Investing in an inefficient market

In Indonesia, price manipulation remains common, regulatory enforcement requires improvement, and liquidity is thin.

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 or $128b), 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.