This article is provided for educational and informational purposes only and does not constitute financial, investment, legal, or tax advice, nor an offer or recommendation to buy or sell any security or financial product. The views expressed are those of the author as of the date of publication and may change without notice.

While the data and sources referenced are believed to be reliable and accurate at the time of writing, no representation or warranty is made as to their completeness or accuracy. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal. Before making any investment decision, you should do your own research and consult a licensed financial professional who can assess your individual circumstances, objectives, and risk tolerance.

Here we go! Btw I am running a marathon (basic). You can check it out after you finish this article.

Revisiting Law of Demand

Let’s forget finance for a second and let me take you back to week one of Economics 101. Maybe you might think: demand and supply. Well clearly you are an overachiever. We will be talking about demand. Just demand.

Now the law of demand says: when the price of a good increases, the quantity of goods demanded falls. Price up, buyers would stop buying the good as much.

But how much would the quantity demanded be falling if the price increases?

• By a lot?

• By a bit?

• or in proportion?

Now the “how much” is what economists call elasticity of demand.

If the quantity demanded falls sharply as the price rises, the good is elastic. If the quantity demanded barely moves as the price rises, the good is inelastic.

And what usually determines elasticity is this: substitutability (blah very hard to pronounce).

If a good has plenty of substitutes, its demand is elastic. For example, if the price of beef increases, people can simply switch to chicken, so the quantity demanded for beef collapses. To visualize:

But if a good has no real substitute, its demand tends to be inelastic.

The textbook example of an inelastic good is salt. Let’s say tomorrow the price of salt doubles, people will whine a bit but they will still buy the same amount. Nothing else does what salt does, and nobody quits salt because it got expensive. To visualize:

Which leads to a naturally interesting question, doesn’t it?

An S&P 500 index fund is also a good that you can buy. So… is it elastic, or inelastic?

And why does it matter?

It is inelastic

Unlike shares like Apple that has obvious substitutes: if Apple looks expensive, you can buy Microsoft, or Google, or two thousand other companies. S&P 500 is structured differently. Because it attempts to help you buy equities as a whole, not just this stock or that stock.

If your money is programmed to buy equities as an asset class, there is not many substitutes that are quite like it so its inelasticity is intuitive.

But how inelastic?

Smart economists have measured exactly this. Xavier Gabaix (Harvard) and Ralph Koijen (Chicago) put a number on it in a paper titled *The Inelastic Markets Hypothesis.* They found that aggregate demand for stocks is so inelastic that every $1 flowing into the market pushes up total market value by roughly $5.

Furthermore, follow-up research shows the market has been getting more inelastic as the years progress, decade after decade.

Mind boggling isn’t it? Especially the follow up research. How is it gotten more and more inelastic over the years?

Because why won’t the active funds exploit the increasingly inelastic behavior of equities as an asset class? If there’s blind money that buys up assets without looking at the price, smart money should instantly sell to that overpricing. That’s just how the market is supposed to work, in theory.

But S&P500 behaves more and more like salt in practice.

Rise of passive index funds

In 2000, roughly $1 in $10 in US stock funds was indexed. Today it is roughly $2 in $3. In fact, passive funds crossed the 50% line in 2019, when index fund assets overtook active for the first time (~$4.3T each in US equity funds),

On the other hand active investors, according to Haddad, Huebner & Loualiche is on the decline. They measure price-checking active investors at 78% of the US market in 2000, down to 55% by 2019.

Now a passive index fund is characterised by a key feature: it buys at any price.

It does not look at valuations nor earnings reports. It does not really care whether price to earnings is 1x or 100x (or not have any earnings at all at the moment). It does not care about quality of management, business model.

It wants to go to Mars? Or it is selling cookies? It will buy the same amount if market capitalisation is the same.

To put it simply, if a $200 million market comprises of

Stock A valued at $100 million

and stock B valued at $100 million

The index fund’s exposure will be:

Despite the fact that stock A could be unprofitable trading at negative multiples or even without revenue. And stock B is already making tonnes of money, tried and tested to economic calamities and market crashes.

The index fund does not care. It just buys stock A and B altogether.

And justification is reasonable: extremely long investment horizon over 20 or 30 years, the entry price does not matter, so why bother?

Buying is also automated at the paycheque level

In the US, the moment John receives his salary, his 401(k) buys the index. Australia has superannuation, where employers must channel 12% of wage into retirement funds. The UK has auto-enrolment, where every employer is required by law to sign workers for a workplace pension. That is a minimum of 8% of earnings, flowing into a default fund, unless the worker actively opts out.

Pause and let these phenomenon sit in with you for a bit.

These things are happening in real time and these are massive pools of cash, regenerated monthly by the entire workforce of the developed world. And an ever-growing share of it is setup like that to buy automatically.

Now you might be curious, how big is this number?

Well, Americans hold $44 trillion in retirement accounts, of which $8.9 trillion is in 401(k)s. The fully-automated target-date funds was at about 8% of 401(k) assets in 2007. Today it is 38%.

And roughly 95% of younger workers’ contributions now default straight into them. In 2025, US passive funds took in $951 billion of net inflows while active funds had net outflow of $187 billion. US ETFs as a whole absorbed a record $1.48 trillion.

One single fund, Vanguard’s S&P 500 ETF (VOO), took in $124 billion in one year, an all-time record for any ETF. That is roughly half a billion dollars of buying, every single trading day, from one fund. VOO also became the first fund in history to cross $1 trillion in assets.

Add it all up and passive funds now hold 55% of all US fund assets, $19.4 trillion, up from 34% just a decade ago. Every year, the share of the market that cares about prices of individual equities shrinks, and the share that buys on autopilot grows.

Right so the autopilot demand is big, so what?

Well, circling back to the discussion on economics 101, the concern is that the market is exhibiting a behaviour like an inelastic good. And inelasticity has two consequences. Both of them are sitting right there in the data.

First consequence: it does not take much money to move the price.

When demand is inelastic, the curve is steep (see chart above if needed). Small changes in buying pressure produce large changes in price. Now, the entire US stock market is worth about $77 trillion. The net new money that flowed into passive funds in all of 2025 (an all-time high) was $0.95 trillion. Barely more than 1% of the thing it is holding up. Blue is the flow, grey is the stock.

And remember, the research says each net $1 of inflow lifts total market value by roughly $5. The sliver prices the entire grid. That is what inelasticity does: when almost nobody on the other side of the trade reacts to price, the marginal dollar carries enormous weight.

Second consequence and this looks weird: the market appears to be breaking the law of demand entirely.

Run the elasticity test from your Economics 101 class: the delta of price against the delta of quantity demanded. In 2025, the price of this good went up by 16% (returns is 17.9% with dividends) in a single year. What happened to the quantity demanded?

For beef, an 16% price hike collapses quantity demanded by 16%.

For the S&P 500, demand did not fall at all. It sets an all-time record. 👏

Now, a sharp reader will object to my causality here (I have to be careful because you folks are smart).

“Toby, the price went up because people bought more. That is not a broken law of demand, that is just demand increasing (curve shifting to the right). Movement along the curve different from a shift of the curve. Econ 101.5, remember?”

And you would be right. But notice what makes this market different.

In a normal market, causality runs in a negative feedback loop. When buying pushes prices up, there is a negative feedback mechanism to have buyers to opt out from buying because of higher prices.

That is the feedback that keeps every other good on earth tied back to reality. Beef gets expensive, people buy chicken, beef price comes back down.

For the S&P 500’s marginal buyer, the behaviour is different. The buying moves the price. The price does not move the buying behaviour. In fact, John’s 401(k) does not consult the price at all.

And this is not me eyeballing one lucky year of data. The economists measured the response itself. How much does buying actually back off when prices rise? For the market as a whole, the measured answer is almost none.

The demand curve is getting more vertical not because 2025 was special, but because a growing share of the buyers are, by construction, incapable of reacting.

Which is exactly why the whole thing has been working as it is.

And it surely will go on forever, right?

I mean it is baked in to the wages of the workers who keep buying the S&P500. So as long as people are employed, S&P500 will keep going up right?

Well… I am afraid it is not that simple. But I will do my very best to explain it simply 🙂

Imagine the S&P500 as a water tank. It has a tap that fills it in with water (money flowing in as people buying the S&P500). Now lets not forget that it also has a drain (money flowing out as people selling the S&P500).

So it is relatively easy to imagine if

the tap > the drain

Price go up more in proportion to the inflow (remember it is inelastic).

If the tap < the drain

Price go down more in proportion to the outflow (remember it is inelastic).

What is the drain then?

The drain is retiree redemptions. At some point, the workforce that has been working for 40+ years will retire. They will cash out and try to sell the assets that have been going into their account regardless of the price.

America in particular, is in the middle of what researchers call the “Peak 65 zone”: roughly 11,400 Americans turn 65 every single day. That is roughly 4.2 million per year through 2027, the largest retirement wave in the country’s history.

And these are the baby boomers, the wealthiest generation ever, holding the largest share of these assets. The US tax code literally forces them to sell: required minimum distributions start at age 73, whether they like the price that day or not.

You can take a look at the visualisation below to wit.

Furthermore, Goldman Sachs projects that in 2026, US pension funds will be net sellers of $200 billion of equities, and mutual funds will be net sellers of another $580 billion. For now the tap still wins: household and 401(k) buying outweighs the redemptions. But the drain side of the equation is not guaranteed to lose forever.

Of the top of my head, I can conjure up three events that can cause the drain to flow out faster than inflow from the tap.

Number 1: Recession

If unemployment rate increases, especially one that is driven by layoffs of high earning professionals, laid-off workers cash out their 401(k)s early to survive. During such an event, they’d need to buy groceries and they don’t really care if they are selling at a good or bad price.

Number 2: Foreigners heading home

Foreigners hold about 18% of the entire US stock market. They are quite fast moving too. In a few weeks around April 2025, foreign investors dumped an estimated $63 billion of US equities when Trump announced the unprecedented Tarriffs.

Number 3: Our good friend sentiment

Not all of the buying is automated through paycheques. Households buying ETFs in brokerage apps because the chart only goes up. Goldman pegs household buying at $520 billion for 2026, which is the single biggest source of demand.

If sentiment suddenly changes, and lets say household prefers emerging market index funds (which could happen overnight), then drain > tap.

Lets make the point more explicit

Which relates back to elasticity of demand. The S&P500 is an increasingly inelastic good said by smart geniuses in a relatively new paper. If that were to be true, this means that not only $1 in net inflow would cause $5 in increase in price. But also $1 net outflow would cause $5 in decrease in price.

Why? The price sensitive buyers would want to look for even more bargains before they start deploying capital. And the price sensitive buyers are getting fewer and fewer out there. The surviving ones likely will demand more bargains.

“So I have to stop buying the S&P 500? We get it Toby, you fearmonger”

Well, that is not what I am saying either. 🙂

I am not predicting a crash. I genuinely do not know when, or whether, the flows will flip. Nobody does which is rather the point. Demographics move glacially, governments can change rules anytime out of no where, and the machine could keep running for another month, year, decade or more.

The topic of discussion is narrower and, I think, more useful: to have a clearer picture of the engine behind the indices we are all buying.

Because I have personally seen many investors making an innocent looking but dangerous assumption:

“past performance, extrapolated from a chart, is a guarantee of future performance.”

without knowing what produced the past performance at all. We have seen how that movie ends, time and time again, in every era of market history.

Once you see the engine, you stop asking the unanswerable question:

“when will it stop?“

because I myself nor the smart ones nor the people in govt offices would know when.

A better and more useful answerable question (for you) is:

“am I well positioned for either outcome?“

You are still allowed to buy the index, everyone is. You are simply no longer allowed to believe that the returns it gives entails 0 risk.

There is always merit in seeing the risks in your investments, versus blindly investing because of a nice looking past performance chart.

Here is the irony to close: investing becomes less risky when we are well aware of the risks. It becomes more risky when we ignore them.

Thanks for reading all the way through! You now have a cool thing to say or two on your dinner table. Think your friends might find it useful? Go ahead and share it :)

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Disclaimer: This post is for informational and educational purposes only. It is not financial, investment, or legal advice, and it is not a recommendation to buy, sell, or hold any security or to act on any market view — including anything about Indonesian equities, the IHSG, or the rupiah.

References to Bloomberg, S&P Dow Jones Indices, and other organisations are commentary on publicly available reporting, not claims about their intentions. Quotes and ideas from Simon Evan-Cook and Howard Marks are cited as inspiration; any misreading of their views is mine.

A few weeks ago I caught myself doing something embarrassing.

I was reading yet another Bloomberg headline about Indonesia. This one was about S&P Dow Jones threatening to cut us to frontier-market status. And I thought to myself, I’ve read so much of this negativity that it must be the case: Bloomberg has an agenda against Indonesia.

Think about it. The viral “Sell Indonesia” piece? Bloomberg. The sceptical Danantara interview with Pandu Sjahrir? Bloomberg. The frontier-market warning? Bloomberg. Every negative story about this country that reached my screen in the past month seemed to come from the same source.

So I did what any reasonable person with a suspicion does. I checked who owns them haha.

And I was wrong. Not slightly wrong. But embarrassingly wrong.

I was wrong in a way that teaches me something about my brain works, which is the kind of wrong worth writing about.

The facts first

Bloomberg LP is a private company, roughly 88% owned by Michael Bloomberg. Bloomberg makes money from overwhelmingly from Bloomberg Terminal subscriptions that is sold to traders and fund managers.

And when I actually looked at their Indonesia coverage in full, I also see the positive stories being covered.

• Nomura upgrading Indonesian stocks to overweight.

• The Davos growth story.

• The budget-winners analysis.

• The rebound coverage when the rupiah posted its biggest gain in over a year.

• The pushback from Pak Purbaya on the “Sell Indonesia” narrative got a write-up.

Honestly when I read the headlines above, it felt kinda weird. Because I was drowning in so much negativity that even a slightly positive headline would immediately prompt me to think rebuttals that were besides the point:

• but RKAB (quotas for miners)?

• but MBG (free nutritious meals)?

• but Kopdes (co-operatives funds channeled from state owned enterprises)?

• but Indonesia being non-investment grade?

• but the speeches made by the President?

And it is a strange feeling of veering off into non-related topics just to assure my belief that Indonesia is a mess. I am basically desperate to look for write ups that match my beliefs. Until I realised that it was really just the IHSG price chart that causes me to be so negative.

Intellectual honesty is also proven to be a hard thing because…

I have to come to terms that there is no evidence that the negativity was Bloomberg’s agenda.

Bullshit laundering

A few weeks ago I read a Substack Article by Simon Evan-Cook called “Financial News and the Art of Bullshit Laundering,”

Simon describes his early job writing a daily market round-up. The “what happened” part was easy — just numbers. The “why it happened” part was a nightmare, because most days nobody knows why. So he’d browse the news for anything that might explain the move. Market up, inflation down? Great, that’s the story.

Market up despite bad news? Deploy the trusty “despite” manoeuvre and hope nobody asks questions.

IHSG is down -1.19% today despite strong corporate earnings.

IHSG is up (+2.31%) today despite loosening fiscal discipline.

The despite there sounds legit doesn’t it? Despite it not explaining anything.

His conclusion is brutal:

A journalist calls an expert, the expert doesn’t know either but makes something up so as not to sound clueless, the guess gets printed, and then hundreds of smaller publications repeat the guess as established fact. Dirty nonsense goes in that somehow produces clean facts as output. Bullshit laundering, what a name.

Of course there are caveats because I believe that Simon has no intention of offending people who work in news agency. At the end of the day, we are only humans doing our jobs.

So I tested it

Here’s a hypothesis that I attempted to check:

If news drove prices, negative coverage should spike before the market falls.

If narrative follows price, negative coverage should spike after.

I pulled two datasets for the first half of 2026.

1. Daily average tone of global news coverage mentioning Indonesia’s market and economy (from GDELT, which scores the sentiment of millions of articles).

2. Daily closes of the IHSG.

Then I asked one question: does news tone correlate more with what the market just did, or with what it’s about to do?

And the result??

Correlation between news tone and the past five days of returns: +0.30.

Correlation between news tone and the next five days: −0.07.

Now, +0.30 is a weak correlation, and with six months of data neither number is statistically significant on its own. But the hypothesis wasn’t “news predicts the past strongly” — it was “news tracks the past more than the future.”

That asymmetry holds up: when I bootstrapped the difference between the two correlations, 99% of resamples showed the backward correlation beating the forward one. The news isn’t necessarily a strong mirror of the past. But it is a mirror of the past far more than it is a window into the future.

And the story tells this data clearly: “Sell Indonesia” went viral on June 5th. The market bottomed three days later. If you sold when the headline told you to, you sold within 5% of the low — and watched the index climb 17% off the bottom over the following week.

The moment the negative narrative was loudest was, almost precisely, the moment selling was most wrong.

(Honest disclaimer to be made: this is one market, six months, and a sentiment proxy — not a peer-reviewed study. If I ran this on ten markets over twenty years, the numbers would differ. But the direction matches what other researchers have found in bigger datasets, and more importantly, it matched what happened to me, live, in June.)

The unintended by-product

Here’s the part I find unsettling.

Why do we share negative news after a crash? I don’t think it’s malice, and it’s clearly not analysis. I think we naturally crave for an explanation for what we’re observing. For example, our portfolio is down 30% and our brain demands a story.

So if a speaker appears in a podcast saying “Prices went down and I don’t fully know why”, that feels like just another normal person talking.

But when an analyst with suits shows up in your feed saying “Governance concerns is driving foreign investors out from the market”, that feels like knowledge.

But sharing the explanation has a by-product nobody intends: it constructs a reality. A thousand people forwarding “Sell Indonesia” aren’t explaining the drop to themselves, they’re building pessimism that another experiences as evidence that the country is messed up.

That’s really how I ended up accusing a newsroom of running an agenda. Nobody at Bloomberg targeted me. The algorithm simply learns that fear travels further than optimism. “Sell Indonesia Sweeps Trading Desks” gets forwarded to every WhatsApp group in Jakarta. “Nomura Upgrades Indonesia Stocks” gets read by approximately nine people, and I’d bet most of them were at Nomura.

What to do with this

I propose one question.

The question, for every market article that reaches you after a big move:

Would this article exist if the price hadn’t moved?

If the answer is no, you are not reading information. You are reading a commentary.

Narrative follows price and you’ve heard it before. The trick is remembering this in the moment every headline on your screen is begging you to believe the opposite.

If you find this article helpful, go ahead and share it 🙂

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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.

📊 Follow the training on Strava: https://www.strava.com/athletes/128859224

💛 About 1000 Days Fund: https://1000daysfund.org/

👉 Donate here: https://run.recompound.id/

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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