.

Howard Marks compresses it into one line:

“The performance of investors who add value is asymmetrical. The percentage of the market’s gain they capture is higher than the percentage of loss they suffer.”

Let me make that concrete with numbers, because “asymmetry” is abstract until you see it.

Suppose the market goes up 20% in good years and drops 20% in bad ones.

Investor A returns: +30% and −30%.

Investor B returns: +25% and −10%.

Look at Investor A. Impressive on the way up! Probably there’s a multibagger stock in his portfolio that he could screenshot to claim that he’s a good investor. But if you consider his performance during bad years, he also sees 150% of the market loss.

That’s the top-left box: no skill, just a dial.

Investor B captures 125% of the upside but only 50% of the downside.

That gap — between his up-capture and his down-capture — is skill. It’s the only place skill can reliably be seen.

So when we say skill is a shape, it is not the height of any single year’s return, but the relationship between the good years and the bad years across the whole record. A +40% year, on its own, cannot tell you whether you’re looking at Investor A or Investor B. You need the pair.

For many, the bad year is the exam

This is why, counterintuitively, the most informative moment in an investor’s track record is not their best year. It’s their worst one.

Bull markets grade everyone an A. When the whole market is up 30%, the skilled and the reckless are indistinguishable — in fact, the reckless usually look better, because recklessness is rewarded on the way up.

Then a 2008 arrives. Or a March 2020. Or a black swan nobody modelled.

The crisis year is the single clearest picture of skill you will ever get, because it’s the one year where the market isn’t doing the work for anyone. The investor who was up 40% and then down 60% was never skilled — you just hadn’t seen the second half of the shape yet. The investor who captured most of the rally and only a fraction of the crash? That asymmetry is nearly impossible to fake.

So what do you actually do with this?

None of this means you should lower your standards. Quite the opposite.

You want high standards when you work with people, especially people who sees your money. Think about how you hire. Before anyone joins your team, there’s a set of criteria and a set of deal breakers. You don’t hand someone the job because they had one great interview, and you don’t reject them because they stumbled on one question. You assess the things that actually predict whether they’ll do the job well.

Evaluating an investor deserves the same rigour.

So here are the four criteria I’d actually have, whether you’re evaluating a fund manager, an advisor, a finfluencer with a screenshot, or your own portfolio.

How long is the sample? One year is one sample drawn. Anything under a full market cycle is more like an audition, not a track record. Ferguson needed four years before the evidence turned. Your judgment of an investment approach deserves at least that much patience.

What happened in the worst year? Don’t ask for the best return. Ask for the worst one, and what the market did that same year. This single question filters out more noise than any other.

What risk was taken to get the return? Two portfolios that both returned 15% are not equal if one was concentrated in speculative small-caps and the other held boring cash-generating businesses. The return you can see; the risk you have to ask about.

How do they measure against you? Measure their performance against your own. If you could do better yourself — honestly, over the same period, with real money at stake — why bother having an advisor or a fund manager at all?

One warning about this test though: we are often biased graders of our own performance. We remember the wins vividly, quietly dismiss the losses, and prioritise looking good over actual CAGR. Ask someone their portfolio return and you’ll usually get their best year; ask for the full audited number and the room becomes silent.

The good news is there’s a non-biased way to do it, and it’s not complicated. Pull your own account statements. Account for every top-up and withdrawal — money you added is not return, no matter how good it feels watching the balance grow. Construct your Net Asset Value over time, the same way a fund would. Then compute the actual CAGR of your portfolio. Not the CAGR of your favourite position. The whole portfolio, cash drag and losers included.

I wanna do this but I don't know how

If that number beats the track record of the advisor or fund manager you’re evaluating, then hiring them makes less sense — unless what you’re really buying is time, so you can focus on something else altogether. (Which, by the way, is a perfectly legitimate reason. Just be honest that it’s the reason.)

But here’s the thing about skipping this exercise and grading yourself from memory: sooner or later, it does its owner (you) a disservice. Inflating your own scorecard doesn’t harm the advisor you dismissed or the fund you never joined. It really will not harm anyone but yourself — you’ll keep managing money you shouldn’t be managing, benchmarked against a track record that never existed.

This is, incidentally, why we built Recompound around long-horizon accountability rather than quarterly performance assertions. When your advisor’s incentive is tied to your outcomes over years. The asymmetry stops being a nice idea in a book and becomes the actual goals in place.

The banner guy at Old Trafford wasn’t stupid. He just judged a 26-year story on a 3-year sample.

If someone in your circle is currently crowning (or crucifying) an investor based on one year of returns, perhaps this article could be useful 😉. It might save them from a costly mistake.

Cheers!

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Chris Williamson posted a video about life unteachable lessons. These are lessons he defines as obvious lessons (basic b*tch) that people from generations before us have warned us about. Yet almost always, we refuse to pay attention to them. As a matter of fact, we are so adamant that these lessons will not apply to us that we have to learn them through our own experiences first hand. In the end, it becomes a bitter pill to swallow once they are learned.

I’d say that the texture of his essay is complete because they are not about the lessons themselves, but it is about our psychology in viewing them before we experience them and after we experience them.

Before we experience these lessons, we will think to ourselves and proclaim to the world:

This is not going to apply to me. I am different. I am special.
My background is different.

After we experience these lessons, we will broadcast our learning in the grandest of manner saying to people how important it is based on your experience. Yet we will be met with a wall. Only a handful will probably truly pay heed. And the rest will go on their ways.

But why? Perhaps it is because the lessons are trite. So trite that I cringe reading them. Here are some of them:

• Money alone won’t make you happy

• Fame won’t give you self worth

• You should see your parents more

• It’s perfectly OK to cut toxic people out of your life

• Worrying is not improving your performance

• All your fears are a waste of time

• You chase the beautiful woman or handsome man not because you love them, but because they are physically attractive and hard to get

• and so on.

Cringe isn’t it?

Well, investing is a subset of life.

And in this essay, I am going to repeat some investing unteachable lessons. These are the lessons that at the start of your investing journey, you will often hear from more experienced investors. But because you have not experienced investing yourself, you would almost always think that:

This is not going to apply to me. I am different. I am special
I know myself well.

How do I know this? Because this is what I feel when I first started investing. These advice are so commonly given by great legendary investors yet they are usually not taken seriously at all. I always say to myself:

Watch me invest while being able to stay detached from my emotions, while being able to always make the right call, while being able to be truly independent in my thinking, while not being able to be envious of other people’s returns and so on.

And then I would go on and make those mistakes myself 🙂

The craziest part is that here I am writing about those mistakes “warning” people about how important it is to learn from them and to not commit to them. Even when I know for myself that people are going to not take seriously. It is truly a mind blow isn’t it?

The pattern that I am seeing is that people will experience one or two lessons. Then cast blame on some external factor:

• macroeconomy

• government

• geopolitical factors

Then they will proclaim that I am not the problem, these other guys/factors are causing my investments to fail. Because of that, I can no longer invest.

So here it goes. The lessons are trite, you have been warned.

Lesson number 0. Psychology in investing is important.

It is blatantly obvious that the same analysis of an investment opportunity, could lead to ultimately very different behavior in terms of buying or selling positions. That ultimately will also affect investment returns. Most spend most of their time on the analytical framework, which is reasonable. But not enough time and resource is being spent to study and then optimise behavior that would be ideal for us to achieve consistent investment success.

Why people don’t take it seriously:

I think because people tend to hate to admit that they don’t have a handle on themselves, that they don’t know about themselves and they are not fully a master of themselves. While in actual fact, knowing and mastering yourself is one of the most difficult things that one could do.

Keeping a promise to yourself is hard. Not lying to yourself is hard. Staying accountable to yourself is hard. Knowing how we feel in the moment is hard. Knowing your true preference vs others’ expectations masquerading as your own passion is hard. These things are so hard that Sun Tzu opened the Art of War with them: know yourself.

But somehow, we don’t want others to see that we are struggling with ourselves and therefore we choose to ignore this lesson altogether.

Lesson number 1. Greed will make you buy the top.

Every legendary investor tells you the same thing: be fearful when others are greedy, be greedy when others are fearful. Buffett said it, but he inherited it from decades of markets repeating the same story. The quote now is everywhere in the investment space. It even gets used to support an investor’s confirmation bias, or hope strategy.

Why people don’t take it seriously:

Perhaps people become greedy anyways because it does not feel like it. It feels more like rare phenomenon. An exception to the rule. “this time is actually different, we are colonising Saturn, we are mining in the moon, intrinsic value does not matter now.”

I believe nobody sits at their desk near the top of a bull run thinking “I am being greedy right now.”

It only reveals itself as greed later on in hindsight, once the position is down 60% and staring at the screen asking what you were thinking then.

Lesson number 2. Fear will make you sell the bottom.

The mirror image of lesson one, and somehow just as unteachable. Don’t sell in a panic, the market always recovers, time in the market beats timing the market. You’ve seen 1998, 2008, 2020, 2022 all bounce back eventually. You understand, you’ve seen the charts. And you think to yourself: “I will not sell my positions during a market downturn”

And then the drawdown actually happens to your money, and every rational thing you knew evaporates. Howard Marks calls the endpoint of this capitulation.

Why people don’t take it seriously:

I think it is because fear disguises itself as prudence. “I am just protecting what I have left” sounds responsible. It sounds like risk management. It only reveals itself, in hindsight, as the single worst decision of the cycle. A missed opportunity.

When else will I get to buy that asset again at that bargain. 10 years later the opportunity comes and most will sell at the panic again. That is just how it is.

Lesson number 3. Ego won’t let you admit you’re wrong.

You buy a position. It goes against you. Instead of selling, you average down — not because the math says to, but because admitting the mistake feels like admitting you were the mistake, in front of the people you built the ego to impress.

That’s the trap: the ego built to win the social game is exactly what makes you worse at the real one. Investing rewards humility — updating your view the moment the facts change. Ego needs to be right. Investing needs you to become right and strangely by admitting when you weren’t.

Why people don’t take it seriously:

Perhaps it is because ego is invisible to the person carrying it. Nobody thinks “I am too proud to admit this trade is bad.” They think “I still believe in the thesis” even though the data says otherwise.

Lesson number 4. Envy will make you abandon what works.

You’re doing fine. Your process is sound. Your returns are reasonable given your risk tolerance. 15 - 20% per year for 4 straight years. Not crazy good, but not bad at all.

Then a friend on a group chat posted: +62% YTD. And also a chart of his investment performance. You then think to yourself, what am I doing wrong? My numbers look small compared to this guy. All of the sudden your good strategy feels inadequate.

Howard Marks puts it bluntly that envy causes investors to abandon sound approach in favor of chasing that new method some else is using. Not necessarily because the new thing is better. But because someone else made more money in the moment.

Why people don’t take it seriously:

Perhaps because most people never register it as a trade-off. Chasing someone else’s return doesn’t feel like giving anything up — it feels like a going for a better outcome.

What it actually is, is a swap. Optimising for staying in the game and optimising for looking good this quarter are not the same objective, and most people never notice they’ve switched from one to the other.

We are very well aware that value investing might not produce the best returns in this quarter. But when it does, there will be plenty who want to switch strategies to do value investing.

Bonus lesson: compounding is slow and underestimated

This lesson is exceptional because it is very, very unteachable. Even when I repeatedly say: we tend to overestimate the things we can achieve in a week, but underestimate the things we can achieve in 5 years — I still commit to trying to achieve too much, and worry if I haven’t done enough during the week.

The craziest part is I know the maths. I have run the compounding table more times than I can count. I know that flat, unremarkable-looking growth in year one and year two turns into something that looks like a hockey stick by year eight, if you just leave it alone. I’ve read the studies. I’ve made the spreadsheets. And I still catch myself, quietly measuring my progress against a timeline that has no relationship to how compounding actually works.

It’s not a knowledge problem. Nobody fails to compound because they didn’t understand the concept. They fail because understanding a concept and feeling it in your bones on a random Tuesday when nothing seems to be happening are two completely different things.

Closing Remarks

If this essay has allowed you to ruminate some of these hard earned lessons without you actually experiencing them, it has served more than its intended purpose. Sometimes, some things are meant to be learned the hard way, but not always. If you think that this essay would be helpful to anyone in your circle, go on restack or share it.

Cheers!

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This article was originally published in Asian Banking and Finance on 18th of June.

Disclaimer: This article is for informational and educational purposes only and does not constitute financial, investment, or legal advice. It does not take into account your individual circumstances, objectives, or financial situation. Any examples, securities, or indices mentioned are for illustration only and are not recommendations to buy, sell, or hold. Past performance is not indicative of future results. You should conduct your own research and consult a licensed financial advisor before making any investment decision. The author and publisher accept no liability for actions taken based on this content.

One of Warren Buffett’s most popular pieces of advice for amateur investors is to buy a low-cost index fund and forget about it.

In the United States, it is a reasonable thing to say. The S&P 500 has compounded steadily for decades, the market is genuinely efficient, and the costs of trying to beat it usually exceed the rewards. Even Berkshire Hathaway, which is run by professionals, has trailed the index over the past 10 to 15 years; the gap has widened noticeably since the rise of the mega-cap tech rally.

Well, drop the same advice into Indonesia, and it quietly fails.

Over the past five years, Indonesia’s real GDP has grown by about 18%. Over the same window, LQ45, the country’s most-watched index, has gone nowhere. A retail investor who bought the index in Jakarta has not captured the country’s economic growth. They have captured the dysfunctions of a market whose structure has not meaningfully changed for decades.

Buying the index does not eliminate the risk of investing. It only eliminates the risk of underperforming against the index. When the index itself goes nowhere, a portfolio that comprises the index follows suit.

The inefficient market is the point
Indonesia, like most emerging markets out there, runs on an inefficient market. Price manipulation remains common, whilst regulatory enforcement still requires improvement. Liquidity is thin compared to developed peers.

As a further illuminating example, Indonesia’s Finance Minister Purbaya recently declined to give fiscal incentives to the Indonesian Stock Exchange because the culture of “goreng-menggoreng” (artificially engineering stock prices) is still everywhere. Indonesia today has more in common with the American capital markets of the 1970s than today’s S&P 500.

Howard Marks, co-chairman of Oaktree Capital (managing well over US$100b), built his career exactly here. He delved into the US high-yield bond market when it was illiquid, ignored, and full of mispricings. It was so inefficient that people called it “junk bonds.”

His core lesson has aged well: Successful long-term investing comes down to buying an asset for less than what it is worth. The more inefficient a market is, the more often prices stray from underlying value, and the more room there is for active and disciplined work to outperform.

The information-era paradox
There is a generation of working professionals across Southeast Asia who, for the first time, know they should be investing. They have brokerage apps. They have podcasts. They have a thousand influencers and an unlimited supply of artificial intelligence (AI) chatbots willing to explain compounding.

What they do not have is a practical framework that rewards that very knowledge.

AI, in particular, is tempting but flawed. The economics of consumer AI products favour engagement, not returns.

The model is built to keep you typing and putting in prompts further. For example, if you feed it a hypothesis you already believe, it will help you justify it. True, you can ask AI to spit out a bunch of bear cases for you to be wary about. Or a list of unknowns. But you largely still need to build the conviction yourself. It is how their business model is designed. The more users engage, the more money they make.

So, you end up with a unique group of investors: People who understand the philosophy of long-term ownership through investments, who have easy access to investment instruments their parents never did, and who are well aware from firsthand experience that “investing in the index” is not a good enough solution to all this.

As a result, they get funnelled into either expensive, over-regulated mutual funds or do-it-yourself trading apps that wear them down emotionally during every drawdown.

Why the culture will evolve differently
Morgan Housel makes the point in The Psychology of Money: Our behaviour with money is shaped less by abstract theory than by the monetary events we — or our societies — have lived through. The collective memory of Weimar hyperinflation helped create a persistent preference for gold. Today, private German households hold more physical gold than the Bundesbank itself.

Indonesians and their neighbours also have unique formative experiences: The 1997–98 Asian financial crisis, repeated bank failures, multiple rupiah meltdowns, and a class of individuals burned by “blue-chip” stocks. That is the structural feature of Southeast Asian societies that rarely gets discussed in investing talks: We live in low-trust environments, and we will continue to do so for the foreseeable future.

That fact reshapes the whole map. In the United States, retail investing culture evolved around self-service, Vanguard, Schwab, ETFs, and robo-advisors. The implicit assumption was that the institution would behave, the disclosures would be honest, and the customer could safely automate their decisions.

Again, in Indonesia and most of its neighbours, that trust assumption does not hold. Customers have learned, often the hard way, that handing assets to an opaque counterparty is a real risk.

So, the services that require the least possible trust, full custody by the customer, transparent positions, lean cost structures, and no opacity around fees, are the ones that will scale. That is the inverse of how Western retail investing developed, and it is why the local solution will not look like a copy-paste of Robinhood or Vanguard.

What the local solution probably looks like
If the developed-market answer is to automate everything and trust the index, the Southeast Asian answer likely points the other way. It might look more like a small, human-mediated layer over a market that genuinely needs active interpretation. Lean enough to be affordable. Transparent enough that the customer never has to take anyone’s word for it. Disciplined enough to keep clients invested through the drawdowns the index itself will not protect them from.

Buffett was most probably right for his market. The interesting question for Southeast Asia is not whether to copy him. It is what to build instead after understanding the monetary and investment context in the society that we live in as it is.

We’ll find out soon enough.

This timely article is probably most important one I’ve written this year—maybe in years. If I don’t get it all right, I look forward to your comments and corrections. If you believe it can be of use to improve quality of your circle, please share it. As always, they are my opinion and they are not to be construed as financial advice.

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One morning, Hendra was the proudest man in Jakarta. He sipped his morning coffee and started his day swiftly.

He held an envelope in his jacket pocket. It contains the enrolment deposit for his daughter’s first semester at university. Hendra is a simple man. He works at Astra Graphia as a salesperson, selling Fuji Film printers to offices (mostly companies within the Astra Group as well). But his salary was enough for him to save for his daughter’s education.

A little every month, for years until his daughter got accepted to Universitas Indonesia. What a moment. He never made it to university himself, but his sacrifice and hard days in the office would soon pay off to something great in the future, through the life of his daughter.

He took the route he always took, down Jalan Gajah Mada toward Glodok. The same shophouses he had passed 10,000 times — the gold sellers, the electronics counters, the hardware stalls run by the same families for three generations.

Except today there was a gridlock. He sensed something wrong when he smelled a distinct smell of smoke on the streets.

He initially was still calm, but he grew restless as he overheard people from afar screaming and shouting.

Hendra decided to leave his car. As he started brisk walking towards the bank, he saw from a distance that Glodok Plaza was alight. Further down, the old market was alight. The street lamps had come on early, because the afternoon had gone black with smoke.

Hendra was delusional, maybe the bank is still open. He proceeded forward through a group of strangers carrying televisions and rice cookers and whatever they could carry. Only to finally learn that the bank building he wanted to pay a visit was literally on fire.

And the envelope was still in his pocket, worth 9 months of his salary at Astra Graphia. When he saw that the building was lit on fire, he finally realised that his plan had to wait. He must quickly go back home. He’d need to at the very least make sure that his daughter is safe.

He ran.

That is not the opening of a film.

That is May 1998, reconstructed as faithfully as I can through the eyes of one ordinary man who set out to do nothing more than deposit his daughter’s university tuition fee. Across the city that week, more than a thousand people would die — most of them burned, hundreds of them inside a single shopping centre in Klender.

And here is the cruelty that adds to it. Lets say Hendra made it out, got his daughter and a single bag to the airport to flee the country. The money had saved up already betrayed him too. Rupiah had collapsed from around 2,500 to the dollar to as much as 16,000. Even the escape was a loss.

The banks you trusted, gone

Start with the most reputable bank in the country.

It was owned by a mega business empire Indonesia, run by the tycoon sitting close to Soeharto himself. If any bank on earth appeared untouchable, it was this one. This is the bank the middle class handed their salaries to without thinking further.

During the riots, it suffered a violent run. In a matter of days, deposits collapsed from around Rp56.8 trillion to Rp34 trillion — and 122 of its branches were burned and damaged. It didn’t survive and the state had to step in to park it inside Badan Penyehatan Perbankan Nasional (BPPN), the bailout agency.

The deal to salvage the bank was messy and topsy turvy. But less than 30 years later, the bank went on to be the most valuable public company by market cap in Indonesia.

That company was BCA.

The state owned banks did not have it any better. There were four of them that went under:

• Bank Bumi Daya

• Bank Dagang Negara

• Bank Exim

• Bapindo

They were so broken they couldn’t survive on their own. They were fused together into a single entity. And again, less than 30 years later, it became the largest bank in Indonesia by assets.

You know that entity today as Bank Mandiri.

Let me stress this once and for all, because this is easy to skim past. These banks did not have a “rough quarter”, or “slower-than-expected growth”, or “NIM compression” or “made by government to channel money to villages”.

They died.

And the rescue?

The years after the fires didn’t restore anyone’s faith either.

The dead banks were swept into BPPN, the bailout agency, and the government had political will to save them. It just cost a fortune which was on the order of 50 to 60% of GDP to recapitalise banks whose books were garbage. Yeah, the initial capital for the government to setup Danantara is about 1.4% of GDP today. That number looks cute compared to the amount in proportion they had to spend to rescue the banks.

Was the intent good? Yes of course. Because you do not want a country with no functioning banks.

But how about the execution? Predictably, there was corruption involved.

You’d think every rupiah back then went purely toward saving the dead banks?

Well, the most famous example is the Bank Bali scandal. A businessman named Djoko Tjandra engineered a disputed “cessie” (debt-claim) deal that ended with Rp904.6 billion of public money being paid out through Bank Bali — funds tied to the very bailout that was meant to be stabilising the system.

Let me be careful here and stay strictly with what the courts and the press have established. Tjandra was acquitted at first, then convicted on review by the Supreme Court — sentenced to two years and ordered to forfeit roughly Rp546 billion to the state. The day before the ruling, he left the country. Here is how The Jakarta Post headlined it when he was finally caught, eleven years later:

“Indonesia brings graft fugitive Djoko Tjandra back from Malaysia.” — The Jakarta Post, 31 July 2020

So now put yourself back in Hendra’s shoes, assuming he made it home safely that day. He watched the violence, he watched his savings evaporate, he watched the most reputable bank in the country collapse. To put sprinkles onto the ice cream sundae, he then watched the rescue itself mired in a corruption scandal.

What more can you ask. I mean if I were to be Hendra, I might walk away and never trust a bank in Indonesia ever again. Let alone, becoming a minority shareholder in one. That would be max insanity.

His feelings would have been justified. In 1998, the skeptic was the smartest person in the room.

And then the world kept testing it

Fast forward ten years, 2008. We saw The Global Financial Crisis.

If you’d lived through 1998, perhaps your reaction was completely reasonable: Ah, sudahlah. Indonesia is finished. There is no chance this economy weathers a crisis of this size, not with this many corruption cases sitting at the top.

And the markets did get hit. IHSG went from 2,830 to 1,113 that October. The Rupiah weakened from Rp 9,000 to Rp 12,400 at its worst in November 2008.

How about BCA?

While banks in the US were imploding, BCA’s lending slowed but it remained profitable. It booked around Rp3.3 trillion in just the first half of 2009. And Indonesia grew +4.6% in 2009 — the third-fastest in the entire G20, one of only a handful of major economies on earth that didn’t shrink.

Fast forward 12 years later after the Global Financial Crisis

The economy is literally shut down. People can’t leave their homes. The country posts its first recession since 1998 — GDP −2.07%.

Surely this is the one that finally breaks the banks in Indonesia. Well quite the opposite. BCA printed money.

BCA’s net profit for 2020: Rp27.1 trillion.

Yes, that was a dip, down about 5% from Rp28.6 trillion in 2019. The bank deliberately parked enormous provisions against the loans it restructured for struggling borrowers. But read the number again. In the year the entire economy was switched off, BCA still earned twenty-seven trillion rupiah. It didn’t lose money. It didn’t wobble. It was certainly quite far from dying.

It earned slightly less for one year, then went straight back to compounding:

• 2021: Rp31.4 trillion

• 2022: Rp40.7 trillion

• 2023: Rp48.6 trillion

In three years it went from a COVID “low” of Rp27T to nearly Rp49T which is an all-time record. The share price followed, printing high after high (right up until the 2025 drawdown I wrote about in To those holding big banks — but that’s a story about price and sentiment, not about the business underneath it).

So by now, something genuinely strange had settled in. Owning banks was no longer the reckless move. It had become the prudent one. Virtually everyone — advisors, respected investors, your disciplined uncle — was urging you to hold banks as a core equity position.

How did that happen?

Let us sit with the seismic size of this shift for a second.

Picture a population that was traumatised into distrusting banks. They watched them collapse and they also watched the bailout get robbed by greedy elites. Yet they somehow turned into a population that treats banks as the bedrock of Indonesia’s capital market.

And this isn’t dumb money talking itself into a story.

If we take a look who actually owns BCA (you can take a look at the daftar pemegang saham). You have:

• Norway’s sovereign wealth fund is in there

• big global index and pension funds

• among others

They are not a random retail you’d find on a discord channel that broadcasts price predictions every minute.

Here’s the part where I think is rarely discussed.

While everyone was, correctly, furious about the corruption and the looting and the Djoko Tjandras of the world, something boring and durable was being built in the background.

They are real instruments:

• LPS / deposit insurance (2004) — the backstop Hendra didn’t have.

• Independent central bank (1999) — no more BLBI-style political liquidity hosing.

• Caps on connected lending (~10% of capital) — the big one; it outlaws the exact thing that killed the banks (owners lending to themselves).

• Higher capital floors + consolidation + Basel buffers — why CAR now sits north of 20%.

• OJK (2013) — dedicated bank watchdog.

• Crisis playbook (2016, the KSSK committee) — coordinated handling instead of a panicked scramble.

These things are not trendy to be discussed. The robbery and scandal make headlines, but I see that the rebuild happens in silence over decades.

And that’s the trap ladies and gentlemen. The bad news is loud but the repair is almost always slow and quiet. If you listen to the loud volume, you’d come to the conclusion that the country is ending even when it is quietly becoming the very thing foreign sovereign funds want to own for the long term.

I am not from La La Land

In this economy and bad sentiment today, you are probably thinking that Toby is starting a patriotic singalong. Not really.

Is the government free of corrupt officials? Of course not. You could take the most recent one — the Makan Bergizi Gratis (MBG) or free nutritious meals program. Just days ago, in June 2026, the Attorney General’s Office arrested the former head of the National Nutrition Agency and two of his deputies as suspects. The scheme prosecutors describe is too familiar: rig the vetting portal so affiliated foundations win the kitchen contracts, then mark up the procurement and pocket the difference.

Just like a normal taxpayer, I am absolutely furious that my tax money is being spent to feed these dreadful creatures instead of being spent to feed school children who can’t afford quality meals.

So no, I am not saying that corruption has been solved. Corruption is still being committed and the people who do it should be prosecuted. Full stop.

But here is a question that matters equally. Is it smart to expect government to eradicate corruption completely?

No, of course not. No matter how good the system gets, no matter how qualified the official, there will always be someone, somewhere, who does the awful thing. Even in developed nations!

So yeah, it is reasonable to disappointed, angry and upset about the corruption that inevitably happens. What I think is not reasonable is to:

• look at a SELL INDONESIA headlines

• listen to gossips at your tongkrongan on how bad some officials are conducting their affairs

• read too many Telegram groups’ negative opinions that contain too much logical gaps mixed in with unofficial news or rumors

• and many other ways you get your information from

and then conclude that the country is about to go bankrupt, or collapse back to what it was in 1998.

But can it go back to 1998 though?

Well of course it can. There is always that tail end possibility.

But can you reach financial independence by winning the lottery? Yes you can.

Do you stop work when you know that you can win the lottery? Well I hope not 🙂

So the question to ask is: are you a realist or a cynic?

When you see the next scary headline — another scandal, another half-baked policy implemented at a large scale — ask yourself that question honestly.

If you’re a realist, that’s healthy. I believe that people should treat every new government regulation, every new program, with suspicion, so that we stay critical of what they actually do. Pressure them in whatever means or capacity we have as a lawful citizen.

Contribute, deliver good work and teach good values by real example, to demonstrate that the bad examples we see in the media are just below our standards.

But being a realist is not the same as being a cynic. And the line between them is thinner than people think.

A cynic is someone who can only criticise — who assumes that whatever anyone does, it must end badly.

And here’s the uncomfortable truth: being cynical is much, much easier than being a realist. The realist still has to weigh the evidence. The cynic has already decided to believe in just the negative things. Any new information about some negativity just reinforces their beliefs without much critical thinking.

Any positive news? It’s fake bro, if they are a cynic.

Think about it like religion. Expecting no official to ever be corrupt is like expecting no priest to ever be caught in a scandal. If that’s your standard, you will be disappointed.

The cynic’s response is to stop going to church entirely. To declare the whole thing hypocritical and walk away. There is no point in religion if we can’t trust religious leaders who commit awful scandals.

But I strongly disagree with that. Practising religious values and actually living them is still a virtuous, worthwhile thing to do, no matter how many individuals fall short of them.

If we can see that so clearly with religion, why is it so hard to see it with our government?

The banks that failed the population in 1998 are the banks the world wants to own in 2026. Like it or not, both things are true. And the herculean effort to save them from the gutters seems to not be for nothing in the longer run.

There are other long term projects that are running now in Indonesia. Danantara, IKN, MBG and so on. Your realism in the form of eye balls, critical thinking and constructive discourse in good faith is very much needed. Your cynicism can probably take a back seat.

Perhaps corrupt officials will never ever be eradicated from this planet. But also perhaps if you play your cards right, future generations might thank your contribution in ways you will never be able to imagine.

Cheers.

If you feel that there has been too much cynicism in your circle, share this post, or restack it. Let’s build more critical thinkers around here.

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Disclaimer: This article is intended for educational and informational purposes only. Nothing in it constitutes — and it should not be construed as — financial, investment, tax, or legal advice, nor as an offer, solicitation, or recommendation to buy, sell, or hold any security or currency. Specific companies and tickers mentioned below (including the banks and blue chips in the tables) are used purely to illustrate a point, not as endorsements or recommendations.

Figures such as index levels, exchange rates, and valuation multiples move constantly and may be out of date by the time you read this. Any forward-looking statements are opinions, not predictions. All investing carries risk, including the possible loss of capital, and past performance never guarantees future results. Please do your own research, and consider speaking with a licensed professional before making any decision. Reader’s discretion is advised.

If you find it useful, restack or share this article to your circle :)

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We normally keep our monthly letters between us and our clients. This month we are making an exception, because the question landing in our WhatsApp groups is the same question landing in every Indonesian investor’s group chat right now. So we are publishing our answer for everyone.

First, what just happened. Since mid-May 2026, the broad market has fallen roughly -12%. On 5 June alone, the IHSG dropped -4% in a single day. Measured from the January 2026 peak, the index is now down about -39%. This is no longer an ordinary correction. By depth, it now sits alongside the worst Indonesian sell-offs of the last three decades.

We will not pretend this is comfortable. It is not. But we have been here before — not this exact scene, but this exact feeling.

The question everyone is asking

“I don’t really trust the government. So why keep holding, and not sell everything now?”

It is a fair question, and we want to answer it directly rather than wave it away. Distrust of policy is reasonable; many of you have lived through enough market cycles to have good reason for doubt. But notice that “I don’t trust the government” and “therefore I should sell everything now” are two different statements. The first is a worldview. The second is a market-timing decision — and market timing is a far harder, far less forgiving game than most people realize.

Below are five reasons we think panic-selling at this level is not the wise move.

Reason 1 — Nobody can time the exact bottom, and the news flow is the worst possible guide

We say this as people who watch this market every single day: we do not know where or when the bottom is, and neither does anyone shouting on social media. Kita bukan dewa. If we are honest, the loudest market “signals” — viral posts, doom threads, confident predictions — have historically been a contra-indicator, not a guide.

You don’t have to take this on faith. In early 2025, sentiment reached what we can only call absolute madness — the moment Danantara was first formed and Trump announced his tariffs, the consensus was that Indonesia was uninvestable. That precise moment of maximum skepticism marked the absolute bottom of that cycle. Those who sold into the panic locked in the loss. Those who held, and those who added, recovered and then some.

Right on cue: “Sell Indonesia” hits the front pages

On 5 June, the Straits Times ran a Bloomberg piece titled “’Sell Indonesia’ sweeps trading desks as Prabowo tightens grip”. Foreign investors are now openly giving up on Indonesia — what traders call capitulation. A detail worth noting: the fund manager quoted in the piece, by his own account, exited Indonesia back in 2024 — the bearish view is two years old. Only the megaphone is new. And that is how this genre works: the “investors flee” story gets written after the fall, once the gloomy narrative is safe to print.

The timing of these headlines tells us a lot. We went back through every Indonesian crisis since 2008 and matched the loudest foreign "giving-up" headline against the actual market bottom:

Read the middle column again. In all five resolved episodes, the loudest foreign capitulation printed within roughly three weeks of the bottom — sometimes just before it, sometimes just after. And a buyer on the very day the doom article ran — not at the perfect low — was up between +14% and +70% one year later, five out of five times. The lag is the signal: these stories need a large drawdown to already exist before they can be written. By the time they are printed, the sellers are usually almost done selling.

One honest caveat, because we promise no cherry-picking: 1998 is the counterexample — the year the apocalyptic coverage was right, the economy contracted ~13%, and buying the headlines was a value trap. The 1998 headlines read exactly like the 2026 ones; the difference sat in the fundamentals underneath, never in the headlines. Which is exactly why Reasons 2 and 3 below matter more than any base rate. (And on the specific fear that this is “the precursor of 1998”: the leading indicator of a 1998-style collapse is not the exchange rate — it is whether a “dollar bomb” of unhedged foreign-currency exposure sits on the banks’ balance sheets. FY2025 Net Open Positions: BBCA ~0.1%, BBNI 1.1%, BMRI 1.8%, BBRI 2.5% of capital, against a 20% regulatory cap, with industry capital adequacy around 26% and bad loans near 2%. The bomb is not on the balance sheets this time. Toby wrote the full analysis in The Dollar Bomb — worth ten minutes if 1998 is the fear keeping you up at night.)

A live example — beware of the hoaxes circulating right now

We wish this were hypothetical. It is not. In the past days, an edited screenshot of an MSCI document has been spreading on social media and group chats, claiming that Indonesia has been reclassified to MSCI Frontier Markets. It looks official. It is fake.

The authentic document — the MSCI Global Investable Market Indexes Methodology, May 2026 (page 100 of 192, available directly at msci.com) — lists Indonesia exactly where it has been: under Emerging Markets, alongside China, India, Korea and Taiwan. MSCI has made no announcement changing Indonesia’s market classification. The fabricated version even carries a document title MSCI does not use and strips the page numbering.

Think about what this means: someone created a fake official-looking document to spread panic in a falling market. Whatever their motive — driving prices lower to buy cheaper, or simply chasing clicks — the people who sold because of that screenshot turned a hoax into their own permanent loss. Before acting on any explosive claim, check the primary source. Stay safe out there.

Reason 2 — The domestic economy is still genuinely strong

This is the part the market narrative is currently ignoring. Strip away the headlines and look at what Indonesians actually bought, produced, and exported in the first four months of 2026. The real economy is not in crisis. It is growing.

We know some of you don’t trust government statistics right now. Fair enough. So notice what we did: none of the numbers below come from the government. Car sales come from GAIKINDO, the carmakers’ own association. Motorcycle sales come from AISI, the manufacturers’ association. The PMI is compiled by S&P Global, a private American firm. And the banking data comes from BCA’s own published monthly figures. These are private-sector bodies counting their own units sold and their own loans booked, with no incentive to flatter anyone.

Car sales (GAIKINDO, YTD Jan–Apr 2026 vs 2025):

Motorcycle sales (AISI, YTD Jan–Apr 2026 vs 2025):

Manufacturing is steady: Indonesia's S&P Global Manufacturing PMI rose to 50.0 in May 2026 from April's 49.1, with new orders expanding for a second straight month at the fastest pace since February. There is genuine pressure — export orders are softer on the Middle East conflict, and input-cost inflation is high — but this is an economy operating at, not below, capacity.

Commodities, which drive a large share of Indonesia's export earnings, are rising, not collapsing. The Indonesian Coal Index has turned firmly upward: GAR 65 is back to $127/ton and the lower grades have rallied hard off their mid-2025 lows (GAR 50 from ~$55 to $86).

And the bellwether of Indonesian banking is fine. BCA’s own 4M2026 figures show loans +4.5%, third-party funds +8.6%, operating profit +3.4%, and an annualized ROE of roughly 24.5% — essentially flat versus a year ago. The share price is down sharply; the bank’s earnings power is not.

Put plainly: the prices are behaving like a crisis. The economy is not. That gap is exactly where patient capital gets paid.

Reason 3 — Valuations are now back to GFC-2008 and Covid-2020 levels

Before the numbers, the simplest way to think about what a stock actually is.

Imagine someone offers you a house. Its fair value — the land and the building — is around Rp2 billion, and you have checked that it reliably rents out for Rp100 million a year. But the owner is trapped by debt and must sell fast, so he offers it to you for Rp1 billion. Would you take it? Of course. Now imagine that the day after you buy, a neighbour with an identical house panic-sells his for Rp900 million.

Do you rush to dump yours too — just because someone else sold cheaper, and maybe the next neighbour will sell at Rp700 million? Of course not. Your house still rents for Rp100 million a year. The falling sticker price next door changed nothing about what your house earns you.

A stock is exactly that house. It is a small ownership slice of a real business that earns real money. When the share price falls but the business keeps earning — keeps lending, selling, mining, paying dividends — a lower price is not a danger, it is a discount. This is the whole of value investing and nothing more: work out what a business is worth, and only buy when the price sits well below that.

So the only question that matters is how cheap that “rent” has become. This is the most striking finding of the month, and it surprised even us.

We pulled the full history for Indonesia’s largest, most systemically important “too big to fail” companies and compared today’s valuations against the two worst crises in living memory: the 2008 Global Financial Crisis and the 2020 Covid crash. Across the 25 biggest blue chips we measured, the aggregate price-to-book is now ~1.3x (at 5 Jun 2026 closing prices) — below the 2.0x at the end of 2008 and the 2.6x at the end of 2020. It is even below the price-to-book at the worst daily closes of both crises (~1.6x). On book value, these blue chips are cheaper today than they were at the bottom of 2009 and the bottom of 2020.

Here is the company-by-company picture:

Look at the banks — all 2026 multiples at 5 Jun 2026 closing prices. BBCA at 2.4x book versus 4.5x at end-2020. BBRI at 1.2x versus 2.6x. BBNI below book at 0.8x. Indofood at 3.5x earnings and 0.7x book — cheaper than at either crisis. These are not failing businesses. They are the same dominant franchises they were six months ago, now on sale.

We will be honest about the one exception in the table: Telkom (TLKM) is not cheaper than its crisis multiples on earnings — its Telkomsel profit has structurally declined, and we show it precisely because we are not cherry-picking. Cheap usually has a reason; the job is to separate the temporarily-cheap from the permanently-impaired. For most of this basket, we believe the cheapness is the market’s mood, not the businesses’ fundamentals.

“But 2008 and 2020 were global crises. This one is domestic!”

True — but it means less than it sounds. No crisis ever happens the same way twice. 2008 was a banking collapse imported from Wall Street. 2020 was a virus nobody had ever traded through. 1998 was a currency and political implosion. 2025 was a tariff shock plus a sovereign-wealth-fund scare. Each one had a brand-new shape, a brand-new reason why “this time it’s different and therefore unrecoverable” — that novelty is precisely what makes a crisis a crisis. If it looked exactly like the previous one, nobody would panic, and prices would never get this cheap.

What repeats is not the cause. What repeats is the arithmetic: dominant businesses, still earning, priced at or below book value — and the eventual reversion once fear runs out of sellers.

“You haven’t addressed the rupiah! USDIDR is past 18,000!”

No — and here history repeats itself very consistently. Look at every past time the rupiah weakened rapidly. 2008: USDIDR spiked +39% (to ~12,650) at the very same time the stock market crashed — then gave back -29% as the recovery took hold. 2013 taper tantrum: +26%, then -8% back. 2015: +27%, then -12% back. 2020 Covid: +21% in weeks (to ~16,500), then -16% back within months. The same shape, four times in a row: the currency spikes together with the equity bottom, then recovers swiftly.

Rapid rupiah depreciation is a byproduct of foreign capital rushing out — the same selling that crushes stock prices — not a precursor of some second crisis still waiting to happen. Historically, the moment the currency is falling fastest has been close to the moment of maximum fear, and therefore close to the moment of maximum opportunity in equities. We watch the rupiah — it matters for importers and for inflation — but we read today's 18,000 print as the thermometer of the panic, not the forecast of the next one.

Reason 4 — After crises settle, the market has always recovered

We are not asking you to take this on optimism. We are asking you to look at the record. Here is every major Indonesian market drawdown since 1997, the depth of each, and what happened afterward:

Twelve crises. Every single resolved one was followed by a recovery — and the deepest drawdowns produced the largest rebounds (GFC: -61% then +441%; AFC: -66% then +310%). We cannot promise this time follows the pattern, and we won’t. But the burden of proof sits with the person arguing “this time the recovery never comes” — not with the person who has three decades of Indonesian market history on their side.

Reason 5 — Even a frontier downgrade is already in the price

One fear deserves to be addressed head-on, because it is the engine of this whole sell-off: will MSCI demote Indonesia to Frontier Markets? Honestly — we think that is the wrong question. Whether the downgrade happens is MSCI’s decision, on MSCI’s timeline, and nobody on your feed knows it. The investable question is different: has today’s price already assumed the downgrade happens?

First, for the record: we think the odds of demotion are lower than the panic implies, because the exchange is not sitting still. In the space of months, BEI and OJK have delivered exactly the reforms MSCI asked for: disclosure of every shareholder above 1%, the minimum free float raised from 7.5% to 15% (compliance by March 2027–2029), and a Hong Kong-style High Shareholding Concentration list that names tightly-held companies publicly. MSCI’s May review kept Indonesia on hold, under restrictions — a yellow card, not a red card — while it assessed these reforms.

But let’s be conservative and assume the worst-case scenario anyway — with numbers, not feelings. Take Bank Mandiri (BMRI), one of Indonesia’s largest banks, as an example.

One of the textbook ways to ask “what multiple is fair for a company?” is the Gordon Growth Model:

In words: r is the yearly return an investor demands before bothering to own the stock. Its base is the 6.9% government bond yield — the risk-free alternative — and note that 6.9% is itself already a pessimistic number: it carries this year’s panic inside it. On top of that base, shareholders demand an extra premium: roughly the 4.3 points that even safe US equities command over bonds, plus another ~2.4 points for Indonesia-specific risk (derived from Indonesia’s sovereign default spread of ~1.8 points at its Baa2 rating, scaled up by ~1.3x because equities swing harder than bonds). Indonesia’s equity risk premium therefore sits near 6.7%, and the total hurdle at 13.6%.

Even against that already-pessimistic bar, with BMRI paying out 80% of earnings and growing at a deliberately harsh 3% — the bank compounded earnings at double digits over the past decade, and its retained profits alone fund ~4% — the fair multiple is 7.5x earnings.

BMRI actually trades at 5.8x (price as of 5 Jun 2026). Run the formula backwards: what hurdle rate would make 5.8x fair?

Today’s price is only “fair” if you demand a 16.6% return from Indonesian equities, permanently. That is three full percentage points of additional, permanent risk silently baked into the price. How big is three points? A BI rate hike is 0.25. A one-notch sovereign downgrade moves the risk premium by roughly half a point. The taper tantrum and Covid — real crises — lifted Indonesia’s equity risk premium by one to one-and-a-half points at their worst. Three points is not “more bad news”; it is a re-categorization — the market silently moving Indonesia into a different risk class altogether. And the only candidate event of that size on the table is the frontier downgrade. The fear is not hypothetical; it is literally the number inside the price.

Which leads to the fork: if the downgrade never comes, today’s prices are pure panic, and panic gets repriced. If it does come, today’s prices already contain it — the bomb has already gone off, and the market is trading at post-explosion prices. And while everyone waits, these companies keep paying: BMRI’s dividend yield alone is already in double digits — around 12% at the 5 Jun 2026 price, based on last year’s dividend.

“But won’t the forced selling cause another leg down?”

A sharp objection: the fear may be priced in, but the mechanical selling is not. Index funds do not sell on fear — they sell on the effective rebalancing date, when the rule says they must. We saw this in May: the MSCI changes were announced on 13 May, yet the roughly US$1.1 billion (~Rp19.5 trillion) of passive outflows hit on the 30 May effective date — and prices still moved on that day, even though everyone had known for two weeks. So yes: if a downgrade eventually happens, there will be forced selling that has not happened yet. Another leg down from that flow is a real possibility. Three things keep it in perspective.

First, the downgrade is a tail risk, not the base case — the exchange is visibly fixing what MSCI complained about, and reclassification is a slow, multi-review process. What the market is doing today is charging a near-certain discount for an unlikely event.

Second, even in that scenario the seller is limited. After the May purge, Indonesia is already down to roughly 0.5% of the EM index — the passive money that can still be forced out is a known, finite amount: a one-time seller with a deadline, not a permanent change in the businesses. The companies do not know they got downgraded. Index membership changes the price of a stock, not the business behind it.

Third, run the simple math on what a flow-driven crash actually does to a long-term owner. Imagine a stock at 1,000 paying a 100 dividend — a 10% yield. Forced selling cuts the price to 500: same business, same dividend, now a 20% yield — and every rupiah of dividend reinvested buys twice the earnings it bought before. A seller who must dump a cash-generating asset for non-business reasons is handing value to whoever buys it. The cost is a temporary drawdown; the gain is a permanently higher return on every rupiah invested at those prices.

Does any of this actually work? The honest scoreboard

You might reasonably say: these reasons are nice, but a philosophy is only as good as its behavior in a storm. Fair. So here is ours, in this storm.

Measured from the February 2026 peak, our clients’ overall portfolio drawdown is around -15% as of 5 June 2026, versus the broad market at roughly -40% — helped greatly by the dividends the companies kept paying through the chaos. (You can see the up-to-date comparison in the Portfolio Resilience section at www.recompound.id, updated daily. Past performance does not guarantee future results.)

In a market that fell -40% from its peak, holding the decline to well under half of that is not luck; it is the direct output of buying good businesses with a margin of safety and sizing every position so the bear case is survivable. And remember the arithmetic of holes: -15% needs +18% to climb out; -40% needs +64%. The portfolio that falls less needs far less heroism to recover.

Price swings are the entrance fee of long-term investing. The real risk is losing money permanently — not a price that is temporarily down.

So what should you do?

This is a public article, so we will not tell you to buy or sell anything. What we can do is leave you with the questions we ask ourselves, and the math that goes with them.

“Shouldn’t I just convert everything to USD?” Think through the mathematics of that switch. It means selling Indonesian businesses at 1.3x book — cheaper than the bottoms of 2009 and 2020 — in order to buy a currency at 18,000 (5 Jun 2026), after it has already risen +10.8% in a year. That is selling low and buying high, simultaneously. And as we showed in Reason 3, the rupiah’s sharpest weakness has historically arrived together with the equity bottom and then reversed. Currency diversification as a long-term structural decision is perfectly sensible — made calmly, in normal times. As a crisis response, it has usually meant locking in both sides of the loss at once.

“What’s the point of buying cheap when there’s no catalyst in sight?” The answer is counterintuitive: prices are only this cheap because no catalyst is visible. The moment a catalyst becomes obvious to everyone, the price has already moved and the discount is gone. 2025 was the textbook case: at the peak of Danantara skepticism and the Trump tariffs, no catalyst was in sight anywhere — that was precisely the bottom. Only after the market recovered did everyone busy themselves explaining what the “catalyst” had been. The market moves first; the narrative catches up later.

“And while waiting?” You are paid to wait. At roughly 8x earnings (5 Jun 2026 prices), the blue-chip basket’s earnings yield is about 12% against a ~6.5% government bond, and BBCA alone now pays a ~6.5% dividend yield — essentially the risk-free rate, with growth on top. Even in the skeptics’ sideways scenario, profits keep coming and dividends keep landing. Those who insist on visible signs of improvement will buy after the recovery, not before it.

What we will not do — and what we’d gently suggest nobody does — is panic-sell quality businesses into a fearful market to chase a bottom nobody can see. That is the one move with a reliable track record: of destroying long-term returns.

Closing

Look — we are humans too. We read the same headlines you do, every day, all day. Absorbing this much negative energy is draining, and we will not pretend otherwise.

But we have been doing this for four years — through the Covid hangover, the Russia-Ukraine war, the Danantara panic, the Trump tariffs, the Iran war, and now this. What carried us through every single one was not bold talk, and certainly not an ability to predict the future. It was discipline. Buy good businesses below their value, size them so the bear case is survivable, collect the dividends, and refuse — absolutely refuse — to panic-sell the bottoms or FOMO-buy the tops.

Tough times don’t last. Tough people do.

Cheers!

References

1. Bloomberg / The Straits Times (2026). “’Sell Indonesia’ sweeps trading desks as Prabowo tightens grip.” 5 June 2026. [The capitulation headline discussed in Reason 1.]

2. MSCI (2026). MSCI Global Investable Market Indexes Methodology, May 2026, p. 100. msci.com. [Indonesia’s authentic Emerging Markets classification; the basis for debunking the circulating hoax screenshot.]

3. GAIKINDO (2026). Indonesian automotive wholesales, retail, production and trade statistics, Jan–Apr 2026. gaikindo.or.id.

4. AISI (2026). Indonesian motorcycle domestic and export statistics, Jan–Apr 2026. aisi.or.id.

5. S&P Global (2026). Indonesia Manufacturing PMI, May 2026 release (50.0, up from 49.1).

6. Bank Central Asia (2026). Published monthly financial figures, 4M2026. [Loans +4.5%, third-party funds +8.6%, operating profit +3.4%, annualized ROE ~24.5%.]

7. Indomine (2026). Indonesian Coal Index by grade, Sep 2024 – Jun 2026. [GAR 65 at $127/ton; GAR 50 from ~$55 to $86.]

8. Stockbit; Recompound analysis (2026). Blue-chip P/E and P/B comparison, year-end 2008 and 2020 vs 5 June 2026.

9. Limanto, T. (2026). The Dollar Bomb. Recompound Blog, 5 June 2026. https://blog.recompound.id/p/the-dollar-bomb [Net Open Position analysis: why 2026’s banks are not 1998’s banks.]

10. Bloomberg via Free Malaysia Today (2026). BEI/OJK market reforms: >1% shareholder disclosure, 15% minimum free float, High Shareholding Concentration list. 3 April 2026.

11. Damodaran, A. (2026). Country risk premiums and sovereign default spreads. [Basis for the ~6.7% Indonesia equity risk premium used in the Gordon Growth exercise.]

Disclaimer: This article is intended for educational and informational purposes only. Nothing in it constitutes — and it should not be construed as — financial, investment, tax, or legal advice, nor as an offer, solicitation, or recommendation to buy, sell, hold, or convert any security, currency, or financial product. This includes any specific companies named above (and their tickers) and any discussion of the rupiah versus the US dollar; these are used purely to illustrate a point, not as endorsements or recommendations.

The information here is drawn from sources we believe to be reliable as of the date of writing, but we make no warranty as to its accuracy or completeness. Figures such as exchange rates, financial ratios, and fiscal numbers move constantly and may be out of date by the time you read this. Any forward-looking statements are opinions, not predictions.

All investing carries risk, including the possible loss of capital, and past performance is never a guarantee of future results. Please do your own research, and consider speaking with a licensed professional before making any decision. Ultimately, your financial decisions are your own.

Reader’s discretion is advised. Hope it is useful in some way :)

I was sitting down in one of my favorite bank branches while waiting my queue number. You know running errands in a bank like a proper adult ;) When it was my turn and I spoke to the teller about my banking needs, I asked them a number of questions regarding the behaviour of other patrons.

In light of the recent weakening Rupiah against the Dollar, I went straight to ask them

“How do you comfort people who are worried about Rupiah depreciation? People usually associate current levels of depreciation like what happened in the past in 1998 specifically.”

The response was

“ummm.. but it is very different now and then. Nowadays the fundamentals is stronger. and there are more regulation that is in place for the banks now.”

I wasn’t very satisfied with the answer. Because I could tell that people are not going to be comforted with that statement. Also, the teller went on telling me that there they have been busy facilitating transactions of people buying the Dollar lately. They could serve around 6 - 7 people in one branch making big dollar buys. So I could tell that such statement does not comfort people.

The fear is real and contagious

Here is the part I have to be upfront about. I did not remember 1998 (I was only 2 years old). So I am not going to present to people who did and create a debate arguing that their fear is irrational. Especially at that time people watched their savings evaporate and their city burn.

You do not argue someone out of a memory like that.

But the elephant on the room is not about the fear per se. It is about the contagiousness of the fear in the age of social media. A comedian Ronny Chieng has a major rant here summarised in a 90 seconds YouTube shorts:

No matter how ridiculous and funny this video might sound, it is painting a real picture of my experience with many boomers. For the first time in human history, we have a class of individuals who are no longer that productive anymore having access to so much information especially when last time (before the internet was around), information was the biggest edge.

Nowadays, too much information slows you down. It causes people to overthink, be indecisive and be worried about making wrong decisions. But we can’t blame the boomers for this because for most of their lives, information is something that allows them to gain a competitive edge. So it is very counterintuitive to unlearn that and it is very hard to have them be aware of their unhealthy levels of information diet.

Which probably makes the very feeling of fear very contagious

Robert Shiller wrote a whole book about exactly this — Narrative Economics — and his core claim is that economic stories spread like diseases. “Economic narratives,” he writes, “follow the same pattern as the spread of disease.” A story does not have to be true to move an economy. It only has to be infectious. And the 1998 story is beautifully infectious: a frightening number, a remembered trauma to pin it to, and a single simple instruction:

Rupiah is going to collapse so buy dollars, now.

But a story cannot spread that easily if there is no element of truth to it. And it is definitely not my style to make a strawman argument and then attempt to beat it down to say that these people are not rational.

So let me steelman the fear properly

If there are further points that you’d like to add, please add them in for my consideration. It might be an open discussion of some sort as well. The idea is not to dismiss it but it is also not to be consumed by it alive. We want to lean into the fear and see it for what it is. I think that is a much productive use of our time, to make household economic decisions on our daily lives.

Start with the budget (APBN)

In 2025, Indonesia ran a deficit of about 2.92% of GDP. This deficit is seen as the widest outside pandemic years and it is very close to the 3% ceiling. For context, the 3% was written into law after the last crisis in 98.

Plus, tax revenue came in roughly 8% under target in 2025.

So it follows that if government revenue does not hit target, we could expect that budget deficit could grow further surpassing the 3% ceiling. In fact, the government has put that 3% law into review. To me, that’s a clear sign that fiscal anchor is starting to drift.

Danantara

Now we have a new player as well which is designed as a sovereign vehicle to drive economic growth but their reporting is still quite unclear to this date.

• What’s their economics like

• What’s their balance sheet like

• Are they profitable, etc

So it is entirely possible that the liabilities could be accumulating off on the side. But not only that the government is running fiscal deficit, we are also seeing contentious policies that are being passed by the government. Such as free nutritious meals (MBG) that is highly controversial, arguing that this would exacerbate the deficit situation considerably.

I mean how it is not a fiscal monster? The budget in 2025 was Rp71tn and in 2026, it will be up to Rp335tn.

This is still being done despite the 3% ceiling limit. And don’t get me started about the unpredictability that the new export policy started. Yes it sounds great on paper, but it is obvious that investors are jittery about the ability for the entity to execute.

IDX

The situation with the stock market isn’t helping much either. Indonesia received a warning from MSCI in January 2026 that it would be downgraded to the frontier market because there was lack of transparency in the stock ownership which causes price engineering to be more rampant.

In response to that, there has been swift transformation in the ruling such as >1% shareholder disclosure rule, 15% free float minimum requirements and so on. But it remains to be seen if such efforts are sufficient to restore investor confidence.

All in all it seems to be like a perfect storm

Put it all together and it does read like the makings of a perfect storm. Every incentive is now lined up for money to leave Indonesia. And a sizeable chunk of the money in our stock market, by value, is in fact, owned by foreigners: locals now own roughly 61% of the equity market, with foreigners near 39%.

That is not nothing and it is a very serious issue of eroding trust. When you put it together, you get a coherent, sober worry: loosening fiscal discipline, money walking out the door, a central bank defending the rupiah, a currency at all-time lows.

So yes, I take all of this seriously in 2026. Now let’s look at how it started last time in 1998.

How it was back then

My parents’ memory of 1998 is the rupiah number. They said that it weakened from around 2,400 to roughly 16,000 against the dollar, with uglier spikes in the worst of the panic. But just like today in 2026, currency was the symptom, not the disease.

What made 1998 catastrophic rather than merely painful was that four crises stacked on top of one another and fed each other:

1. a currency that broke from its zone,

2. a banking system that was rotten with poor oversight,

3. a corporate sector exposed to dollar debt it could not repay,

4. and a government that collapsed politically while trying to manage all three at once.

We can dig deep into all four pillars above but I find it amusing that they are very consistent with the core finding of Carmen Reinhart and Kenneth Rogoff in their book: This Time Is Different: studies eight centuries of financial crises (banking, inflation, currency and sovereign debt).

They mention that banking crises tend to come before sovereign defaults, not after. In their research around their book, they put forth:

“banking crises... often precede or accompany sovereign debt crises. Indeed, we find they help predict them.” The hidden debts that sink a government, they note, often include “private debt that become public... as the crisis unfolds.”

So the order of events matters. The currency didn’t bankrupt the country directly. It blew up the banks, and then the banks blew up the state.

Let me repeat that, because it quietly reframes the whole fear. The leading indicator of a sovereign blowup is likely not the exchange rate. It is the banks. More precisely, it is whether the banks are carrying unhealthy levels of foreign-currency exposure that a falling currency can detonate.

So the honest question is not “what is the rupiah number?” It is “is that dollar bomb sitting on the balance sheets again?”

And the wonderful thing about that question is that, unlike the future of the rupiah, it has an answer you can simply look up in their annual reports.

You nervous? It could be a dollar bomb that explodes you know

Ok let’s take a look that one number which is net open position (NOP).

After 1998, Bank Indonesia introduced a hard cap on the exact thing that killed the banks last time. It is called the Net Open Position (Posisi Devisa Neto). The formula is:

(foreign currency assets - foreign currency liabilities) / bank’s capital

currency assets example:

• banks’ cash position in foreign currency

• banks’ loans given to customers in foreign currency

currency liabilities example:

• banks’ customer deposits in foreign currency

• banks’ debt in foreign currency

In plain language it means how exposed is this bank to a move in the currency.

But why does that matter so much? Think about what happens when a borrower goes bad. If a bank lends to a company and the company defaults, the bank eats the loss — some borrowers always default, and that part is normal.

That’s why we have provisioning so that writing out that debt will not cause liquidity issues. What made 1998 lethal was that the defaults and the currency crash arrived together. Banks had borrowed in dollars and lent in dollars.

When the rupiah collapsed, their borrowers couldn’t pay. Think about it, if you own a business and you take a USD loan, your loan would shoot up overnight because it is in USD but you earn in Rupiah. As a consequence you will default on your loans because your earnings couldn’t keep up with the ballooning debt.

But the banks? They still have to repay the liabilities they take in USD terms too. So they still owe people (depositors) in dollars but they don’t have the money to repay them back. Which ultimately caused banks to be insolvent.

So now we understand why Bank Indonesia caps the Net Open Position. It limits how far a bank's dollar assets and dollar liabilities are allowed to drift apart relative to its capital.

The dangerous side in a crisis is when a bank ends up owing more dollars than it holds: if the rupiah collapses, the value of what it owes balloons faster (USD) than the value of what it holds (Rupiah), and it has to buy dollars at a punishing exchange rate to settle up. This crystallises the loss on its balance sheet. So banks are to keep the gap small, so that loss stays small.

How much does Bank Indonesia allow?

The cap is 20% of capital. The higher the % is, the more vulnerable a bank is towards currency fluctuations. It is now a figure that is heavily monitored. Today it needs to be reported at the end of a working day by law.

Compare that to 1997, when, in the words of a former senior deputy governor of Bank Indonesia, Anwar Nasution, the rules on foreign borrowing “were generally violated” and corporate dollar debt simply “was not recorded.”

I tried digging the NOP numbers back then in 1998 but couldn’t really find a reliable one. Today the figure is as follows:

When we read the data, we see that the most dollar-exposed of the big four, BRI, is running currency risk at about 2.5% of its capital. The rest sits lower — from BCA’s rounding-error 0.1% up to Mandiri’s 1.8%. Industry-wide, bad loans sit a little above 2% and the capital adequacy ratio sits around 26% (roughly three times the global minimum).

If we look at it as it is, these are not 1998’s walking-zombie banks papering over bad loans with creative accounting. They are some of the best-capitalised banks in the region, and they are not holding the bomb.

But none of that makes the rupiah’s weakness fake. A weaker rupiah genuinely hurts importers, dollar-cost borrowers, anyone with bills denominated in foreign currency. That is a real cost, and I won’t wave it away. But it is a completely different from a banking collapse that precedes a sovereign default.

So what do you do with this

I am not going to tell you where the rupiah will go. Nobody can, and a confident “Relax bro, it won’t hit 50,000” is not entirely useful as well. The currency could keep weakening for entirely ordinary reasons — a strong dollar, higher oil prices, money chasing higher yields elsewhere. The fiscal drift I steelmanned earlier is genuinely worth watching.

What I am saying is that “the rupiah is at a record low” and “Indonesia is about to repeat 1998” are two completely different claims. The first is a price. The second is commonly preceded by a banking collapse.

Fortunately, for the second one you can check rather than predict, by reading the balance sheets. As of now, they read clean.

And I guess this is exactly why we do what we do. When your feed is screaming negativity and you are probably tempted to “convert everything to dollars” — at the worst possible exchange rate, paying the spread to the banks and then surrendering your rupiah. Our job is to give you the data and make sure that your decisions are driven by things that you could check and verify.

Because if that fear stops spreading for whatever reason, at the very least you know that you have made your decision without regret.

References

In case you’re interested in reading the materials consulted in writing this article, below are the entry points:

1. Bank Indonesia (2015). Peraturan Bank Indonesia No. 17/5/PBI/2015 — Perubahan Keempat atas PBI No. 5/13/PBI/2003 tentang Posisi Devisa Neto Bank Umum. https://peraturan.bpk.go.id/Details/135521/peraturan-bi-no-175pbi2015-tahun-2015 [The Net Open Position cap of 20% of capital, and the relaxation from 30-minute to end-of-working-day reporting.]

2. Reinhart, C. M. & Rogoff, K. S. (2009). This Time Is Different: Eight Centuries of Financial Folly. Princeton University Press. [The book-length thesis that banking crises and sovereign defaults travel together across history.]

3. Reinhart, C. M. & Rogoff, K. S. (2011). “From Financial Crash to Debt Crisis.” American Economic Review, 101(5), pp. 1676–1706 (NBER Working Paper No. 15795, 2010). https://www.nber.org/system/files/working_papers/w15795/w15795.pdf [Source of the exact quoted lines: “banking crises… often precede or accompany sovereign debt crises. Indeed, we find they help predict them,” and “private debt that become public… as the crisis unfolds.”]

4. Shiller, R. J. (2019). Narrative Economics: How Stories Go Viral and Drive Major Economic Events. Princeton University Press (NBER Working Paper No. 23075). https://www.nber.org/system/files/working_papers/w23075/w23075.pdf [“Economic narratives follow the same pattern as the spread of disease.”]

5. Nasution, A. (2015). “How Indonesia reformed its risky financial sector.” East Asia Forum, 24 April 2015. https://eastasiaforum.org/2015/04/24/how-indonesia-reformed-its-risky-financial-sector/ [Former BI Senior Deputy Governor on 1997–98: rules on foreign borrowing “were generally violated,” corporate dollar debt “was not recorded”; inflation ~58%, rates >80%, GDP −13.1%.]

6. Indonesia Investments. Asian Financial Crisis — Indonesia. https://www.indonesia-investments.com/culture/economy/asian-financial-crisis/item246 [Rupiah ~2,400/USD pre-crisis collapsing to ~16,000; managed band floated from August 1997; 16 banks closed in November 1997 triggering bank runs.]

7. IDNFinancials / Indonesia Stock Exchange (2026). Foreign outflows from Indonesian shares and bonds, 2026. https://www.idnfinancials.com/news/60974/foreign-dump-indonesian-shares-bonds-outflows-at-idr-12-55-trillion [Foreign net selling of Indonesian equities in 2026.]

8. Bloomberg (2026). Indonesia’s fiscal deficit reaches 2.92% of GDP, near legal limit. https://www.bloomberg.com/news/articles/2026-01-08/indonesia-fiscal-deficit-soars-to-2-92-of-gdp-near-legal-limit [2025 budget deficit of 2.92% of GDP, the widest outside the pandemic years.]

9. Bloomberg (2025). Indonesia adds State Finance Law to 2026 legislative priorities. https://www.bloomberg.com/news/articles/2025-09-19/indonesia-adds-state-finance-law-to-2026-legislative-priorities [The 3%-of-GDP deficit cap — set by Law No. 17/2003 after the 1998 crisis — placed under review.]

10. The Diplomat (2026). “Unpacking Indonesia’s 2025 Fiscal Revenue Shortfall.” https://thediplomat.com/2026/01/unpacking-indonesias-2025-fiscal-revenue-shortfall/ [2025 state revenue came in roughly 8% below target.]

11. East Asia Forum (2026). “Indonesia’s fiscal anchor begins to drift.” 15 March 2026. https://eastasiaforum.org/2026/03/15/indonesias-fiscal-anchor-begins-to-drift/ [Danantara’s borrowing sits outside the deficit rule, raising contingent-liability and transparency concerns.]

12. Kompas (2025). “Anggaran MBG Melonjak Jadi Rp 335 Triliun di APBN 2026.” https://money.kompas.com/read/2025/09/24/112056126/anggaran-mbg-melonjak-jadi-rp-335-triliun-di-apbn-2026 [Free Nutritious Meals (MBG) budget rising from Rp71 trillion in 2025 to Rp335 trillion in 2026.]

13. IDNFinancials / Bloomberg (2026). MSCI halts rebalancing; Indonesia risks downgrade to frontier market. https://www.idnfinancials.com/news/60811/msci-halts-rebalancing-indonesia-risks-downgrade-to-frontier-market [January 2026 MSCI warning over share-ownership/free-float transparency; reforms include 1% shareholder disclosure and raising the minimum free float to 15% from 7.5%.]

14. bne IntelliNews (2026). Indonesian rupiah drops to historic low of IDR18,000 per US dollar. https://www.intellinews.com/indonesian-rupiah-drops-to-historic-low-of-idr18-000-per-us-dollar-446678/ [Rupiah at a record low around 18,000/USD, roughly 10% weaker year-on-year.]

15. Annual Reports 2025 — BCA, BNI, Bank Mandiri, BRI. Risk Management / Net Open Position disclosures. [FY2025 Net Open Position ratios: BCA ~0.1%, BNI 1.1%, Bank Mandiri 1.76%, BRI 2.51%; industry CAR ~26%, gross NPL ~2%.]

Disclaimer: story written in this article not a real story. This story is fabricated based on many many calls that I take with potential customers. Also any mention of symbols, ticker or investment instrument is not to be construed as financial advice. This article is for educational purposes only to help readers reflect and see things from a different angle.

In a Gmeet meeting, a potential customer sat on his desk with a blurred background. I could tell from his expression that he was worried. I cordially invite him to share his investment experience. He muttered that he has two main investing portfolio comprising of Indo stocks. One is for long term and the other is for short term.

The idea for the long term portfolio is sound, he would only buy bluechip stocks that are perceived to always go up in price. This makes sense because the companies inside the portfolios are truly well known. Consumer juggernauts all the way to big banks. These aren’t the type of companies that go missing tomorrow.

Then, on the other hand, the short term portfolio is for him to do trades based on market psychology, employing various trading strategies. It tends to contain riskier plays. Often companies that are gossiped to be the next big thing in terms of its price action. The term for this changes depending on which class of investors they are.

Conglo 2025: cacing-cacing naga-naga

Covid 2021: saham pompom

Late 2010s: saham gorengan

1990s-early 2000s: saham bandar

Nowadays in light of the MSCI phenomenon, It is not uncommon at all to see -80%, -60% floating loss of “conglo stocks” that were popular in 2025.

From this, I could tell that most investors already have given up stocks completely. They usually will blame the government and everyone else but themselves about the current predicament. However, there is a small minority who’s brave enough to lean into the fear and take this moment as an opportunity to raise their standards in investing by calling us.

Meanwhile for big banks portfolio is now down 26.2% and the person is usually not too worried because they believe that big banks would grow in the long term. What becomes the point of contention is usually opportunity cost. Is my money working as hard as possible at the current moment? While they wait for the drawdowns to recover.

Now I have seen this a million times

So I thought that this is just the “norm”. Every other professional that I have spoken to over the last two years has the same two buckets (kantong investasi). But to me it is quite confusing.

Why when people have different financial goals, different time horizons, different family context, and so on, somehow converge on the same two buckets, weighted roughly the same way.

And they are smart enough to know that it doesn’t work for most people, perhaps including themselves

For the long term portfolio, they’d know that they are making the dangerous assumption that the price they pay for a share does not matter. The better and more popular the business, the more expensive it gets. And that’s fine by them because they believe that in the long term, the prices of these great companies will always go up. But they also know that when expectations are unmet, the share price could be severely punished. Famous example is Unilever.

Picture this in the mid 2010s, the stock has been rallying for well over a decade (see price chart above). It was championed by brokers, influential people as the stock that is considered evergreen. I still remember how the stock was sold to me personally (I was still in high school back then more than a decade ago).

Broker: Toby, do you know what people would still do during an economic crisis?

Gullible highschooler: What?

Broker: People would still take a shower. So companies selling soap like Unilever will always be relevant. That’s why it is an evergreen stock that will always go up in the long run.

Gullible highschooler: Wow!

Fast forward about 10 years later~

I am not saying that Unilever is a bad company. It is big and massively profitable. It’s just that I bought that company at a huge premium when I started my foray into stock investments. It taught me that you could not blindly buy an asset without caring about its price relative to the value of the company, no matter how good or famous or resilient they are.

For the short term portfolio, the flaw is easier to spot.

It fails the survivorship test

The successful trader on Instagram is a sample of one drawn from a pool of ten thousand. The other 9,999 abandoned their accounts and went back to work. The IG algorithm does not show the ones who went back to work. The trading course teacher does not talk about them. We build our worldview on a curated selection that is, by definition, statistically unrepresentative. And we know this.

The people I’ve met who run these two strategies are intelligent and genuinely knowledgeable. Many of them are doctors, engineers, consultants, founders. If you sat down with them and explained the flaws, they would nod and they will understand the risks of investing in this manner.

Yet they would go back to their portfolio and do the same thing especially at times when the strategy appears to be working.

So why do people want something, but they still do the opposite

Talk to the same people about FIRE. Financial independence, retire early. The movement that explicitly says the goal is freedom from financial obligation. Lower your costs, raise your savings rate, escape the salary trap and live from your investments.

Many of the people in the two-bucket portfolio also love FIRE.

And yet they still want to expose themselves to at least a decade long financial commitment with an uncertain (adjustable) expense that could elevate their future living expenses dramatically.

a.k.a.

They still want to buy a house.

Not just any house.

The house their peers, family, relatives, significant other would approve. These people believe in financial freedom. They want it. But they also sign the largest obligation of their lives, because of a widely held wisdom which is:

properti pasti naik (property will always go up)

Despite the elevated property prices especially high relative to average income earners. Despite the weakening demand. Despite the low yield. Properti pasti naik.

Therefore, they lock themselves up to a huge financial obligation. In their minds, if they need the money suddenly, they could always sell that property. Yet they also know that property is not a liquid asset.

Note: I am not saying that all property investments are bad here. But the kinds that I am hearing certainly is. The people I’ve heard about like to punch way above their pay grade to take up a huge mortgage and commit themselves to a long tenure of financial obligation.

So the puzzle seems to have layers here. Not just in investing in stocks.

I am seeing genuinely smart people making suboptimal decisions when they have rational knowledge that their decisions aren’t optimal. I mean you can agree with me that information is not the bottleneck here.

Even compute and analysis is not. You can ask Claude to make a financial projection for you for your purchase of a recent home. You could estimate your living expense and run simulations having 1, 2 or 3 kids now. If you don’t do it with AI, you could do it with a certified financial planner too. Its no longer expensive nor inaccessible for you to have this knowledge.

So something else is doing the steering of behaviour here.

What an academic says about this

Robert Cialdini is a social psychologist at Arizona State University. He is widely known for the book Influence: The Psychology of Persuasion, has sold millions of copies (hopefully I can sell that many books next time 😝). It is the foundational text on what he calls compliance. On how people behave.

There are many conditions in which people would be “obliged” to behave in a certain way. They are reciprocity, liking, consistency, authority and social proof. His point on social proof finally gave me some sense for what I have been watching all this while.

Cialdini starts with a grim example.

The name was Kitty Genovese in 1964, New York. She was attacked by a man that lasted for more than half an hour, outside her apartment building. The craziest thing is that there were 38 neighbours who saw or heard parts of it from their windows. None of them came down to help Ms Genovese. None of them called the police until it was too late. The journalists who wrote about it framed it as a story about people becoming more individualistic in New York. To be honest, I would probably write the same thing if I were to be the journalist.

But Cialdini does not agree with this. He argues that witnesses were not apathetic. They were reading each others’ action. Each person looked out their window, saw nobody else doing anything, and concluded from that absence: this must not be the kind of emergency that requires my action. The more witnesses there were, the less likely any single person was to act — because each additional silent observer made the social signal of inaction louder.

This case became very famous it earned a name called the bystander effect. When you don’t know that the situation is truly an emergency in public, you’d rather be a bystander and not do anything.

That is what Cialdini means by a behaviour that is driven by social proof. It activates under two specific conditions:

1. uncertainty about what to do,

2. and similarity to the people around you.

The Genovese witnesses had both. They were unsure what they were seeing — was it a domestic dispute, a prank, a real attack? The fact that the event occurred in the evening was a clear smoking gun. They assumed the other watchers were people with judgement roughly like theirs. So they used each other’s inaction as evidence. And Ms Genovese died in the incident.

To me the negative example showcases how powerful this social proof effect is in our behavior.

Another more grim example, we might think that we love our lives. But Cialdini puts forth another example of Jim Jones’s Peoples Temple in Guyana, 1978. Cult members voluntarily commit suicide by consuming poison after they receive the instruction from the leader and after seeing that others oblige. Over 900 people died that day. Many of them watched their neighbours drink first.

If people can kill themselves because of social proof, I’d bet my money that people can buy a house because of social proof 🙂

So here’s what you can observe

Remember that brilliant cousin or university friend you met for dinner the other day? Perhaps they announced that they have just recently purchased a house. An expensive one that is beyond their pay grade at the moment. They say that they take a 20 year mortgage to finance the house and the rates are adjustable after 5 years of instalments.

How do you feel?

Maybe after reading this blogpost you’d feel like:

Naahhh, I don’t want to buy that kinda house. That ain’t me Toby.

But imagine you meeting your parents and they naively ask,

David, when do you plan to buy a house for yourself? You’re not going to rent forever are you?

How would you feel then?

It is a similar innocent question as to when do you plan to have kids? Or when do you plan to get married? They mean well but it is still a loaded question. A question that requires deep thinking and deliberation instead of one that has to be acted upon after seeing your friends’ answers to them.

Stock investments is the same

How would you feel when you know that your smart friends are owning big banks alongside you and DCA-ing S&P500 religiously?

Remember that stock investment has 2 things that social proofs tend to work on really well:

1. Uncertainty

2. Similarity of what people around you do

You very well know that you don’t know what the US president would say or do tomorrow. And today you brush aside his brash actions because your AI stocks are still bringing in acceptable returns.

But what if they stop delivering the returns you’d expect?

How would you feel?

Will you be blaming the US government? Or will you realise that perhaps copying what others are doing at the moment is not the most prudent investment decision?

Most will do the former. A tiny minority will do the latter.

So arming yourself with knowledge is not enough

Social proof is a powerful force and I think that rationality is not a strong enough weapon to overcome it. I believe that combatting conformist thinking requires you to change which signal is closest to you.

Practically, that means three things.

First, get explicit about your own goals on paper, in your own words, before considering anyone else’s opinion. Read them more often than you read your family or friends’ WhatsApp group.

Second, surround yourself with at least one person who is a contrarian, and whose opinion you cannot easily ignore.

The third thing is ask yourself:

“Would I still want to own this thing if nobody knew?”

If the answer to owning something is yes based on your calculations and honest preference, then it is likely a good deal. But if the answer is no; then you probably have to think twice or thrice before pressing that buy button.

It is one thing to buy because you want it for your own interest (be it present or future). And it is a completely different thing for you to buy because you want to fit in.

Knowing the difference helps.

Cheers.