Trading strategies based on market profiles and volume profiles

Trading strategies based on market profiles and volume profiles

Michel Henry VERHASSELT

In this third article on a series on market profiles, Michel Henry VERHASSELT (ESSEC Business School – Master in Finance, 2023-2025) explains trading strategies based on market profiles and volume profiles.

Introduction

We have defined and seen illustrations of all the key concepts related to both market profiles and volume profiles. Let us now look at their practical applications and trading strategies that may be applied.

These techniques apply to both market profiles and volume profiles.

Mean reversion

A mean reversion strategy is a trading approach based on the idea that prices tend to revert to their historical average or mean over time. Traders employing this strategy look for opportunities to enter trades when prices deviate significantly from their historical average, anticipating a return to the mean.

Market profiles naturally fit this kind of strategy, as their whole point is to show where participants have deemed the price to be fair. For example, a trader could consider that when the price is trading below a high-volume area, that area will act as a magnet to pull the price up. The prices in that region were indeed considered fairer, and the current low price would be an anomaly to be corrected by market participants. Therefore, the trader would buy at the current price and sell around the POC or at least within the value area.

Resistance and support

Conversely, a different interpretation within the same framework involves viewing these highly-traded areas as potential resistance or support zones. Support is a crucial level preventing an asset from further decline, often due to an upsurge in buying interest. In contrast, resistance is a pivotal level inhibiting an asset from rising higher, typically caused by intensified selling activity.

For a trader emphasizing resistance and support concepts, consider a rising price nearing a heavily traded zone encountering resistance, similar to reaching a ceiling. The outcome may lead to either a breakout to new highs or a reversal downward. In this context, the value area is not seen as a magnetic force drawing prices toward fair value; instead, it functions as a testing ground. The result hinges on whether the attempt to breach resistance is rejected, leading to a lower price, or successful, resulting in an upward move past this pivotal point. This dynamic interaction adds layers of complexity to mean reversion and support/resistance strategies within the realm of market profiles.

Entries and exits

More generally, traders employ various tools to make well-informed decisions about when to enter or exit market positions. One such powerful tool is the market profile. Even if a trader’s primary strategy relies on other triggers to look at a trade, say for example macro events, they can still leverage market profiles. These profiles help determine optimal entry or exit points, considering factors like obtaining liquidity with minimal market impact and identifying levels for stop losses and target profits based on perceived resistance and support.

Breakouts

As mentioned above, breakout trading is a strategy employed in financial markets where traders capitalize on significant price movements beyond established levels of support or resistance. In a breakout, the price surpasses a predefined range or pattern, triggering potential buying or selling signals. Traders often interpret breakouts as indicators of strong momentum, with the expectation that the price will continue moving in the breakout direction. The aim of breakout trading is to enter positions early in a new trend and ride the momentum for profitable gains.

Market profile can help identify breakout opportunities. For example, when a market exhibits confined trading within a narrow range and the profile reveals an accumulation of TPOs (Time Price Opportunities) near the boundaries of this range, a breakout surpassing these levels could indicate a potential trading opportunity.

False breakout strategy

The false breakout trading strategy relies on discerning instances where the price briefly moves beyond a trading range but subsequently retraces, indicating potential weaknesses in the current trend. In a false bullish breakout, signaling buyers’ weakness, traders might opt for short positions. Conversely, in retraced bearish breakouts, suggesting sellers’ uncertainty, opportunities for long positions may emerge. The effectiveness of this strategy lies in recognizing imbalances in supply and demand, a task facilitated by market profiles.

Market profiles offer a nuanced visual representation of price movements over time, highlighting areas of significant trading activity and the distribution of volume at different price levels. This information aids traders in identifying potential entry and exit points more precisely. By integrating market profiles into the false breakout strategy, traders gain insights into the dynamics of supply and demand within specific price ranges. This, in turn, enhances their ability to navigate market sentiment shifts and make informed decisions, contributing to the overall effectiveness of the false breakout trading strategy.

Single prints

The Market Profile Single Print strategy is a dynamic approach leveraging the unique concept of single prints within the Market Profile chart to identify potential breakout opportunities.

The strategy’s foundation lies in identifying single prints—instances where a price level remains untouched throughout the trading session, creating a gap in the Market Profile chart. Price can often revisit these areas to test these inefficiencies. These single prints therefore act as crucial markers, indicating potential areas of support or resistance. The significance of this lies in the ability to pinpoint breakout levels: a break above a single print suggests a bullish breakout, while a break below indicates a bearish breakout.

Crucially, market profiles assist in managing risk effectively by providing a visual representation of potential areas of support or resistance. Continual monitoring of the trade is emphasized, with adjustments made based on evolving market conditions. Trailing stop-loss orders are recommended to protect profits as the trade progresses favorably.

Related posts on the SimTrade blog

   ▶ Michel VERHASSELT Market profiles

   ▶ Michel VERHASSELT Difference between market profiles and volume profiles

   ▶ Theo SCHWERTLE Can technical analysis actually help to make better trading decisions?

   ▶ Theo SCHWERTLE The Psychology of Trading

   ▶ Clara PINTO Strategy and Tactics: From military to trading

Useful resources

Steidlmayer P.J. and S.B. Hawkins (2003) Steidlmayer on Markets: Trading with Market Profile, John Wiley & Sons, Second Edition;

Steidlmayer P.J. and K. Koy (1986) Markets and Market Logic: Trading and Investing with a Sound Understanding and Approach, Porcupine Press.

About the author

The article was written in December 2023 by Michel Henry VERHASSELT (ESSEC Business School – Master in Finance, 2023-2025).

Difference between market profiles and volume profiles

Difference between market profiles and volume profiles

Michel Henry VERHASSELT

In this second article on a series on market profiles, Michel Henry VERHASSELT (ESSEC Business School – Master in Finance, 2023-2025) explains the difference between market profiles and volume profiles.

Comparison

Both Market Profiles and Volume Profiles follow the auction theory of markets. According to this theory, price, time and volume are the three processes through which trading takes place.

More exactly:

  • Price advertises all opportunities. It lets the participants know that they can buy or sell an asset at a given price; it tells them what their opportunities are.
  • Time regulates all opportunities. Indeed, the opportunities given by price are limited in time; they are ephemeral and depend on the liquidity and volatility of an asset, in other words, how much time it takes for the price to change and the opportunity to vanish.
  • Volume measures the success or failure of advertised opportunities. Volume reflects the degree of market participation and validates the relevance of the opportunities presented. If an opportunity is advertised and becomes successful that means many participants agree on the fairness of this opportunity and a relatively significant amount of trading activity (volume) takes place at this price. A price that is not accepted over time is, in fact, rejected: the advertisement has failed.

All traders feel the pressure of time ticking away during a trade. When a trade stalls and doesn’t go as expected, it can create doubts, especially the longer it remains stagnant. The constant tick of the clock forces traders to ponder what might be going wrong. For instance, the late liquidation or short-covering rally in the pit session may be due to day traders running out of time rather than a lack of trading volume. In that sense, volume must take place within a given time range to validate the price advertisement.

Now when it comes to Volume Profiles, the chart shows the distribution of volume at different price levels, kind of like a visual map of where the action is happening. It uses a vertical histogram to make it easy for traders to see where the most trading activity is concentrated. This charting tool is all about giving traders a closer look at how much trading is going on at different price points over time.

Comparing Volume Profile to Market Profile, we find three key areas of differences: analytical focus, representation of data, and time and price dynamics.

Analytical Focus

Volume Profile: As the name suggests, Volume Profile places a paramount emphasis on volume, aiming to dissect the distribution of trading activity at different price levels over a designated timeframe.

Market Profile: In contrast, Market Profile combines time and price to create a graphical representation of market behavior. It divides price movements into designated time segments, typically 30-minute intervals, offering a nuanced perspective on the interplay between time and price.

Representation of Data

Volume Profile: The chart generated by Volume Profile provides a clear visualization of how volume is distributed across various price levels, offering insights into where significant buying or selling activity is concentrated.

Market Profile: While also representing volume, Market Profile charts use letters (TPOs) to signify the time spent at specific price levels, creating a distinctive visual pattern resembling a probability distribution.

Time and Price Dynamics

Volume Profile: Its primary concern is the interrelation of volume and price, with a focus on understanding the significance of different price levels based on the amount of trading activity.

Market Profile: Integrates time as a crucial factor, providing traders with a holistic view of market behavior over specific time intervals. This temporal dimension aids in identifying periods of heightened activity and potential areas of interest.

Let’s now look at Market and Volume profiles graphs.

Illustration

The figure below is taken from Steidlmayer’s main work: “Steidlmayer on Markets, Trading with Market Profile”. Each letter (A, B, C, D, etc.) corresponds to a single timeframe of 30 minutes. The condensed triangle-shaped figure shows where price has moved throughout the entire time period according to the trading activity.

Market profile.
Market profile
Source: Steidlmayer’s book “Steidlmayer on Markets, Trading with Market Profile”.

If we rotate the figure, we get a bell-shaped pattern that looks like a normal distribution.

Market profile (reversed presentation).
Market profile
Source: Steidlmayer’s book “Steidlmayer on Markets, Trading with Market Profile”.

The price distribution in a Market Profile tends to exhibit a bell-shaped pattern due to the nature of market dynamics and participant behavior. In a well-functioning and liquid market, prices are subject to constant fluctuations driven by the interplay of buying and selling activities and the bell-shaped distribution is simply a reflection of the statistical tendency of prices to cluster around a central point. The majority of trading activity should in theory occur around a fair or equilibrium price. As you move away from this central point, the occurrences of extreme price levels decrease, forming the characteristic bell curve. It is a visual representation of the market’s natural inclination to spend more time around prices that are deemed fair.

The figure below represents the volume profiles of the BTC/USDT pair on Binance’s futures market from December 8 until December 15, 2023.

Volume profile.
Volume profile
Source: exocharts.com.

We see the point of control (POC) that corresponds to the most traded price as a red line extending through the volume profile of each day. The value area is marked both by a whiter grey and dotted lines. The current price is a green line on the far left. On the far right, we find the volume profile for the whole timeframe displayed on the screen, with its own value area and point of control.

While the two profiles are very similar, however instead of looking at price and time as in a market profile, the volume profile focuses on volume. First, the volume profile is indifferent to when exactly a given trade took place within the same timeframe, here a day. Second, the volume profile uses true volume data rather than simply whether or not a trade took place. The length of each bar within a volume profile is directly proportionate to the volume of the trades at that price. In contrast, the market profile does not show the size of the trades but simply shows whether or not a price was traded during a 30-minute period, and then aggregates (or “collapses”) the data to form one profile, as we saw in the bell-shaped curve above.

Why should I be interested in this post?

Students of finance interested in financial markets and trading would be the target audience of this post. I believe this technique to be relatively obscure despite its long history. We rarely see asset charts displayed as histograms as an effort to understand market behavior and participant psychology. I believe it is fundamental to consider that the market is made up of human actors, that these actors have their biases on price and value, and in turn that these biases’ success is represented as a function of volume. Even if a student does not subscribe to this understanding of markets, it would broaden his/her perspective and allow him/her to understand trading more generally.

Related posts on the SimTrade blog

   ▶ Michel VERHASSELT Market profiles

   ▶ Michel VERHASSELT Trading strategies based on market profiles and volume profile

   ▶ Theo SCHWERTLE Can technical analysis actually help to make better trading decisions?

   ▶ Theo SCHWERTLE The Psychology of Trading

   ▶ Clara PINTO Strategy and Tactics: From military to trading

Useful resources

Steidlmayer P.J. and S.B. Hawkins (2003) Steidlmayer on Markets: Trading with Market Profile, John Wiley & Sons, Second Edition;

Steidlmayer P.J. and K. Koy (1986) Markets and Market Logic: Trading and Investing with a Sound Understanding and Approach, Porcupine Press.

TPO versus Volume Profiles

Trader Dale Volume Profile vs. Market Profile – What Is The Difference? YouTube video

About the author

The article was written in December 2023 by Michel Henry VERHASSELT (ESSEC Business School – Master in Finance, 2023-2025).

Market profiles

Market profiles

Michel Henry VERHASSELT

In this first article on a series on market profiles, Michel Henry VERHASSELT (ESSEC Business School – Master in Finance, 2023-2025) explains the history behind this concept and defines its central themes.

Introduction

The concept of Market Profiles emerged as a response to the dynamic nature of financial markets, where prices are in constant flux due to the continuous flow of information. Peter Steidlmayer, a trader at the Chicago Board of Trade during the 1960s and 1970s, sought to develop a charting method that could capture the interplay between price and volume, reflecting the idea that, despite the constant price changes, there should be a fair value around which prices revolve at any given time.

In traditional charting methods like bar charts and candle charts, the emphasis is typically on plotting price against time. Steidlmayer, however, wanted to make volume immediately apparent on the chart. This emphasis on volume is crucial because it provides insights into the level of participation and conviction among market participants.

The development of Market Profile was influenced by various theories and disciplines. In particular, it drew inspiration from the concept of value investing articulated by Benjamin Graham and David Dodd, the statistical bell curve, and John Schultz’s work on minimum trend. By combining these influences, Steidlmayer aimed to create a charting technique that would not only reveal price movements but also offer a visual representation of the market’s perception of value.

Market Profile, as a charting technique, differs significantly from traditional methods. Instead of using standard bar charts with prices plotted against time, Market Profile organizes data in a way that reflects the distribution of prices at different levels. Each time period is represented by a separate column, with prices displayed in ascending order on the vertical axis. This organization provides a visual representation of how much time the market spent at different price levels, creating a histogram-like structure.

The resulting chart, with letters (A, B, C, D, etc.) representing Time Price Opportunities (TPO), helps traders identify key areas such as the Value Area (where the majority of trading activity occurred), the Point of Control (the most traded price level), and Single Prints (indicating areas of price discovery). These elements collectively contribute to a comprehensive understanding of market dynamics and help traders make more informed decisions.

Definitions

We define below the key terms to understand Market Profile: Volume, Value Area, and Point of Control.

Volume

Volume in the context of financial markets refers to the number of contracts or shares traded at during a specific time period. Volume is a crucial component in Market Profile analysis because it provides insights into the level of participation and conviction among market participants. High volume at a particular price level suggests a significant level of interest or agreement on the value of the asset at that point.

Volume helps us shape the Time Price Opportunities. A TPO represents a unit of time and price on a Market Profile chart. Each 30-minute period (or another specified time frame) is represented by a letter, forming a vertical histogram on the price axis. TPOs help visualize the distribution of trading activity at different price levels over time. By organizing price data into these time brackets, traders can identify patterns, trends, and areas of importance, contributing to a better understanding of market behavior.

Value Area

The Value Area represents the range of price levels that contain a specific percentage of the total traded volume (usually 70% of the day’s trading activity). Traders also use the Upper Value Area (where 15% of the volume is located above) and the Lower Value Area (where 15% of the volume is below), with the area in between considered the “fair value” zone. It helps traders identify the price levels that are deemed fair by the market. It provides insights into where the majority of trading activity occurred, offering potential support and resistance zones for future price movements.

Point of Control

Within the value area, we find the Point of Control. The Point of Control is the price level at which the most TPOs occurred during a specific time period. It is considered a point of balance and represents the price where the market found the most acceptance. It indicates the price level that had the most trading activity, suggesting a level of equilibrium where buyers and sellers found agreement. Traders often monitor the POC for potential shifts in market sentiment.

By understanding the interplay between these elements, traders can gain valuable insights into market dynamics, identify key support and resistance zones, and make more informed decisions in their trading strategies.

With this background and definitions, we can look further into the practice of market profiles and its closely related concept, volume profiles.

Why should I be interested in this post?

Students of finance interested in financial markets and trading would be the target audience of this post. I believe this technique to be relatively obscure despite its long history. We rarely see asset charts displayed as histograms as an effort to understand market behavior and participant psychology. I believe it is fundamental to consider that the market is made up of human actors, that these actors have their biases on price and value, and in turn that these biases’ success is represented as a function of volume. Even if a student does not subscribe to this understanding of markets, it would broaden his/her perspective and allow him/her to understand trading more generally.

Related posts on the SimTrade blog

   ▶ Michel VERHASSELT Difference between market profiles and volume profiles

   ▶ Michel VERHASSELT Trading strategies based on market profiles and volume profile

   ▶ Theo SCHWERTLE Can technical analysis actually help to make better trading decisions?

   ▶ Theo SCHWERTLE The Psychology of Trading

   ▶ Clara PINTO Strategy and Tactics: From military to trading

Useful resources

Steidlmayer P.J. and S.B. Hawkins (2003) Steidlmayer on Markets: Trading with Market Profile, John Wiley & Sons, Second Edition;

Steidlmayer P.J. and K. Koy (1986) Markets and Market Logic: Trading and Investing with a Sound Understanding and Approach, Porcupine Press.

Letian Wang (2020) Using Python for Market Profiles

About the author

The article was written in December 2023 by Michel Henry VERHASSELT (ESSEC Business School – Master in Finance, 2023-2025).

Impact du contrôle de gestion sur l’entreprise

Impact du contrôle de gestion sur l’entreprise

Medine ACAR

Dans cet article, Medine ACAR (ESSEC Business School, Programme Bachelor in Business Administration (BBA), 2020-2024) analyse l’impact du contrôle de gestion dans l’entreprise.

Introduction

Le contrôle de gestion est une fonction clé en entreprise, axée sur la performance et l’efficacité. Il implique la planification, la mesure et l’analyse des activités pour aligner les performances avec les objectifs stratégiques de l’entreprise. Ce processus inclut la budgétisation, la prévision financière, et l’analyse des écarts entre les résultats réels et les prévisions. Le contrôle de gestion aide également à identifier les opportunités d’amélioration et à mettre en œuvre des stratégies correctives pour optimiser les opérations et les coûts. Entre autres, le contrôle de gestion assure la santé et la viabilité des entreprises. Allons plus loin.

Amélioration de la Performance et de la Prise de Décision

Le contrôle de gestion, au cœur des stratégies d’entreprise, joue un rôle déterminant dans l’analyse et l’amélioration des performances financières. Il offre une perspective claire sur les forces et faiblesses de l’organisation, permettant ainsi une prise de décision plus stratégique et éclairée. Des études de cas dans divers secteurs, telles que celles menées sur des entreprises comme IBM ou General Electric, illustrent comment l’application rigoureuse du contrôle de gestion peut entraîner une transformation significative dans la performance et la gestion des ressources. Par exemple, l’implémentation par GE des pratiques « Six Sigma » et de gestion Lean sous la direction de Jack Welch a conduit à des améliorations substantielles de l’efficacité opérationnelle et de la réduction des coûts. (Etude de cas: General Electric’s Two-Decade Transformation Under the Leadership of Jack Welch).

Gestion des Risques et Assise de la Durabilité

Au-delà de la simple surveillance financière, le contrôle de gestion est essentiel pour la gestion des risques et la durabilité à long terme de l’entreprise. Il permet d’identifier les risques potentiels, tant financiers qu’opérationnels, et de mettre en place des stratégies pour les atténuer. Des recherches menées dans le domaine bancaire, par exemple, mettent en lumière l’importance de cette fonction pour prévenir les crises financières et assurer une stabilité continue.

L’étude “Management controls and crisis: evidence from the banking sector” menée par Pall Rikhardsson, Carsten Rohde, Leif Christensen, Catherine E. Batt en 2021, sur l’utilisation des contrôles de gestion lors de la crise financière de 2008 dans six banques a révélé que l’emploi à la fois de contrôles de gestion organiques et mécanistes était essentiel pour gérer le changement.

Ces contrôles jouent trois rôles principaux :

  • Guider et contrôler le comportement
  • Changer les perceptions internes et externes
  • Assurer la responsabilité.

Résumé

Le contrôle de gestion n’est pas seulement un outil de surveillance financière ; c’est un levier stratégique qui influence profondément la performance, la prise de décision, la gestion des risques et, en fin de compte, la durabilité de l’entreprise. Les études dans ce domaine confirment son rôle inestimable dans le succès et la pérennité des entreprises à travers le monde.

Autres articles sur le blog

   ▶ Jessica BAOUNON Enjeux de la pratique de la pleine conscience et de l’intelligence émotionnelle dans la fonction de contrôle de gestion

   ▶ Chloé POUZOL Contrôle de gestion chez Edgar suites

   ▶ Emma LAFARGUE Contrôle de gestion chez Chanel

Ressources utiles

Robert Obert et Marie-Pierre Mairesse (2008) “Le Contrôle de Gestion: Organisation et Mise en Œuvre”, Dunod.

Case Study: General Electric’s Two-Decade Transformation Under the Leadership of Jack Welch

6 sigma (2017) General Electric (GE) et Six Sigma

Henderson, K.M. and Evans, J.R. (2000) “Successful implementation of Six Sigma: benchmarking General Electric Company”, Benchmarking: An International Journal, 7(4): 260-282.

Karim Saïd and Soufiane Kherrazi (2021) Du contrôle de gestion à l’innovation dans le contrôle HBR France

Rikhardsson, P., Rohde, C., Christensen, L. et Batt, C.E. (2021) “Management controls and crisis: evidence from the banking sector” Accounting, Auditing & Accountability Journal, 34(4): 757-785.

A propos de l’auteure

L’article a été rédigé en décembre 2023 par Medine ACAR (ESSEC Business School, Programme Bachelor in Business Administration (BBA), 2020-2024).

Volume-Weighted Average Price (VWAP)

Volume-Weighted Average Price (VWAP)

Raphael TRAEN

In this article , Raphael TRAEN (ESSEC Business School, Global BBA, 2023-2024) explains about the Volume-Weighted Average Price (abbreviated as VWAP), a statistic used by traders to determine the average trading taking into account transaction volume.

Definition

The volume-weighted average price (VWAP) is a measurement that shows the average price of a security, adjusted for its volume. It is calculated during a specific trading session by taking the total dollar value of trading in the security (sum of the products of the price by the quantity of each trade during the trading session) and dividing it by the total volume of trades (sum of the quantities of each trade during the trading session). The formula for calculating VWAP is given by

Formula VWAP

Where N is the number of transactions during the trading session (trading day).

VWAP can also be computed for consecutive time intervals during the trading sessions.

Sometimes, the price is replaced by a “typical price” computed as the average of the minimal price, maximal price, and closing price observe over a time interval.

Typical price

Interpreting the VWAP indicator / Key takeaways

Volume-weighted average price (VWAP) is a popular technical indicator used by traders and investors to identify trends, support and resistance levels, and potential entry and exit points. It can also be used for example to assess the liquidity and market depth of a security. If the VWAP is closely clustered around the current price, it suggests that there is a lot of liquidity and that the market is well-balanced. If the VWAP is spread out over a wide range of prices, it suggests that the market is less liquid and that there is a higher risk of wide price swings.

Breakout above the VWAP line suggests a bullish trend

A breakout above VWAP suggests that the price has momentum and is moving upwards. This could be due to increased buying pressure from investors, indicating a shift in sentiment towards the security. Once the price breaks above VWAP, it can act as a support level, making it more difficult for the price to fall below that level.

This could be an opportunity to enter a long position, anticipating the price to continue rising.

Breakdown below the VWAP line suggests a bearish trend

If the price of a security breaks below the VWAP line, it may signal a potential bearish trend. This could be an opportunity to enter a short position, anticipating the price to continue falling.

VWAP line can act as support or resistance level

The VWAP line can also function as a support or resistance level, representing a price range where the price of the security may tend to bounce off.

VWAP to identify trends

If the VWAP line is trending upwards, it suggests an overall upward trend in the price of the security. This could indicate favorable conditions for long-term investments. Conversely, if the VWAP line is trending downwards, it suggests an overall downward trend in the price of the security. This could indicate caution for long-term investments.

Conclusion

It is important to note that VWAP is just one indicator, and it should not be used in isolation. It is always a good idea to consider other technical indicators, such as the moving average convergence divergence (MACD) and the relative strength index (RSI), before making any trading decisions.

Often, multiple interpretations are possible and because of this, it is important to use the VWAP in combination with other indicators.

As I said, a breakdown below the VWAP may suggest a bearish trend. But it can also be interpreted as the following: Stocks with prices below the VWAP are considered as undervalued and those with prices above it, overvalued.

So while some institutions may prefer to buy when the price of the security is below the VWAP or sell when it is above, VWAP is not the only factor to consider. In strong uptrends, the price may continue to move higher for many days without dropping below the VWAP at all. Therefore, waiting for the price to fall below the VWAP could mean a missed opportunity if prices are rising quickly.

Why should I be interested in this post?

This article will provide students interested in business and finance a comprehensive overview of VWAP and how it is used by traders and investors. By understanding this fundamental concept in technical analysis, students will gain a valuable tool for making informed investment decisions.

Related posts on the SimTrade blog

   ▶ Shruti CHAND Technical analysis

   ▶ Shruti CHAND Technical Analysis, Moving Averages

   ▶ Theo SCHWERTLE Can technical analysis actually help to make better trading decisions

   ▶ Giovanni PAGLIARDI Tail relation between return and volume

Useful resources

Academic articles

Menkhoff, L. (2010) The use of technical analysis by fund managers: International evidence, Journal of Banking & Finance 34(11): 2573-2586.

Kirkpatrick II, C. D., and J.R. Dahlquist (2010) Technical Analysis: The Complete Resource for Financial Market Technicians. FT press.

Videos

Humbled Trader VWAP Trading Strategy Crash Course (YouTube video)

MHFIN VWAP Explained For Beginners In Under 5 Minutes (YouTube video)

About the author

The article was written in December 2023 by Raphael TRAEN (ESSEC Business School, Global BBA, 2023-2024).

Understanding Correlation in the Financial Landscape: How It Drives Portfolio Diversification

Understanding Correlation in the Financial Landscape: How It Drives Portfolio Diversification

Raphael TRAEN

In this article, Raphael TRAEN (ESSEC Business School, Global BBA, 2023-2024) delves into the fascinating world of correlation and its profound impact on diversification strategies in the financial realm. Understanding correlation is crucial for crafting well-diversified investment portfolios that can effectively mitigate risk and enhance overall performance (the famous trade-off between risk and expected return).

Statistical correlation

Definition

Statistical correlation is a quantitative measure of the strength and direction of the linear relationship between two variables. It describes how two variables are related to each other and how one variable changes in response to the other (but remember that correlation is not causality!).

Mathematically (or more precisely statistically), correlation is defined by the following formula:

Correlation formula

where ρ1,2 is the correlation coefficient between the two random variables (say X1 and X2), 𝜎1,2 the covariance between the two random variables, and 𝜎1 and 𝜎2 are the standard deviation of each random variable.

Correlation is measured on a scale from -1 to +1, with -1 representing a perfect negative correlation, +1 representing a perfect positive correlation, and 0 representing no correlation.

Correlation vs Independence

Correlation and independence are two statistical measures that describe the relationship between two variables. As already mentioned, correlation quantifies the strength and direction of the relationship, ranging from perfect negative (one variable decreases as the other increases) to perfect positive (both variables increase or decrease together). Independence on the other hand indicates the absence of any consistent relationship between the variables.

If two random variables are independent, their correlation is equal to zero. But if the correlation between two random variables is equal to zero, it does not necessarily mean that they are independent. This can be illustrated with an example. Let us consider two random variables, X and Y, defined as follows: X is a random variable that takes discrete values from the set {-1, 0, 1} with equal probability (1/3) and Y is defined as Y = X2.

E(X) = 0, as the expected value of X is (1 + 0 + (-1))/3 = 0
E(Y) = E(X2) = (12 + 02 + (-1)2)/3 = 2/3
E(XY) = (-1 * 1 + 0 * 0 + 1 * 1)/3 = 0

Cov(X, Y) = E(XY) – E(X)E(Y) = 0 – 0 * (2/3) = 0

As Corr(X, Y) is equal to Cov(X, Y) / (sqrt(Var(X)) * sqrt(Var(Y))), we find that Corr(X, Y) = 0.

Application in finance

We now consider a financial application : the construction of portfolios. We show that correlation is a key input when building portfolios.

If the concept of portfolios is completely new to you, I recommend first reading through the article by Youssef LOURAOUI about Portfolio.

Portfolio with two assets

In the world of investments, understanding the expected return and variance of a portfolio is crucial for informed decision-making. These two statistical measures provide valuable insights into the potential performance and risk of a collection of assets held together. In what follows, we first focus on a portfolio consisting of two assets.

Return and expected return of a portfolio

The return of a two-asset portfolio P is computed as

Return two assets

where w1 and w2 are the weights of the two assets in the portfolio and R1 and R2 are the returns of the two assets.

The expected return of the two-asset portfolio P is computed as

Expected return two assets

where w1 and w2 are the weights of the two assets in the portfolio and μ1 and μ2 are the expected returns of the two assets.

Risk of a portfolio

The standard deviation (squared root of the variance) of a two-asset portfolio is computed as

Standard deviation of the return of a two-asset portfolio

or

Standard deviation of the return of a two-asset portfolio

where w1 and w2 are the weights of the two assets in the portfolio, 𝜎1 and 𝜎2 are the standard deviations of the returns of the two assets, and 𝜎1,2 and ρ1,2 are the covariance and correlation coefficient between the two assets returns.

The first expression uses the covariance 𝜎1,2 and the second expression the correlation ρ1,2.

Impact of correlation on diversification (the case of two assets)

From the above formulas follows a very interesting theorem called the “Diversification effect” which says the following: with two assets, suppose the weights of both securities are positive. As long as the correlation coefficient is less than 1, the standard deviation of a portfolio of two securities is less than the weighted average of the standard deviation deviations of the individual securities. Investors can obtain the same level of expected return with lower risk.

The figures below illustrate the impact of the correlation between the two assets on portfolio diversification and the efficient portfolio frontier. For a given level of portfolio risk, the lower the correlation, the higher the expected return of the portfolio.

Impact of the correlation on portfolio diversification

Impact of the correlation on portfolio diversification

Impact of the correlation on portfolio diversification

Impact of the correlation on portfolio diversification

Impact of the correlation on portfolio diversification

You can download below an Excel file (from Prof. Longin’s course) that illustrates the impact of correlation on portfolio diversification.

Excel file on impact of correlation

Diversification effect (extension to several assets)

With many assets, suppose the weights of all securities are positive. As long as the correlations between pairs of securities are less than 1, the standard deviation of a portfolio of many assets is less than the weighted average of the standard deviations of the individual securities.

Why should I be interested in this post?

Understanding correlation is an essential skill for any investor seeking to build a well-diversified portfolio that can withstand market volatility and achieve long-term growth. By carefully analyzing correlation dynamics and incorporating correlation analysis into their investment strategies, investors can effectively manage risk exposure and build resilient portfolios that can weather market storms and emerge stronger on the other side.

Related posts on the SimTrade blog

   ▶ Youssef LOURAOUI Portfolio

   ▶ Jayati WALIA Standard deviation

   ▶ Youssef LOURAOUI Hedge fund diversification

   ▶ Lou PERRONE Navigating the Balance Between Risk and Reward in Finance

Useful resources

Prof. Longin’s ESSEC Master in Management “Fundamentals of finance” course.

William Pouder’s ESSEC BBA “Finance” course.

About the author

The article was written in December 2023 by Raphael TRAEN (ESSEC Business School, Global BBA, 2023-2024).

Analysis of “The Madoff Affair” documentary

Analysis of “The Madoff Affair” documentary

Raphael TRAEN

In this article, Raphael TRAEN (ESSEC Business School, Global BBA, 2023-2024) analyzes “The Madoff Affair” documentary and explains the key financial concepts related to this documentary.

Key characters in the documentary

  • Bernard Madoff: key person, the admitted mastermind of the Ponzi scheme
  • Avellino: partner in Avellino and Bienes, advising its clients to invest with Madoff
  • Bienes: accountant for Madoff’s father-in-law, later partner in Avellino and Bienes, advising its clients to invest with Madoff

Summary of the documentary

Bernard Lawrence Madoff (“Bernie”) was an American stockbroker, market maker and an unofficial investment advisor (because he did not have the necessary license to do so) who operated what has been considered the largest Ponzi scheme in history. He defrauded investors out of billions over a long period.

The Madoff Affair

How did the scheme work?

Madoff’s Ponzi scheme was a classic example of a “pyramid scheme,” in which money from new investors is used to pay returns to earlier investors, creating the illusion of strong returns. Madoff claimed to be investing in a “secret” arbitrage strategy that generated consistent returns, even during periods of market downturn.

In reality, Madoff was simply lying to investors and using the money to pay returns to existing investors and to enrich himself. He kept his scheme going by attracting new investors, who were lured by the promise of high returns and the reputation of Madoff, who was a well-respected figure on Wall Street.


Bernard Madoff was able to maintain his Ponzi scheme for so long in part because he had help from two of his closest associates: Avellino and Bienes. Avellino and Bienes were investment advisors who were responsible for soliciting investments from Madoff’s funds. They were also responsible for creating false account statements that showed investors were making consistently high returns.

Avellino and Bienes first met Madoff and were impressed by his reputation and his consistent track record of high returns. They even approached Madoff about managing their own investments. Madoff agreed, and Avellino and Bienes began to introduce Madoff to their own clients.

Avellino and Bienes were instrumental in helping Madoff build his Ponzi scheme. They were able to attract new investors to Madoff’s funds by touting his track record and his reputation for integrity.

Technical details about the Madoff investment strategy

Bernie Madoff told his investors he was using a legitimate investing strategy called split-strike conversion. This strategy involves buying a stock index and simultaneously purchasing put options to limit the downside potential and selling call options to generate additional income.

Evolution of the Fairfield Sentry fund of Madoff Evolution of the Fairfield Sentry fund of Madoff Source: Madoff

Statistical measures of the Fairfield Sentry fund of Madoff Statistical measures of the Fairfield Sentry fund of Madoff Source: Bernard and Boyle (2009)

Should you be more interested in this strategy I definitely recommend watching the following video explaining the strategy with an example:

Bernie Madoff’s infamous split-strike conversion strategy

Theoretically, this strategy aims to provide a steady stream of income while protecting against significant losses. However, Madoff’s claims about his split-strike conversion strategy were entirely fabricated. He was not actually making these trades or generating the reported returns. Instead, he was using money from new investors to pay off existing investors, replicating a classic Ponzi scheme. This is also further confirmed by the picture I added above comparing the different strategies. The Fairfield Sentry fund was one controlled by Madoff. You can immediately see that the return is higher than what it would be according to the strategy and also that the standard deviation is much lower.

The downfall of the scheme

The Madoff Ponzi scheme began to unravel in the fall of 2008, as the global financial crisis took hold. As investors grew increasingly nervous about their investments, they began to withdraw their money from Madoff’s funds. Madoff was unable to meet these withdrawals, and the scheme collapsed.

In December 2008, Madoff’s sons, Mark and Andrew, confronted him about the scheme. Madoff confessed to his sons, and they immediately contacted the FBI.

One important person we should certainly not forget to mention is Markopolos, an American investor who accused Bernard Madoff of running a Ponzi scheme. He warned the SEC multiple times about Madoff’s suspicious investment returns and opaque investment strategy, but the SEC did not take action until after the collapse of Madoff’s Ponzi scheme in 2008. Markopolos was subsequently hailed as a hero for his efforts to expose the fraud.

Markopolos also believed that Madoff was using his position as a market maker to front-run his clients’ trades. This means that Madoff was using his knowledge of his clients’ impending trades to make profitable trades for himself before his clients’ trades were executed. This would allow Madoff to profit from the difference in price between the time his clients’ trades were executed and the time he made his trades.

Financial concepts related to the documentary

Investment returns

Madoff’s scheme relied on the promise of consistent, high returns even during periods of market downturn. This was a red flag for many investors, as it is unrealistic for any investment strategy to guarantee such consistent performance.

Greed

Madoff’s scheme was fueled by the greed of both investors and Madoff himself. Investors were willing to overlook red flags because they were attracted to the promise of high returns. Madoff was motivated by his own insatiable desire for wealth and power.

Regulatory oversight

The Securities and Exchange Commission (SEC) failed to detect Madoff’s scheme for many years. This failure allowed Madoff to operate his scheme for many years and highlights the need for stronger enforcement of financial regulations.

What lessons can be learned?

Beware of “too good to be true” opportunities

If an investment opportunity sounds too good to be true, it probably is. Investors should be wary of any investment that promises consistently high returns no matter which market conditions, especially if there is no clear explanation of how those returns are being generated.

Do your own research

Before investing in any fund or product, investors should thoroughly research the company or individual running the investment and understand the risks involved. The Madoff Ponzi scheme is a reminder that even seemingly respectable individuals can commit fraud on a massive scale. It is important for investors to be vigilant and to do their homework before investing their hard-earned money.

Madoff’s cynicism

« In an era of faceless organization owned by other equally faceless organizations, Bernard L. Madoff Investment Securities LLC harks back to an earlier era in the financial world: the owner’s name is on the door. Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing and high ethical standards that has always been the firm’s hallmark. »

Why should I be interested in this post?

As a student pursuing a business or  finance degree at ESSEC, I think you will be very fascinated by the Madoff Ponzi scheme for its multifaceted lessons in ethics, financial practices, and regulatory oversight. The scale of the fraud, its longevity, and the involvement of high-profile individuals make it a very interesting case study in the financial world. It is one of the largest financial frauds ever. There are many lessons to be learned.

Related posts on the SimTrade blog

   ▶ All posts about Movies and documentaries

   ▶ Louis DETALLE Quick review of the most famous investments frauds ever

   ▶ Louis VIALLARD Ponzi scheme

   ▶ William LONGIN Netflix ‘Billions’ Analysis of characters through CFA Code and Standards

Useful resources

Academic articles

Bernard C. and P.P. Boyle (2009) “Mr. Madoff’s Amazing Returns: An Analysis of the Split-Strike Conversion Strategy” The Journal of Derivatives, 17(1): 62-76.

Monroe H., A. Carvajal and C. Pattillo (2010) “Perils of Ponzis” Finance & development, 47(1).

Videos

FRONTLINE PBS The Madoff Affair (full documentary on YouTube)

TPM TV Roundtable Discussion With Bernard Madoff (YouTube video about regulation by Madoff)

Associated Press Executive: SEC Ignored Warnings About Madoff (YouTube video about the testimony of Harry Markopolos)

TPM TV Roundtable Discussion With Bernard Madoff (YouTube video about the testimony of Harry Markopolos)

About the author

The article was written in December 2023 by Raphael TRAEN (ESSEC Business School, Global BBA, 2023-2024).

Le marché boursier est conçu pour transférer de l'argent des actifs aux patients.

Le marché boursier est conçu pour transférer de l’argent des actifs aux patients.

Medine ACAR

Dans cet article Medine ACAR (ESSEC Business School, Programme Bachelor in Business Administration (BBA) – 2020-2024) commente une citation de Warren Buffett sur l’investissement à long terme.

« Le marché boursier est conçu pour transférer de l’argent des actifs aux patients. »

Warren Buffett suggère que le marché boursier favorise ceux qui adoptent une approche patiente et à long terme plutôt que ceux qui sont constamment actifs et réactifs. Cette perspective souligne l’importance de stratégies d’investissement basées sur une analyse approfondie et une vision à long terme, par opposition à des réactions rapides aux fluctuations du marché. Elle met en évidence l’idée que l’accumulation de richesse à travers le marché boursier est plus le résultat de décisions réfléchies et stables, plutôt que de transactions spéculatives fréquentes.

Qui est Warren Buffett ?

Warren Buffett, né en 1930, est l’un des investisseurs et figures financières les plus renommés du 20e et 21e siècles. Il est le président-directeur général de Berkshire Hathaway, une société de portefeuille multinationale.

Buffett est souvent surnommé “l’Oracle d’Omaha” pour son exceptionnelle compétence en investissement. Sa philosophie d’investissement met l’accent sur l’investissement de valeur à long terme, et il est connu pour son approche patiente du marché boursier.

Les lettres annuelles de Buffett aux actionnaires de Berkshire Hathaway et ses citations perspicaces sur l’investissement en font une source d’inspiration pour les investisseurs du monde entier. Il figure régulièrement parmi les personnes les plus riches du monde.

Concepts financiers liés à la citation

Investissement à Long Terme

La citation souligne l’importance d’un horizon d’investissement à long terme. Les investisseurs à long terme se concentrent sur la détention d’actifs pendant une période prolongée pour bénéficier de l’effet de composition et minimiser l’impact des fluctuations du marché à court terme.

Patience face à la Volatilité du Marché

Elle met en lumière l’importance de la patience pendant la volatilité du marché. Les investisseurs patients sont moins susceptibles de paniquer et de prendre des décisions impulsives pendant les turbulences du marché, ce qui peut conduire à de meilleurs résultats.

Investissement de Valeur

La philosophie d’investissement de Buffett est ancrée dans l’investissement de valeur, qui implique d’identifier des actions sous-évaluées avec de solides fondamentaux et de les conserver sur le long terme. Ce concept met l’accent sur l’importance d’analyser la valeur intrinsèque d’une entreprise plutôt que les mouvements de prix à court terme.

J’ai choisi cette citation car elle transmet succinctement l’essence d’une prise de décision financière prudente. Warren Buffett, l’un des investisseurs les plus prospères de tous les temps, a bâti sa fortune sur le principe de la réflexion à long terme et de la patience disciplinée. Dans un monde où beaucoup cherchent des gains rapides, cette citation sert de rappel que l’accumulation de richesse en finance nécessite souvent une main ferme et une volonté de supporter la volatilité à court terme pour des récompenses à long terme. C’est une leçon intemporelle qui peut profiter à la fois aux investisseurs chevronnés et aux nouveaux venus dans le monde de la finance.

Cette citation est importante car elle transmet la sagesse de Warren Buffett, un investisseur légendaire connu pour son approche d’investissement axée sur la valeur et le long terme. Pour quiconque s’intéresse à la finance, elle fournit des perspectives pratiques et des stratégies pour une construction durable de richesse, s’inspirant de l’expérience de l’un des investisseurs les plus réussis de l’histoire.

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Ressources

Berkshire Hathaway’s 2022 Shareholder Letter

The Essays of Warren Buffett: Lessons for Corporate America

A propos de l’auteure

L’article a été rédigé en décembre 2023 par Medine ACAR (ESSEC Business School, Programme Bachelor in business administration (BBA) – 2020-2024).

Mon expérience professionnelle en tant que contrôleuse de gestion chez Carfuel

Mon expérience professionnelle en tant que contrôleuse de gestion chez Carfuel

Medine ACAR

Dans cet articleMedine ACAR (ESSEC Business School, Programme Bachelor in business administration (BBA) – 2020-2024) partage son experience professionnelle en tant que contrôleuse de gestion chez Carfuel.

Présentation de l’entreprise

Carfuel, une filiale du groupe Carrefour, est un acteur notable dans le secteur pétrolier français depuis sa création en 1976. Elle se positionne comme le 3ème opérateur pétrolier du pays. La société, avec un capital social de 17,5 millions d’euros, a généré un chiffre d’affaires impressionnant de 4,78 milliards d’euros en 2021.

Elle possède et opère plus de 1 300 stations-service à travers la France.

Le produit phare de Carfuel est la carte carburant Carrefour pour les professionnels, offrant des avantages tels que l’accès à des stations-service à prix compétitifs, une gestion simplifiée des dépenses en carburant, et des fonctionnalités pratiques pour le suivi des dépenses et la récupération de la TVA.

Logo de l’entreprise.
 Logo de Carrefour
Source : l’entreprise.

Le département

Le département de contrôle de gestion de Carfuel se concentre sur l’analyse et la surveillance financière de l’entreprise. Il gère les budgets, contrôle les coûts, et évalue les performances financières.

Les responsabilités de ce département incluent la préparation des rapports financiers, la conduite d’analyses de variance, et la collaboration avec d’autres départements pour optimiser les dépenses et améliorer l’efficacité. Ce département joue un rôle clé dans le soutien des décisions stratégiques et opérationnelles de Carfuel, assurant ainsi une gestion financière efficace.

Mon stage

Dans mon rôle d’Apprentie en Contrôle de Gestion au sein du Département de Contrôle de Gestion, j’ai activement contribué à la récupération efficace des créances, atteignant un montant significatif de plus de 1 million d’euros. Cette tâche nécessitait une gestion méticuleuse des litiges et des impayés, tout en assurant un reporting analytique précis et informatif pour nos équipes. De plus, j’ai habilement dirigé une équipe de sous-traitants, établissant des relations de travail solides et directes avec la direction.

En outre, j’étais responsable de la préparation de rapports et de tableaux de bord, ce qui impliquait une analyse détaillée des coûts et la validation des données financières. J’étais impliquée dans la communication des performances actuelles par rapport aux résultats précédents, fournissant ainsi des informations clés aux équipes pour soutenir la prise de décision et la planification stratégique.

Compétences et connaissances requises

Dans mon rôle chez Carfuel, la compétence en recouvrement de créances était primordiale pour assurer la santé financière de l’entreprise, en récupérant les fonds dus de manière efficace et en minimisant les pertes.

La maîtrise d’Excel était essentielle pour analyser avec précision les données financières et d’élaborer des rapports détaillés, permettant ainsi une meilleure prise de décision. De plus, le leadership et la gestion d’équipe étaient cruciaux pour coordonner et motiver une équipe de sous-traitants, garantissant l’efficacité et le respect des délais. Enfin, une bonne compréhension du secteur pétrolier et la capacité à établir des relations avec différentes directions étaient nécessaires pour contextualiser mon travail et optimiser les processus financiers.

Quelles ont été les bénéfices de cette expérience

Pendant mon apprenstissage chez Carfuel, j’ai eu l’opportunité d’enrichir mes compétences en gestion financière, me concentrant spécialement sur la gestion du crédit et la récupération des dettes. C’était une expérience immersive où j’ai pu développer mes talents d’analyse, notamment en exploitant intensément Excel pour analyser les données et élaborer des rapports pertinents.

Diriger et gérer une équipe de sous-traitants a été un véritable challenge, mais aussi une occasion incroyable de croissance personnelle dans les domaines du leadership et de la gestion d’équipe.

De plus, j’ai acquis une compréhension plus approfondie du secteur pétrolier et développé ma capacité à communiquer et à collaborer efficacement avec divers départements, améliorant ma vision globale des affaires et mon expertise financière.

Les concepts financiers en lien avec mon expérience

Recouvrement de créances

Mon rôle dans la récupération des créances est directement lié à ce concept. Un recouvrement de créances efficace est crucial pour maintenir la trésorerie de l’entreprise et sa stabilité financière.

Rapport financier et analyse

L’utilisation d’Excel pour une analyse financière détaillée et la création de rapports était une partie clé de mon travail, s’alignant sur ce concept. Un rapport précis aide à la prise de décision stratégique et à l’évaluation de la performance financière.

Gestion des coûts

Diriger une équipe de sous-traitants et optimiser les processus financiers touche à la gestion des coûts. Cela implique de contrôler et de réduire les dépenses pour améliorer la rentabilité de l’entreprise.

Un intérêt pour vous ?

Si vous êtes intéressé par une carrière dans la finance, cet article donne un aperçu concret et précieux de ce que signifie travailler dans la gestion financière au sein d’une grande entreprise. En partageant mon expérience de stage chez Carfuel, je vous donne un avant-goût de la réalité de la finance d’entreprise, en mettant l’accent sur des aspects pratiques tels que la gestion du crédit, le recouvrement de dettes, et l’analyse financière.

Vous découvrirez comment les compétences théoriques apprises se traduisent dans un environnement professionnel dynamique. Mon expérience illustre également l’importance des soft skills essentiels pour toute carrière dans la finance ?

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Ressources

Groupe Carrefour

A propos de l’auteure

L’article a été rédigé en décembre 2023 par Medine ACAR (ESSEC Business School, Programme Bachelor in business administration (BBA) – 2020-2024).

My experience as Digital Business Developer for Capture Europe

My experience as Digital Business Developer for Capture Europe

Michel Henry VERHASSELT

In this article, Michel Henry VERHASSELT (ESSEC Business School, Master in Finance, 2023-2025) shares his professional experience as Digital Business Developper at Capture Europe.

About the company

Capture Europe provides software solutions and IT services to businesses on an international scale, with a focus on European businesses. Partners of Broadcom and ServiceNow, their areas of expertise are mainly in Project Portfolio Management and Automation. Past clients include major banks, telecommunication companies, etc.

Logo of the company.
Logo of Capture Europe
Source: the company.

My role at Capture Europe

My missions

In my role as a Digital Business Developer at Capture Europe, my primary mission was to coordinate our sales and marketing teams. This multifaceted role demanded a diverse skill set and included various responsibilities. On the sales front, I screened prospects, transforming them into valuable sales-qualified leads. This process involved market and industry research, cold-calling, and reaching out to other potential clients, such as webinar attendees and conference participants.

Once the leads met our predefined criteria and expressed a genuine interest in partnering with Capture Europe, I connected them with the relevant business divisions within our company. This transition from prospect to sales-ready lead was pivotal in driving sales, and it was perhaps what I enjoyed most about the job. I had to learn to be comfortable talking to people in different positions of the corporate hierarchy, to change my style accordingly and make sure they were interested in what I had to say. I also had to learn to deal with rejection and sometimes rudeness. In the end, you get used to it, and you focus on achieving your goals.
On the marketing front, I played a role in bolstering our company’s online presence. This involved curating content for our social media platforms and leading marketing campaigns in collaboration with the rest of the team. I was responsible for developing compelling marketing materials, creating engaging presentations and webinars, and maintaining our extensive CRM database, which housed information on 2,000-3,000 customers.

As part of my administrative duties, I maintained regular communication with our executives, providing them with insightful updates on the performance of both the sales and marketing teams in relation to key performance indicators and our organization’s overarching goals. This holistic experience provided me with insights into the inner workings of our business and, I believe, helped my professional growth in general.

Throughout my tenure at Capture Europe, I consistently exceeded KPI sales targets, driving over €600,000 in revenue through strategic software sales. This experience not only enhanced my sales and marketing skills but also equipped me with a comprehensive understanding of how an enterprise operates.

Required skills and knowledge

A diverse skill set is needed to succeed as Digital Business Developer. Approximately half of my responsibilities revolved around leveraging analytical skills, while the other half emphasized interpersonal and communication abilities.

On the analytical side, a substantial portion of my time was dedicated to database analysis and market research. These tasks demanded a thorough understanding of research tools and data analysis techniques, allowing me to derive meaningful insights from large datasets. Familiarity with Customer Relationship Management (CRM) software was also indispensable, enabling the efficient management of customer data and facilitating data-driven decision-making.

Once I had identified promising prospects, my role transitioned to a more people-centric focus. Building and nurturing business relationships became pivotal. Effective interpersonal skills, coupled with the ability to initiate conversations and guide them towards a successful conclusion, played a vital role in securing sales. These skills were also essential for facilitating smooth collaboration and alignment between the marketing and sales teams, despite differing goals and expectations. It was not uncommon for conflicts to arise, with the teams’ managers occasionally holding conflicting opinions. In such scenarios, I often found myself in a diplomatic role, navigating the fine line between my role as an employee of the Head of Marketing and the imperative to ensure effective cooperation. My background in languages and translation proved invaluable in these situations, as it equipped me with the ability to employ nuanced language to reconcile differences and lead the teams to collectively achieve overarching project success.

What I learned

My tenure as a Digital Business Developer at Capture Europe provided me with insights into the workings of a business, from its microscale operations to the macroscopic strategic planning. Throughout my role, I gained a comprehensive understanding of various facets, including how different branches within the corporate structure collaborate and communicate to achieve common objectives.

On a microscale, I learned the intricacies of identifying potential sales opportunities and managing short-term projects efficiently. These experiences equipped me with practical insights into the day-to-day operations of a business, highlighting the importance of timely execution and attention to detail.

On a macroscale, I had the privilege of observing how executives manage and coordinate teams to achieve long-term organizational goals. This perspective allowed me to comprehend the complexities of aligning individual efforts with the overarching mission of the company.

In terms of interpersonal skills, my role exposed me to the nuances of effective communication, diplomacy, and conflict resolution within a professional setting. I encountered challenging scenarios, learned how to navigate workplace conflicts, and honed my ability to maintain productive relationships, even when dealing with difficult customers. This aspect of my experience underscored the importance of empathy, patience, and adaptability when addressing customer concerns and achieving favourable outcomes.

Lastly, I acquired a range of hard skills, most notably advanced proficiency in Excel. The practical utilization of Excel tools and functions in data analysis and reporting became a crucial component of my daily responsibilities. This experience enhanced my analytical capabilities and has proven to be an asset in various professional contexts.

In essence, my time at Capture Europe provided me with a holistic view of business operations, from the smallest details of day-to-day tasks to the grand strategies of executives. It also honed my people skills and hard skills. These experiences have collectively contributed to my personal and professional growth.

Financial concepts related my internship

Return on Investment

As a Digital Business Developer, understanding ROI is essential. Your role involves identifying sales opportunities, conducting market research, and implementing marketing campaigns. These efforts all incur costs, and it’s crucial to measure the return on these investments. We would continually be measuring our efforts against the overall marketing budget, and gauging how cost-effective our campaigns were. For example, some menial tasks involve a lot of man-hours, like screening thousands of prospects’ backgrounds – would it be smarter for the organization to automate this work ? It is not at all obvious without thorough analysis of the specific costs of both options. It was my suggestion to management, but it was ultimately rejected as too costly.

You need to analyze the effectiveness of marketing campaigns, sales efforts, and the overall impact on the company’s bottom line. Knowledge of ROI enables you to assess whether your strategies are generating profitable outcomes or if adjustments are required.

Customer Lifetime Value

This concept, akin to ROI but with a more personalized focus, comes into play when dealing with numerous potential clients daily. In such a dynamic environment, you must make choices and prioritize certain relationships over others. It’s important to recognize that the most promising business relationships might not yield immediate success. Patience is key, as nurturing long-term client relations can be more valuable. While a single, small to medium-sized contract may not suffice to meet your KPIs or drive significant company growth, establishing trust with a long-term partner can be more advantageous. These enduring partnerships offer the potential for recurring contracts and cross-selling opportunities once clients appreciate the value you bring to their business, making them exceptionally valuable.

Cash-flow analysis

Cash-flow analysis serves as the linchpin that connects both ROI and CLV. To ascertain ROI, you must meticulously track the flow of financial resources. It involves assessing the inflow and outflow of cash within the business, to ensure liquidity and overall financial stability. Similarly, when considering CLV, understanding the organization’s cash flow is vital. It enables you to determine the feasibility of nurturing long-term client relationships, as you can evaluate the available funds to support these efforts over an extended period.

Why should I be interested in this job?

Imagine your finance studies as the “what” of the financial world – understanding numbers, investments, and markets. But a successful finance professional needs the “how” and “why” too. That’s where my experience as a Digital Business Developer comes into play.

You’ll need to grasp how different parts of a company connect and impact each other. My role helped me understand this interconnected web of business operations. You’ll appreciate this holistic perspective when you’re making financial decisions that affect the entire organization.

Moreover, I often needed to take the role of a team leader. Leadership and teamwork are more than buzzwords. Your finance journey won’t be a solo ride; you’ll work in teams with different goals. My time as a coordinator taught me how to lead, resolve conflicts, and unite people towards a common objective. This is the reality of working within a larger structure: managing projects, working with diverse teams, and making things happen together.

Externally, building relationships and securing deals were crucial in my role. These soft skills are a finance must-have too. Whether you’re advising clients in private banking or large institutions and businesses in corporate and commercial banking, it’s all about understanding others’ needs and offering tailored solutions. Your people skills will play a significant role in your future success.

Finally, in terms of hard skills, Digital Business Developers need to wield a variety of tools to garner meaningful business insight and drive sales. In finance, you’ll likewise need to use models and analysis tools for similar goals: to assess the feasibility of your projects, study potential risks, and compare them to the rewards.

In a nutshell, my journey as a Digital Business Developer gives you a sneak peek into the “real world” of a business. It’s like having a backstage pass to understand how businesses run, the art of teamwork, and the tools to navigate the corporate maze. So, when you blend this with your finance studies at ESSEC, you’re not just learning about finance – you’re becoming the kind of finance professional who can thrive in any role in the industry.

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   ▶ Louise PIZON My professional experience as a business developer at AJISO

   ▶ Jérémy PAULEN My Marketing Developer Experience

   ▶ Snehasish CHINARA My Experience as an External Junior Consultant with Eurogroup Consulting

Useful resources

Capture Europe

What is Digital Business Development

Marketing Strategies for Financial Services

About the author

The article was written in December 2023 by Michel Henry VERHASSELT (ESSEC Business School – Master in Finance, 2023-2025).

Risk comes from not knowing what you are doing

Risk comes from not knowing what you are doing

Michel Henry VERHASSELT

In this article, Michel Henry VERHASSELT (ESSEC Business School – Master in Finance, 2023-2025) comments on a quote by Warren Buffet about risk.

“Risk comes from not knowing what you are doing”

Analysis of the quote

Warren Buffett’s quote, “Risk comes from not knowing what you are doing,” encapsulates a fundamental principle of investing and decision-making. It underscores the significance of knowledge, research, and informed decision-making in managing risk.

One key aspect of this quote is the idea that risk is not solely a result of the inherent uncertainty in investments or ventures. Rather, risk is often the consequence of making decisions without a comprehensive understanding of the situation. In the world of finance and investing, not knowing the intricacies of an investment or the market can lead to hasty, ill-informed choices that carry a higher level of risk.

Moreover, this quote stresses the importance of education and continuous learning in risk management. To minimize risk, individuals need to invest time and effort in gaining knowledge and expertise within their chosen domain. For investors, this means understanding the companies or assets they invest in, analysing financial statements, and staying informed about market trends.

In a broader context, this quote is not limited to finance; it applies to various aspects of life. In personal life just as in business, forgoing the careful analysis of the potential consequences of one’s actions can lead to very negative outcomes. Decisions made in haste, out of anger, excitement, disappointment, and other strong emotions generally tend to be mistakes. Patience and forethought tend to be rewarded.

In essence, Warren Buffett’s quote reminds us that risk is not an abstract force beyond our control. It is, to a significant extent, a product of our knowledge and decisions. By equipping ourselves with information, staying well-informed, and making deliberate choices, we can effectively manage and mitigate risk in both our financial and personal pursuits.

About the author

Warren Buffett is a renowned American investor and CEO of Berkshire Hathaway, known for his value investing approach and philanthropic efforts. His net worth consistently places him among the world’s wealthiest individuals. However, he is equally renowned for his commitment to philanthropy, pledging the majority of his fortune to charitable causes, primarily through the Bill & Melinda Gates Foundation. Buffett’s influence extends far beyond the financial world, making him a respected figure in both business and philanthropy. His life and career continue to inspire countless investors and entrepreneurs worldwide.

Financial concepts related to the quote

Risk management

Of course, the concept most directly related to the quote is risk management. That is perhaps the most fundamental concept of finance. We are dealing with unknowns, probabilities, and expectations. We must make sure that, through careful analysis, we eliminate as much downside potential as possible: that is the only way to guarantee long-term survival (and a fortiori, long-term success). This goal can only be achieved once a thorough understanding is reached of the assets and markets we invest in, and the people we invest or transact with. Without such an understanding, we create unnecessary risk and that will almost assuredly lead to financial losses sooner or later.

Due diligence

The quote underscores the significance of “knowing what you are doing”. In finance, we call this conducting due diligence. It involves comprehensive research and analysis before making any financial commitment. This includes examining a company’s financials, understanding market dynamics, and evaluating potential investments. Without proper due diligence, individuals may enter financial ventures blindly, exposing themselves to significant risks.

Portfolio diversification

One of the ways in which we mitigate risk is portfolio diversification. When we add assets to our portfolio, we want to reduce or eliminate the risk that comes with exposure to one specific investment, while keeping as much of the return as possible. The concept of beta directly stems from the idea of portfolio diversification. By sticking to a single asset, you are entirely and solely exposed to its volatility; by wholly diversifying your portfolio, you are theoretically reproducing the entire market, making your beta equal to 1, or in other words turning your risk exposure into the market risk. In conclusion, portfolio diversification is a fundamental strategy for risk mitigation in investment, and closely aligns with the quote’s meaning.

My opinion about this quote

In my opinion, Warren Buffett was talking about investing and not trading. However, as my experience and interests are closer to trading than investing, I see it as a useful quote within that context.

Firstly, let’s talk about stop-losses. They’re your safety net. You set them at a certain point where, if the trade goes sour, you bail out. But if you don’t know why you’re placing a stop-loss at a particular level, it’s like playing darts blindfolded. You might hit the target, but it’s mostly luck. Understanding the underlying reasons for your stop-losses is crucial. It’s not just a random number; it’s based on your analysis.

Managing position size is another important element to consider. If you don’t know what you’re doing, you might risk your entire account on a single, promising, trade, much like going all-in on a hand of poker simply because you were dealt a pair of aces. Position sizing is about controlling risk. You need to understand how much you can afford to lose and then adjust your position size accordingly. If you don’t, you’re setting yourself up for potential disaster. It’s important to remember you never know the market, you simply might sometimes guess better than others. Outside of arbitrage or insider trading, certainty does not exist in trading; hence, position size should always be managed intelligently.

Hedging is also related to this quote. A hedge is a plan B. If you are long on a stock, and you are not certain which direction the market will take, you can reduce your risk by creating another position with options or other derivatives. But, if you don’t know how these instruments work or why you’re using them, it’s like having a spare tire but not knowing how to change it. You might end up with two flat tires instead of one.

Lastly, getting an edge on the market. Ultimately this is what every trader claims to be able to do. It boils down, almost entirely, to risk management. You must know your strategy inside out, and you must know exactly what you plan to do if you don’t get this expected edge out of your trade. In this way, over the long run, you can have either a majority of winning trades of equal sizes, or winning trades that outweigh the losing ones in terms of net gain. To have an edge, you need to understand why your approach works, when it might not, and continuously adapt.

In short, in trading and more generally in finance, ignorance isn’t bliss; it’s a one-way ticket to risk.

Why should I be interested in this post?

A finance student should be interested in this post because risk is the single most important concept to understand both in finance and in business. In this post, I believe I have made this concept compelling for students by going beyond theory. My post is also practical. It talks about real-world applications like setting stop-losses, managing position size, and hedging with financial products. These are the tools used daily by finance professionals in capital markets.

Furthermore, finance is all about making sound decisions, and you can’t do that effectively without understanding how to control and mitigate risk. What’s even more interesting is that it clarifies a common misconception. It tells you that gaining an edge in the financial market isn’t about having secret knowledge. It’s understanding your approach and the markets you’re dealing with. Being aware of the importance of risk management is therefore crucial for a wide range of careers and that is why a finance student should take an interest in it.

Related posts on the SimTrade blog

   ▶ All posts about Quotes

   ▶ Federico DE ROSSI The Power of Patience: Warren Buffett’s Advice on Investing in the Stock Market

   ▶ Rayan AKKAWI Warren Buffet and his basket of eggs

   ▶ Jianen HUANG It’s not whether you’re right or wrong

   ▶ Clara PINTO Investment is a flighty bird which needs to be controlled

Useful resources

Are Stop-Losses Necessary?

Diversifying your portfolio with a lower net worth

Sharpe’s classic 1964 article on CAPM

About the author

The article was written in December 2023 by Michel Henry VERHASSELT (ESSEC Business School – Master in Finance, 2023-2025).

Ethereum – Unleashing Blockchain Innovation

Ethereum – Unleashing Blockchain Innovation

 Snehasish CHINARA

In this article, Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024) explains Bitcoin which is considered as the mother of all cryptocurrencies.

Historical context and background

Ethereum is a groundbreaking blockchain platform that emerged in the wake of Bitcoin’s success in 2015. While Bitcoin introduced and popularized the blockchain concept, Ethereum has leveraged this technology more effectively than any other digital currency. Promoters of new projects tend to rely on Ethereum’s tools rather than embark on the lengthy and expensive process of developing a new blockchain. Ethereum was conceived by a young Canadian programmer, Vitalik Buterin, who saw limitations in Bitcoin’s functionality and envisioned a decentralized platform capable of executing smart contracts. Buterin’s idea gained traction in the cryptocurrency community, and he, along with a team of developers, published the Ethereum whitepaper in late 2013. The platform’s official development began in 2014, with a crowdfunding campaign that raised over $18 million in Bitcoin, making it one of the most successful initial coin offerings (ICOs) of its time. Ethereum’s genesis block was mined on July 30, 2015, marking the official launch of the network.

Ethereum’s innovative concept of smart contracts and decentralized applications (DApps) quickly garnered attention within the blockchain and cryptocurrency space. The platform introduced a Turing-complete programming language, enabling developers to create a wide array of decentralized applications. Ethereum’s native cryptocurrency, Ether (ETH), serves as both a digital currency and a utility token within the ecosystem. Over the years, Ethereum has undergone several network upgrades to improve scalability and security, most notably the transition from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism with the Ethereum 2.0 upgrade. This transition aims to address the network’s scalability issues and reduce its energy consumption, positioning Ethereum as a sustainable and versatile blockchain platform for the future. Today, Ethereum continues to play a pivotal role in the blockchain and decentralized finance (DeFi) space, powering a vast array of projects, including NFT platforms, decentralized exchanges, and decentralized applications that have reshaped the way we think about finance and technology.

Ethereum Logo
Ethereum Logo
Source: Yahoo! Finance .

Figure 1. Key Dates in Ethereum History
 Key Dates in Ethereum History
Source: Yahoo! Finance .

Key Features of Ethereum

Smart Contracts

Ethereum is renowned for its pioneering smart contract functionality. Smart contracts are self-executing agreements with predefined rules and conditions, enabling automated and trustless transactions. This feature has broad applications in various industries, including finance, supply chain management, and legal services.

Decentralization

Ethereum operates on a decentralized network of nodes, making it resistant to censorship and single points of failure. This decentralization ensures the security and integrity of the blockchain, with no single entity having control over the network.

Ether (ETH)

Ethereum’s native cryptocurrency, Ether, serves as both a digital currency and a utility token. It’s used to pay for transaction fees, secure the network through staking in Ethereum 2.0, and as a medium of exchange within the ecosystem.

Interoperability

Ethereum is designed to interact with other blockchains and networks, fostering compatibility and collaboration across the blockchain ecosystem. Projects like Polkadot and Cosmos aim to enhance this interoperability.

EVM (Ethereum Virtual Machine)

The Ethereum Virtual Machine is a runtime environment for executing smart contracts. It’s a critical component that ensures the same execution of smart contracts across all Ethereum nodes, making Ethereum’s ecosystem reliable and consistent.

EIPs (Ethereum Improvement Proposals)

Ethereum has a robust governance model for protocol upgrades and improvements, with EIPs serving as the mechanism for proposing and implementing changes. This allows for community-driven innovation and adaptation.

Use Cases of Ethereum

Decentralized Finance (DeFi)

Ethereum is at the heart of the DeFi movement, offering lending, borrowing, trading, and yield farming services through DApps like Compound, Aave, and Uniswap. DeFi has disrupted traditional finance, providing open and inclusive access to financial services.

Non-Fungible Tokens (NFTs)

Ethereum’s ERC-721 and ERC-1155 token standards have fueled the NFT boom. NFTs enable the ownership and trade of unique digital assets, from art and music to virtual real estate and collectibles, all recorded on the blockchain.

Supply Chain Management

Ethereum’s transparent and tamper-proof ledger is used to track and verify the authenticity and provenance of products. This enhances supply chain efficiency and trust, reducing fraud and counterfeiting.

Gaming and Virtual Worlds

Ethereum is the platform of choice for blockchain-based gaming and virtual reality experiences. DApps like Decentraland and Axie Infinity allow users to trade in-game assets and participate in virtual economies.

Tokenization of Assets

Real-world assets, such as real estate, stocks, and commodities, can be tokenized on the Ethereum blockchain, making them more accessible for investment and trading.

Identity Verification

Ethereum can be used to secure and manage digital identities, enhancing privacy and reducing the risk of identity theft.

Social Impact

Ethereum is leveraged for social impact projects, including humanitarian aid distribution, voting systems, and tracking philanthropic donations, ensuring transparency and accountability.

Content Distribution

Ethereum-based projects are exploring decentralized content platforms, enabling creators to have more control over their intellectual property and revenue.

Ethereum’s versatility and ongoing development make it a crucial platform for a wide range of applications, from financial innovation to social change and beyond, driving the evolution of the blockchain and cryptocurrency space.

Technology and underlying blockchain

Ethereum’s underlying technology is rooted in blockchain, a distributed ledger system known for its security, transparency, and decentralization. Ethereum, like Bitcoin, employs a blockchain to record and verify transactions, but it offers a distinct set of features and capabilities that set it apart. At the core of Ethereum’s technology is the Ethereum Virtual Machine (EVM), a decentralized computing environment that executes smart contracts. Smart contracts are self-executing agreements with predefined rules and conditions that automate processes without the need for intermediaries.

Ethereum uses a consensus mechanism known as Proof of Stake (PoS), which is a significant departure from Bitcoin’s Proof of Work (PoW). PoS allows network participants, known as validators, to create new blocks and secure the network by locking up a certain amount of Ether as collateral. This approach is more energy-efficient and scalable compared to PoW, addressing some of the limitations that Bitcoin faces. Ethereum’s blockchain is a public and permissionless network, meaning that anyone can participate, transact, and develop decentralized applications (DApps) on the platform without needing approval.

The Ethereum ecosystem also employs a variety of token standards, with ERC-20 and ERC-721 being the most well-known. ERC-20 tokens are fungible and often used for cryptocurrencies, while ERC-721 tokens are non-fungible and have powered the explosion of NFTs (Non-Fungible Tokens). These standards have facilitated the creation and interoperability of a vast array of digital assets and DApps on the platform. Ethereum’s robust governance model, through Ethereum Improvement Proposals (EIPs), allows the community to suggest and implement changes, ensuring that the platform remains adaptable and responsive to evolving needs and challenges. Ethereum’s groundbreaking technology and active development community have positioned it as a leader in the blockchain space, with far-reaching implications for industries beyond just cryptocurrencies.

Supply of coins

Ethereum initially used a proof-of-work (PoW) consensus algorithm for coin mining, similar to Bitcoin. The process involved miners solving complex mathematical puzzles to validate transactions and add new blocks to the blockchain. Miners competed to solve these puzzles, and the first one to succeed was rewarded with newly minted Ethereum coins (ETH). This process was resource-intensive and required significant computational power.

However, Ethereum has been undergoing a transition to a proof-of-stake (PoS) consensus mechanism as part of its Ethereum 2.0 upgrade. The PoS model doesn’t rely on miners solving computational puzzles but instead relies on validators who lock up a certain amount of cryptocurrency as collateral to propose and validate new blocks. Validators are chosen to create new blocks based on the amount of cryptocurrency they hold and are willing to “stake” as collateral.

This transition to PoS is occurring in multiple phases. The Beacon Chain, which is the PoS blockchain that runs parallel to the existing PoW chain, was launched in December 2020. The full transition to Ethereum 2.0, including the complete shift to PoS, is expected to occur in multiple subsequent phases.

As of Q1 2023, there are approximately 121,826,163.06 Ethereum (ETH) coins in circulation, a key distinction from Bitcoin, which has a capped supply of 21 million. Ethereum, created by Vitalik Buterin, was designed without a specific supply limit, allowing for an unlimited number of coins if mining continues. Despite this, there is a cap of 18 million ETH coins that can be mined annually, equating to around 2 ETH per block. Ethereum Classic (ETC), a separate blockchain resulting from a community dispute, also exists with 135.3 billion coins. The Ethereum blockchain’s size was 175 GB in 2021, considerably smaller than Bitcoin’s 412 GB. Approximately 5750 Ethereum blocks are mined daily, with mining difficulty increasing and around 2,151 active nodes globally, primarily in the USA. Ethereum’s potential to become deflationary is acknowledged, contingent on mining costs exceeding rewards, as stated in a GitHub disclaimer.

Figure 2. Number of Ethereum Transaction per Day
Number of bitcoins in circulation
Source: BitInfoCharts (Ethereum Transactions historical chart).

Historical data for Ethereum

How to get the data?

The Ethereum is the most popular cryptocurrency on the market, and historical data for the Ethereum such as prices and volume traded can be easily downloaded from the internet sources such as Yahoo! Finance, Blockchain.com & CoinMarketCap. For example, you can download data for Ethereum on Yahoo! Finance (the Yahoo! code for Ethereum is ETH-USD).

Figure 4. Ethereum data
 Ethereum data
Source: Yahoo! Finance.

Historical data for the Ethereum market prices

Historical data on the price of Ethereum holds paramount significance in understanding the cryptocurrency’s market trends, investor behavior, and overall performance over time. Analyzing historical price data allows investors, analysts, and researchers to identify patterns, cycles, and potential indicators that may influence future price movements. It provides valuable insights into market sentiment, periods of volatility, and the impact of significant events or developments within the Ethereum ecosystem. Traders use historical data to formulate strategies, assess risk, and make informed decisions. Furthermore, the data aids in evaluating the success of protocol upgrades, regulatory changes, and shifts in broader economic conditions, offering a comprehensive view of Ethereum’s evolution. The historical price data of Ethereum serves as a crucial tool for market participants seeking to navigate the dynamic and sometimes unpredictable nature of the cryptocurrency market.

With the number of coins in circulation, the information on the price of coins for a given currency is also important to compute Ethereum’s market capitalization.

Figure 5 below represents the evolution of the price of Ethereum in US dollar over the period Nov 2017 – Dec 2023. The price corresponds to the “closing” price (observed at 10:00 PM CET at the end of the month).

Figure 5. Evolution of the Ethereum price

Source: Yahoo! Finance.

R program

The R program below written by Shengyu ZHENG allows you to download the data from Yahoo! Finance website and to compute summary statistics and risk measures about the Ethereum.

Download R file

Data file

The R program that you can download above allows you to download the data for the Ethereum from the Yahoo! Finance website. The database starts on December, 2017.

Table 3 below represents the top of the data file for the Ethereum downloaded from the Yahoo! Finance website with the R program.

Table 3. Top of the data file for the Ethereum.
Top of the file for the Ethereum data
Source: computation by the author (data: Yahoo! Finance website).

Python code

You can download the Python code used to download the data from Yahoo! Finance.

Download the Excel file with Ethereum data

Python script to download Ethereum historical data and save it to an Excel sheet::

import yfinance as yf
import pandas as pd

# Define the ticker symbol for Ethereum
eth_ticker = “ETH-USD”

# Define the date range for historical data
start_date = “2020-01-01”
end_date = “2022-01-01”

# Download historical data using yfinance
eth_data = yf.download(eth_ticker, start=start_date, end=end_date)

# Create a Pandas DataFrame from the downloaded data
eth_df = pd.DataFrame(eth_data)

# Define the Excel file path
excel_file_path = “ethereum_historical_data.xlsx”

# Save the data to an Excel sheet
eth_df.to_excel(excel_file_path, sheet_name=”ETH Historical Data”)

print(f”Data saved to {excel_file_path}”)

# Make sure you have the required libraries installed and adjust the “start_date” and “end_date” variables to the desired date range for the historical data you want to download.

Evolution of the Ethereum

Figure 6 below gives the evolution of the Ethereum on a daily basis.

Source: computation by the author (data: Yahoo! Finance website).

Figure 6. Evolution of the Ethereum.

Source: computation by the author (data: Yahoo! Finance website).

Figure 2 below gives the evolution of the Ethereum returns from November 09, 2017 to December 31, 2022 on a daily basis.

Figure 7. Evolution of the Ethereum returns.

Source: computation by the author (data: Yahoo! Finance website).

Summary statistics for the Ethereum

The R program that you can download above also allows you to compute summary statistics about the returns of the Ethereum.

Table 4 below presents the following summary statistics estimated for the Ethereum:

  • The mean
  • The standard deviation (the squared root of the variance)
  • The skewness
  • The kurtosis.

The mean, the standard deviation / variance, the skewness, and the kurtosis refer to the first, second, third and fourth moments of statistical distribution of returns respectively.

Table 4. Summary statistics for the Ethereum.
Summary statistics for the Ethereum
Source: computation by the author (data: Yahoo! Finance website).

Statistical distribution of the Ethereum returns

Historical distribution

Figure 8 represents the historical distribution of the Ethereum daily returns for the period from November 09, 2017 to December 31, 2022.

Figure 8. Historical Ethereum distribution of the returns.

Source: computation by the author (data: Yahoo! Finance website).

Gaussian distribution

The Gaussian distribution (also called the normal distribution) is a parametric distribution with two parameters: the mean and the standard deviation of returns. We estimated these two parameters over the period from November 09, 2017 to December 31, 2022. The annualized mean of daily returns is equal to 30.81% and the annualized standard deviation of daily returns is equal to 62.33%.

Figure 9 below represents the Gaussian distribution of the Ethereum daily returns with parameters estimated over the period from November 09, 2017 to December 31, 2022.

Figure 9. Gaussian distribution of the Ethereum returns.

Source: computation by the author (data: Yahoo! Finance website).

Risk measures of the Ethereum returns

The R program that you can download above also allows you to compute risk measures about the returns of the Ethereum.

Table 5 below presents the following risk measures estimated for the Ethereum:

  • The long-term volatility (the unconditional standard deviation estimated over the entire period)
  • The short-term volatility (the standard deviation estimated over the last three months)
  • The Value at Risk (VaR) for the left tail (the 5% quantile of the historical distribution)
  • The Value at Risk (VaR) for the right tail (the 95% quantile of the historical distribution)
  • The Expected Shortfall (ES) for the left tail (the average loss over the 5% quantile of the historical distribution)
  • The Expected Shortfall (ES) for the right tail (the average loss over the 95% quantile of the historical distribution)
  • The Stress Value (SV) for the left tail (the 1% quantile of the tail distribution estimated with a Generalized Pareto distribution)
  • The Stress Value (SV) for the right tail (the 99% quantile of the tail distribution estimated with a Generalized Pareto distribution)

Table 5. Risk measures for the Ethereum.
Risk measures for the Ethereum
Source: computation by the author (data: Yahoo! Finance website).

The volatility is a global measure of risk as it considers all the returns. The Value at Risk (VaR), Expected Shortfall (ES) and Stress Value (SV) are local measures of risk as they focus on the tails of the distribution. The study of the left tail is relevant for an investor holding a long position in the Ethereum while the study of the right tail is relevant for an investor holding a short position in the Ethereum.

Why should I be interested in this post?

Ethereum, the pioneering blockchain platform, is an essential topic for management students due to its potential to transform industries, create innovative business opportunities, and disrupt traditional financial systems. Understanding Ethereum’s smart contracts, DeFi ecosystem, NFT market, and global impact can provide students with a competitive edge in a rapidly evolving business landscape, enabling them to navigate emerging trends, make informed investment decisions, and explore entrepreneurship in the digital economy.

Related posts on the SimTrade blog

About cryptocurrencies

▶ Snehasish CHINARA Bitcoin: the mother of all cryptocurrencies

▶ Snehasish CHINARA How to get crypto data

▶ Alexandre VERLET Cryptocurrencies

▶ Youssef EL QAMCAOUI Decentralised Financing

▶ Hugo MEYER The regulation of cryptocurrencies: what are we talking about?

About statistics

▶ Shengyu ZHENG Moments de la distribution

▶ Shengyu ZHENG Mesures de risques

▶ Jayati WALIA Returns

Useful resources

Academic research about risk

Longin F. (2000) From VaR to stress testing: the extreme value approach Journal of Banking and Finance, N°24, pp 1097-1130.

Longin F. (2016) Extreme events in finance: a handbook of extreme value theory and its applications Wiley Editions.

Data

Yahoo! Finance

Yahoo! Finance Historical data for Ethereum

CoinMarketCap Historical data for Ethereum

About the author

The article was written in December 2023 by Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024).

One can never determine when a stock has reached its lowest point

One can never determine when a stock has reached its lowest point

David GONZALEZ

In this article, David GONZALEZ (ESSEC Business School, Global BBA, 2023-2024) comments on the quote by Peter Lynch, “one can never determine when a stock has reached its lowest point”.

“one can never determine when a stock has reached its lowest point”. – Peter Lynch

Analysis of the quote

In the market, it’s common to witness some investors attempting to take advantage of the plummet of a financial asset, hoping to purchase it at a lower price, with the sole reference being its current price. As Peter Lynch wisely noted, “Trying to buy a plummeting asset is like trying to catch a falling knife. As a rule, it’s best to wait until the knife hits the ground, sticks, vibrates for a while, and only then attempt to catch it. Grabbing a rapidly falling stock leads to unpleasant surprises.”

About the author of the quote

Peter Lynch is one of the most renowned American investors who directed the Fidelity Magellan Fund from 1977 to 1990, under his leadership, it became one of the most successful mutual funds of all time. Currently, Peter Lynch serves as the Vice President of Fidelity Management & Research Company.

His book emphasizes an investment policy grounded in facts, implying that any small investor who recognizes a company’s success even before it becomes popular in the market can profit by purchasing shares before the flood of Wall Street buyers arrives. He also underscores that following “market experts” is a recipe for financial ruin.

Financial concepts related to the quote

I explain below three financial concepts related to this quote: volatility, price, and uncertainty.

Volatility

In precise terms, volatility in the financial market pertains to the speed at which an asset’s price can fluctuate. For instance, “one of the most volatile assets currently present in the market is cryptocurrency. In 2018, the monetary value of a single Bitcoin plummeted from slightly below $20,000 to less than $3,500” (Bodie, Kane, Marcus; 2021). Consequently, it is imperative to comprehend that when the price of an asset experiences rapid changes, it is typically attributable to a volatile market atmosphere. An effective gauge for assessing volatility is the VIX or Volatility Index. Once this index surpasses a threshold of 20, it indicates the presence of a volatile market climate. It is incumbent upon investors to remain cognizant of market volatility prior to taking positions.

Price Signifies Nothing

It must be understood that the price of an asset will never be a reliable indicator to determine whether an asset is oversold or not. To illustrate this point, let’s consider the case of oil prices, which on April 20, 2020, reached $0 USD. Clearly, many investors who sought to buy futures on this asset “at a bargain” ended up losing a significant amount of money. It is essential, therefore, for investors to look at other indicators before taking positions. Some of these indicators may include the previously mentioned VIX, keeping an eye on economic news such as the Federal Open Market Committee (FOMC), where the Fed communicates its decisions regarding interest rates, or even waiting for specific company results. Each trader must analyze the fundamentals of an asset to determine whether it is undervalued or not, as determining this solely based on price is misleading.

Uncertainty

One of the most common reasons for financial market downturns is uncertainty. During crises such as the COVID-19 pandemic or the subprime crisis, all investors seek to withdraw their money from the market simply because it is unclear what the future holds. The question for the trader is: if other investors are withdrawing their funds because they do not know what the near future holds for that asset, why invest there? It is better to have certainty that, based on results or improved expectations, the asset can be purchased at a lower price.

My opinion about this quote

Indeed, it is one of the key principles all traders should keep in mind when managing their finances. I believe that the most important aspect of investing is not just making money, it is avoiding losses due to lack of knowledge. I am among the investors who believe that as you gather more information, the risk of investing decreases. Therefore, determining that an asset is oversold with the sole source of information being its price is one of the biggest risks one can take in this business. I encourage traders to analyze this quote, as to succeed in the stock market, the most important thing is to avoid making impulsive decisions. Each investment decision should be executed following a consistent strategy or research.

Why should I be interested in this post?

Are you interested in starting to invest in the financial market? Do you want to learn how volatility and uncertainty affect asset prices? Would you like to take advantage of price drops in assets but are unsure when to buy? If your answer to these questions is affirmative, I invite you to read this post, as it will discuss all the topics related to these ideas. It will provide you with a more realistic view of what happens in the market, allowing you to resist the temptation of impulsive investing.

Related posts on the SimTrade blog

   ▶ All post about Quotes

   ▶ Lou PERRONE Beyond Comfort: Navigating the Balance Between Risk and Reward in Finance

   ▶ Jianen HUANG It’s not whether you’re right or wrong

   ▶ Clara PINTO Investment is a flighty bird which needs to be controlled

Useful resources

Hull J.C. (2021) Options, Futures, and Other Derivatives Pearson, 11th Edition.

Lynch, P. (2015) One Up On Wall Street. Editorial: Titivillus.

About the author

The article was written in December 2023 by David GONZALEZ (ESSEC Business School, Grande Ecole Program – Global BBA, 2023-2024).

Discovering the Secrets of a Bank Trading Room

Discovering the Secrets of a Bank Trading Room

David GONZALEZ

In this article, David GONZALEZ (ESSEC Business School, Global BBA, 2023-2024) delves into the amazing yet often concealed aspects that frequently transpire within different bank trading rooms. This investigation is rooted in his experiences at Banco Industrial y de Comercio Exterior (BICE).

BICE Bank

BICE Bank was founded in 1979 in Santiago, Chile, under the name Banco Industrial y de Comercio Exterior by a significant group of Chilean investors associated with some of the country’s leading export companies. Currently, BICE Bank has focused on providing services to high-income individuals in Chile. Currently, it is the seventh-highest commercial bank in Chile.

Logo of the company.
Logo of Banco BICE
Source: the company.

My Internship at BICE

Ever since I was young, I have been drawn to the financial markets. This was the primary reason that led me to select a nine-month internship in the Market Risk and Liquidity division, a component of the trading room at BICE Bank. My primary responsibility was to provide daily reports on various risk indicators to the trading room, with a particular emphasis on highlighting the changes resulting from different trades conducted during the day. In the following paragraphs, I will provide a brief overview of some of the main indicators I was tasked with explaining, after that, I am going to talk about some interesting things that every aspiring trader should know about this business.

The risk indicators that I was in charge of

Value at Risk (VaR)

This indicator aims to quantify the worst-case scenario of losses in the bank’s portfolio, taking into account historical market data. In other words, it provides an estimate of the likely amount of money the portfolio could lose in a day of financial crisis (a stress scenario).

Present Value of 1 Basis Point (PV01)

This indicator seeks to quantify the potential loss in the portfolio resulting from a one-basis-point increase in interest rates. It is important to note that this indicator is applicable only to fixed-income assets, as it attempts to predict the change in the value of a bullet bond that is dependent on interest rate fluctuations.

Liquidity Coverage Ratio (LCR)

Have you ever heard of interbank loans? This indicator is of paramount importance to bankers as it assesses whether the bank possesses sufficient liquidity as required by regulatory standards or even for normal day-to-day operations. If the LCR falls below a certain threshold, the bank may need to enter into arrangements with a counterparty to borrow funds and restore this indicator to compliance.

Credit Value Adjustment (CVA)

Have you ever heard of the over-the-counter (OTC) market? Unlike centralized exchanges that guarantee the money or assets being traded, the OTC market lacks such centralized assurance. Banks frequently engage in OTC transactions, and the primary means by which they protect themselves against counterparty risk is through CVA. This is computed based on the credit rating of the counterparty. The CVA indicator reveals the bank’s exposure in relation to the counterparties with whom it conducts transactions.

Required skills and knowledge

In general, large trading rooms not only trade on the stock exchange, which is widely known, but they also engage in transactions in the over-the-counter (OTC) market. It was crucial for me to understand how this market operates, including what a swap is, what a forward contract entails, and how interest rates and inflation expectations influence the financial market. This knowledge was essential because I needed to stay informed about how macroeconomic factors or new transactions affected the bank’s portfolio. Every move in each risk indicator had to make economic or financial sense before being reported to the traders.

As for soft skills, effective communication when required was clearly important. Maintaining composure and seeking solutions rather than assigning blame when issues arose at work were vital skills as well. Furthermore, the ability to proactively seek solutions independently before seeking assistance from someone who might be occupied with their own tasks was crucial.

What just few people know (knowing the business)

Understanding Different Types of Trading Rooms: A Crucial Insight for Aspiring Traders

When I started working at BICE Bank, my boss told me that the bank had two trading rooms: one of them was the main trading room of the bank, and the other was the trading room of the stockbrokerage (which is a subsidiary of the bank). Obviously, this didn’t make sense to me, and I wondered, what is the reason for having two different trading rooms on two different floors of the building? When I expressed this concern to my boss, he explained, “It’s because they are oriented towards different sides. The main trading room focuses on the buy side, which means that traders manage, invest, and build portfolios while seeking returns within the risk level stipulated by the risk department. Usually, hedge funds, banks, insurance companies, and pension funds have this emphasis.” He continued, “The other trading room is part of the stockbrokerage, which is a subsidiary of this bank. They focus on the sell side. In this case, traders are responsible for executing transactions for clients who use our brokerage service. In other words, these traders don’t make decisions; they simply follow clients’ orders. Examples of this side include investment banks, brokerage firms, and market makers.”

Future traders must be clear on which side of the market they want to be on, so they can choose the right path for their careers. If the goal is to build their own portfolio and invest based on their own analyses and expectations, while assuming a higher level of risk, the trader should opt for the buy side. Conversely, if the aim is to avoid the risk of losses associated with maintaining a personal portfolio and only focus on achieving the best prices in the market, the sell side is the preferable choice. In this scenario, all the risk would be borne by the clients, as the trader would merely act as an intermediary between them and the market.

Financial concepts related my internship

The trader who triumphed over the 2008 crisis (Risks)

During my tenure at the bank, I had the privilege of meeting several senior traders, most of whom had over 20 years of experience in the market. One of them shared a fascinating story about how he navigated through the 2008 crisis.

Banks typically maintain a rather conservative investment policy, meaning they are risk averse. Consequently, one of the most common strategies is securities arbitrage (buying securities in a market where they are undervalued and selling them in other more expensive market). This strategy carries zero exposure, and profits are guaranteed when operating with substantial sums of money. This particular trader happened to be engaged in arbitrage on the day the 2008 financial crisis erupted. Upon realizing the unfolding catastrophe, he promptly closed his long positions remaining the shorts, that resulting in astronomical profits at a time when the global economy was collapsing.

Future traders looking to be on the buy side need to consider which financial institution is the best for advancing their career. Hedge funds, commercial banks, insurance companies, and pension fund managers tend to differ in terms of risk tolerance, either due to their own institutional policies or regulatory guidelines. For instance, in Chile, the regulatory commission does not allow commercial banks to invest in stocks.

Why a Chilean bank is concerned about federal reserve FED (Interest rates)

I had the fortune of gaining my experience at this bank during a period when the Fed and most central banks worldwide were raising their interest rates as a measure to control inflation stemming from the expansive policies implemented during the COVID-19 pandemic. I noticed that the traders were always closely monitoring the Fed’s announcements and whether they aligned with market expectations.

Intrigued by the heightened anticipation surrounding the market, I decided to seek insight from one of the traders. He offered the following explanation: “There are several factors contributing to this heightened attention. Primarily, monetary policy decisions in an inflationary environment tend to shape our trading strategies. On one hand, rate hikes affect all fixed-income assets, potentially causing our portfolio to depreciate in value and elevating risk indicators like VaR. Additionally, when the Federal Reserve tends to raise interest rates, it becomes more profitable for institutional investors to purchase bonds due to the relatively low levels of risk premium and liquidity premium demanded. Lastly, we also consider short positions in emerging market currencies since the dollar typically appreciates in the midst of Fed rate hikes.”

Federal Reserve announcements typically tend to influence financial markets. This is mainly because they shed light on the current state of the economy, enabling institutional investors to assess whether it is more profitable to invest in fixed income or equities. This assessment considers the risk premium and liquidity premium demanded from assets.

Liquidity the most important but the most avoided for banks (Banks Liquidity)

Every Monday afternoon, we held our weekly meeting where the latest developments were reported to the company’s top executives, including the CEO. During one such meeting, the bank’s CEO noticed that the bank’s liquidity indicators were quite comfortable, indicating an ample reserve of funds in the bank’s coffers.

Normally, customer deposits do not remain dormant in their accounts; instead, this money is put to use for investments or lent to other customers. Hence, the surplus liquidity captured the CEO’s attention. In the end, money entails a trade-off, and maintaining it in reserve can prove rather costly. The CEO raised a query regarding this with the head of the trading room, who clarified that the excess liquidity was a result of the impending release of the decision on whether to change the Chilean constitution or not, anticipated for that week. In anticipation of an adverse outcome, the trading room needed to uphold substantial liquidity to accommodate depositors wishing to withdraw their funds. The head of the trading room confirmed that, indeed, maintaining such high liquidity levels cost millions each day since interest rates were exceedingly high and the funds could have been invested. Nevertheless, this course of action was deemed necessary in light of the country’s political crisis.

Why should I be interested in this post?

Are you interested in pursuing a career in a trading room? Do you aspire to become a trader one day? If the answer is yes, you must read this post. By doing so, you will gain insights into how trading rooms operate and the various types of trading rooms available in the marketplace. Additionally, you will learn about some important concepts in finance, accompanied by an interesting story to introduce them.

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Professional experiences

   ▶ All posts about Professional experiences

   ▶ Tanguy TONEL All posts about Professional experiences

   ▶ Shengyu ZHENG My experience as Actuarial Apprentice at La Mutuelle Générale

   ▶ Akshit GUPTA My apprenticeship experience within client services at BNP Paribas

Financial products

   ▶ Federico DE ROSSI Understanding the Order Book: How It Impacts Trading

   ▶ Alexandre VERLET Understanding financial derivatives: options

   ▶ Alexandre VERLET Understanding financial derivatives: futures

   ▶ Alexandre VERLET Understanding financial derivatives: swaps

   ▶ Alexandre VERLET Understanding financial derivatives: forwards

Useful resources

Hull J.C. (2021) Options, Futures, and Other Derivatives Pearson, 11th Edition.

Banco BICE (2022) Memoria Anual.

About the author

The article was written in December 2023 by David Gonzalez (ESSEC Business School, Grande Ecole Program – Global BBA, 2023-2024).

My experience as a Strategic Consultant at SGS

My experience as a Strategic Consultant at SGS

 Arthur EVERARD

In this article, Arthur EVERARD (ESSEC Business School, Master in Finance Program – Master in Finance, 2023-2024) shares his professional experience as a strategic consultant at SGS Spain, the largest certification and verification company in the world.

About the company

SGS is a leading inspection, verification, testing and certification company headquartered in Geneva, Switzerland. Founded way back in 1878, SGS has grown over the past 140+ years into a global powerhouse in its industry. Today, SGS operates an expansive network of over 97,000 employees located across 2,600 offices and laboratories around the world. SGS provides critical services to clients across a diverse range of industries such as agriculture, food, pharmaceuticals, energy, mining, and consumer goods. The key services SGS offers include quality control, safety audits, supply chain security, verification testing, and certification services aimed at minimizing risk, improving operational efficiency, and ensuring regulatory compliance for its clients. In 2021, SGS reported impressive annual revenues of CHF 6.1 billion, showcasing the scale and market-leading position the company has established. SGS trades its stock publicly on the SIX Swiss Exchange and has maintained a very strong market capitalization around CHF 20 billion as of 2022, highlighting the company’s value and the confidence investors have in its ongoing growth and performance.

My internship

My missions

During my intensive five-month internship within the strategic consulting division at SGS, I gained first-hand experience driving key projects to identify new market opportunities for SGS clients across priority industry verticals. Working closely in a team of five interns, we successfully pinpointed high-potential new market entries in the rapidly growing areas of e-commerce, renewable energy, and smart city solutions. For each of these technology-driven verticals, I made key contributions in researching the competitive landscapes, analyzing growth drivers and trends, and formulating data-driven go-to-market strategies tailored to the client’s specific capabilities and needs. In addition to the core project deliverables, I worked adaptively to address over 15 distinct requests from clients, customizing our recommendations and insights to align with their feedback and objectives. Moreover, I continually demonstrated my ability to operate effectively under tight deadlines and high-pressure situations, consistently delivering high-caliber final deliverables across the 5 core project milestones.

Required skills and knowledge

The comprehensive overview provided across SGS’s operations, my contributions, and the key metrics studied highlight the diverse mix of strategic, analytical, communicative, and execution skills that are foundational for succeeding in high-impact consulting roles. The ability to formulate data-driven market strategies, address shifting client needs, operate under tight timelines, and quantify engagement outcomes using metrics like churn rate, cost synergies and market share growth will all serve me well for future consulting positions.

What I learned

By actively participating in full consulting engagements, I expanded both hard and soft skills critical for delivering impactful solutions. On the hard skills side, I honed my PowerPoint and data visualization capabilities, along with sharpening my structured approach to framing issues and developing strategies. Regarding soft skills, I improved my communication and relationship-building abilities in order to understand clients’ needs and maintain alignment. I also boosted time management, project coordination, and adaptability competencies by driving progress across fluctuating priorities and deadlines. Most importantly, I gained invaluable understanding of how the consulting world operates, from how engagement scoping and staffing works to techniques for guiding clients toward data-backed decisions. This 360-degree exposure undoubtedly provides me with a strong experiential foundation for launching my career as a strategic consultant.

Business concepts related my internship

Three key metrics we evaluated for the consulting project were churn rate, cost synergies, and market share growth. Churn rate measures customer losses – a low churn indicates customer retention and satisfaction. Cost synergies track cost savings from mergers or process improvements. Market share growth shows expanded business in existing or new markets. These metrics demonstrate the success of growth strategies for clients like SGS.

Churn Rate

Churn rate measures the percentage of customers that stop using a company’s products or services over a given period of time. It is calculated by dividing customer losses by the total number of customers at the start of the measurement period. A low churn rate indicates customers are happy and sticking with the company’s offerings. High churn means customers are leaving and switching to competitors – a major warning sign. For consulting firms like SGS, monitoring churn allows them to evaluate client satisfaction post-engagement. Low churn means clients saw value in the insights and strategies provided by the consulting team. High churn could indicate ineffective solutions or poor client management.

Cost Synergies

Cost synergies refer to cost savings and efficiency improvements achieved by combining operations and streamlining processes after mergers, acquisitions or other business integrations. Quantifying cost synergies helps companies like SGS demonstrate the financial upside of inorganic growth through M&A. It shows tangible bottom-line impacts. Specifically for management consulting firms, cost synergies can be generated by consolidating back office functions, integrating IT systems, and leveraging shared services post-acquisition. High cost synergies boost profitability.

Market Share Growth

Market share growth reveals how successfully a company like SGS expands within its core markets or penetrates new high-potential segments. It is measured by comparing the percentage of total market sales or customers held by the company over time. Increases in share signal effective strategies. For consultancies, market share growth validates their ability to win new business and expand wallet share with existing clients through cross-selling and new service offerings. It highlights the competitive positioning and growth trajectory of the consulting firm within its addressable industry advisory market.

Why should I be interested in this post?

For those interested in consulting, this experience offers very relevant preparation and perspective into core aspects of the job.

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   ▶ Snehasish CHINARA My Experience as an External Junior Consultant with Eurogroup Consulting

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Useful resources

SGS

About the author

The article was written in December 2023 by Arthur EVERARD (ESSEC Business School, Master in Finance Program – Master in Finance, 2023-2024).

My experience as a Business Analyst at HelloFresh

My experience as a Business Analyst at HelloFresh

Arthur EVERARD

In this article, Arthur EVERARD (ESSEC Business School, Master in Finance Program – Master in Finance, 2023-2024) shares his professional experience as a business analyst at Hellofresh Benelux, the largest meal kit provider in the world.

About the company

HelloFresh is a meal-kit delivery company founded in Berlin, Germany in 2011 by Dominik Richter and Thomas Griesel. The company ships preportioned ingredients and recipes to customers to prepare home-cooked meals. HelloFresh went public in November 2017, completing its IPO on the Frankfurt Stock Exchange. The company’s stock price rose significantly during the COVID-19 pandemic in 2020 and 2021 as demand for meal kits surged due to lockdowns and reluctance to grocery shop in-person. However, in 2022 the stock declined from its pandemic highs as consumers returned to pre-pandemic habits and inflation/recession concerns weighed on the stock price. Despite this drop, HelloFresh remains one of the largest meal kit providers globally. HelloFresh reported record revenue of €5.99 billion in 2021, a 62.5% increase over 2020, with adjusted EBITDA of €827 million. The company provides over 30 different recipes each week, shipping pre-portioned fresh ingredients and step-by-step instructions for dishes such as seared steak with mustard sauce, chicken enchiladas, and zucchini noodle Bolognese. HelloFresh carries over €1 billion in total debt but remains profitable, positioning itself as the largest meal-kit provider globally based on market share.

Logo of HelloFresh.
Logo of HelloFresh
Source: the company.

My internship

During my six-month internship at HelloFresh, I worked within the product development department on the HelloFresh Market. The product development department at HelloFresh is responsible for optimizing the HelloFresh Market, which is the section of the HelloFresh website that allows customers to add individual items to supplement their regular meal kits. The product development team analyzes sales data and customer feedback to determine the optimal mix of products to offer on the Market that will maximize sales and customer satisfaction.

My missions

I extracted data using SQL code and created pivot tables to analyze product and category performance. Using this data, I generated charts and visualizations that provided insights into growth opportunities. I also managed the database of over 4,000 products, monitoring demand and availability. Additionally, I led ten research projects focused on competitive analysis and predicting demand fluctuations in the Benelux (Belgium, Netherlands and Luxemburg) region.

Required skills and knowledge

Throughout my internship at HelloFresh, I developed a valuable mix of hard and soft skills. In terms of hard skills, I improved my Excel abilities considerably, including advanced use of pivot tables, lookups, and complex formulas. I also honed my PowerPoint skills to deliver impactful presentations. Regarding soft skills, I learned the importance of teamwork, time management, and public speaking. Collaborating with team members, prioritizing tasks, and presenting findings to stakeholders were critical.

What I learned

Additionally, I gained important knowledge specific to my role. I learned how to write and optimize SQL code to extract and analyze large datasets efficiently. My Excel modeling skills became sharper through regular use of data analysis, lookups, and visualizations. I gained useful insight into the food industry by managing HelloFresh’s extensive product database. The internship gave me valuable exposure to e-commerce operations and using data to inform business decisions. I also developed a deeper understanding of key performance metrics like AOV, ticket size, and repeat rate that guide strategy for online retailers. Overall, this internship provided me with marketable hard and soft skills and enriched my familiarity with the data-driven decision making crucial in food e-commerce.

Key concepts related my internship

I present below three key concepts that I used throughout my internship: Average Order Value, Ticket Size, and Repeat Customer Rate.

Average Order Value (AOV)

This metric calculates the average amount spent per order across all customers. It is important for e-commerce because it indicates whether customers are spending more or less per transaction over time. A high AOV signals customers are purchasing more items per order or higher-value items. Tracking AOV helps e-commerce optimize pricing, discounts, product selection, and cross-selling tactics to encourage larger basket sizes. In the department we used to check the evolution of the AOV of the week compared to the previous week.

Ticket Size

Ticket size measures the average number of items purchased per order by customers. Monitoring this shows if customers are adding more products to their carts from an order to another, which boosts revenue. A low or declining ticket size could indicate issues with product selection, bundles/recommendations, or that customers are running out of reasons to buy more per order.

Repeat Customer Rate

The repeat customer rate shows the percentage of customers that make more than one purchase with the company over two consecutive periods (say six months or one year). A high repeat rate is crucial for e-commerce profitability because acquiring new customers is more expensive than retaining existing ones. Repeat customers tend to spend more over their lifetime too. This metric indicates whether marketing efforts and customer experience lead to loyal, valuable long-term customers.

Why should I be interested in this post?

The overview of HelloFresh and description of the product development department would be useful reading for anyone interested in working in the food or e-commerce industries as an analyst or in a finance role. The details provided give insight into how data analysis and financial metrics are utilized at a meal-kit company to optimize product selection and drive growth. Understanding how databases are leveraged, performance is monitored, and strategic decisions are informed by data analysis is applicable for those pursuing analyst positions that require SQL, Excel, and visualization skills. Additionally, the explanation of key business concepts like average order value , ticket size, and repeat customer rate provides a look into e-commerce economics that would benefit those interested in finance roles focused on online retail and subscription businesses. In summary, the text illustrates responsibilities and skills sought after in analytical and financial positions at food and e-commerce companies.

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   ▶ Marie POFF Film analysis: The Wolf of Wall Street

Useful resources

HelloFresh

About the author

The article was written in December 2023 by Arthur EVERARD (ESSEC Business School, Master in Finance Program – Master in Finance, 2023-2024).

My experience as a Real Estate Analyst at Eaglestone

My experience as a Real Estate Analyst at Eaglestone

 Arthur EVERARD

In this article, Arthur EVERARD (ESSEC Business School, Master in Finance Program – Master in Finance, 2023-2024) shares his professional experience as a Real Estate Analyst at Eaglestone, a Belgian real estate developer operating in Europe.

About the company

Eaglestone is a real estate developer based in Brussels, Belgium and focused on commercial and residential projects across Europe. Founded in 2014, Eaglestone has already developed over €1 billion in real estate assets including office buildings, hotels, apartments and more. The company currently has around 15 ongoing projects spread across major cities like Brussels, Amsterdam, London and Lisbon. Eaglestone’s business model involves identifying promising development opportunities, securing financing, overseeing construction, and managing/leasing the completed properties.

Logo of Eaglestone.
Logo of Eaglestone
Source: the company.

My internship and missions

During my two-month internship at Eaglestone, I worked on several key projects. I compiled and presented detailed analyses on new London, Lisbon and Brussels investment opportunities (development for offices and residential buildings) to the CEO, including market overviews and financial projections. I visited three ongoing construction sites in Brussels to assist with leasing and sales strategies. Additionally, I reviewed financial models for major projects and provided input on funding options like special purpose vehicles (SPVs) and bullet loans (similar to zero-coupon bonds) to support Eaglestone’s equity and debt needs.

Required skills and knowledge

During my internship, I improved vital hard and soft skills. For hard skills, I honed my Excel modeling for feasibility analysis, project financing and timelines. I also gained PowerPoint presentation experience. Regarding soft skills, I improved at working independently, time management, public speaking and presenting to executives. Additionally, I learned enormously about real estate development operations and strategies. I became comfortable presenting analysis and recommendations to senior leadership. The experience provided me with tangible skills and invaluable exposure to the world of real estate finance.

What I learned

The overview of Eaglestone and my internship experience highlights skills and knowledge applicable to real estate finance and development roles. Understanding how to assess new opportunities, project costs and returns, and different funding sources provides useful perspective for those interested in real estate or project finance analyst positions. The work I completed, and metrics analyzed are directly relevant to finance departments at real estate companies.

Financial concepts related my internship

Three important financial metrics for real estate are return on investment (ROI), cash-on-cash return, and gross rent multiplier. ROI measures the profitability of an investment as a percentage of the total cost. Cash-on-cash return indicates the annual income generated by a property as a percentage of the total cash invested. Gross rent multiplier shows the relationship between purchase price and potential rental income. Tracking these metrics allows developers like Eaglestone to evaluate opportunities, fund projects strategically, and maximize ongoing returns. They provide vital insights into real estate investment performance.

Return on Investment

ROI measures the profitability of an investment as a percentage of the total investment (assets on the balance sheet). It is calculated by dividing net profit by total cost. ROI is useful for comparing different real estate opportunities, as it shows the potential profit per dollar invested. A higher ROI indicates a more profitable investment. Tracking ROI helps developers like Eaglestone allocate capital by comparing projects.

Cash on Cash Return

Cash-on-cash return shows the annual pre-tax income generated by a property as a percentage of the total cash invested. It provides a clear picture of the annual return. Cash-on-cash return demonstrates the ability to recoup the initial investment through ongoing rental or sale income. Real estate investors use this metric to evaluate the short-term returns on a project.

Gross Rent Multiplier

Gross rent multiplier compares the purchase price of a property to the potential annual rental income. It is calculated by dividing the purchase price by the annual rent. A lower gross rent multiplier means the property is more affordable based on the expected rents. This metric helps assess if the acquisition price for a development is appropriate given the usual market rents (used as a benchmark). It is an important consideration in the initial viability of a project.

Example

Please find below an Excel file to illustrate the three concepts above: return on investment (ROI), cash-on-cash return, and gross rent multiplier.

Download the Excel file to compute the present value of a stock

Why should I be interested in this post?

The overview of Eaglestone and my internship experience highlights skills and knowledge applicable to real estate finance and development roles. Understanding how to assess new opportunities, project costs and returns, and different funding sources provides useful perspective for those interested in real estate or project finance analyst positions. The work I completed, and metrics analyzed are directly relevant to finance departments at real estate companies.

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Useful resources

Creating tomorrow’s city together – Eaglestone

About the author

The article was written in December 2023 by Arthur EVERARD (ESSEC Business School, Master in Finance Program – Master in Finance, 2023-2024).

Beyond Comfort: Navigating the Balance Between Risk and Reward in Finance

Beyond Comfort: Navigating the Balance Between Risk and Reward in Finance

Lou PERRONE

In this article, Lou PERRONE (ESSEC Business School, Global BBA, 2019-2023) comments on a quote by Robert Arnott about the intricate relationship between comfort and profitability in the world of investing.

Quote

“In investing what is comfortable is rarely profitable.” – Robert Arnott

Analysis of the quote

Robert Arnott’s statement delves deep into the heart of investing. At its core, the quote highlights the inherent risks associated with the quest for higher returns in the investment world. Often, investments that seem safe or comfortable tend to offer lower returns. On the other hand, venturing into unfamiliar or volatile territories might present opportunities for higher profitability, albeit with increased risk.

About the author

Robert D. Arnott is an American entrepreneur, investor, editor, and writer. He is the founder and chairman of Research Affiliates, an investment management firm dedicated to impactful, innovative investing. With numerous published articles and papers under his belt, Arnott’s contributions to finance have been significant, earning him recognition as a thought leader in the industry.

Financial concepts related to the quote

Risk and Return

In the world of finance, risk and return are two sides of the same coin. The potential return on an investment is often directly proportional to the risk associated with it. Safer investments, such as government bonds, usually offer lower returns, while stocks, which are riskier, have the potential for higher returns.

Diversification

Diversification is the strategy of spreading investments across various assets to reduce the risk inherent in putting all the eggs in one basket. While diversification can help in mitigating risk, it’s also crucial to strike a balance, ensuring that the portfolio contains assets with growth potential.

Opportunity Cost

Opportunity cost refers to the potential benefits an individual misses out on when choosing one alternative over another. Sticking to comfortable investments might mean missing out on opportunities that could have yielded higher returns, even if they seemed riskier at the outset.

My opinion about this quote

I believe Arnott’s quote succinctly captures the essence of investing. It serves as a reminder that while comfort zones are reassuring, they often don’t lead to substantial growth. This quote resonated with me because it underscores the importance of continuous learning, adaptability, and the courage to make informed decisions in the unpredictable world of finance.

Why should I be interested in this post?

As an ESSEC student with an interest in business and finance, understanding the intricate relationship between risk and reward is crucial. Whether you aspire to be an entrepreneur, investment banker, or venture into any business realm, grasping these concepts will be pivotal. Arnott’s quote and the related financial concepts provide a foundation to think critically about investment strategies and the balance between comfort and profitability. Moreover, the knowledge gleaned from such insights can be the differentiator in a competitive business environment, empowering you to make informed and strategic decisions.

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About the author

The article was written in December 2023 by Lou PERRONE (ESSEC Business School, Global BBA, 2019-2023).

Free Cash Flow: A Critical Metric in Finance

Free Cash Flow: A Critical Metric in Finance

Lou PERRONE

In this article, Lou PERRONE (ESSEC Business School, Global BBA, 2019-2023) explains the concept of Free Cash Flow and its importance in financial analysis.

What is Free Cash Flow?

Free Cash Flow (FCF) is a critical financial metric used to determine the amount of cash generated by a business after accounting for capital expenditures. It represents the cash available for distribution among all the securities holders of a company (equity holders and debt holders) and provides insight into a company’s financial health and its ability to pursue opportunities without external financing.

How is Free Cash Flow Calculated?

The general formula for calculating Free Cash Flow:

Free Cash Flow = Operating Cash Flow – Capital Expenditures

Operating Cash Flow refers to the total amount of cash generated by a company’s core operating activities. It reflects the cash generated from the actual business operations of selling goods and services.

Capital Expenditures (CapEx) are funds used by the company to purchase, upgrade, and maintain physical assets. This could include expenditures on property, plant, equipment, and technology.

Example of FCF

The Excel document provided as an exemple is a critical financial tool that enables an in-depth analysis of ABC Limited’s Free Cash Flow (FCF). By meticulously tracking the inflows and outflows of cash, the spreadsheet highlights the company’s capacity to generate cash after covering all its capital expenditures. Observing the ‘Net Cash Flow’ row, we can discern the periods where the company has successfully managed its resources to produce a positive FCF, which indicates surplus cash availability that can be used for debt repayment, reinvestment in the business, dividends to shareholders, or as a reserve for future growth opportunities. Conversely, any negative FCF would warrant a closer investigation into the company’s spending on assets or its operational efficiency. The ability to forecast and analyze FCF is crucial for business sustainability and strategic financial planning, as it provides a clearer picture of financial health beyond simple profitability metrics.

Example of computation of free cash flows.
Example of computation of free cash flow
Source: the author.

Why is Free Cash Flow Significant?

FCF is an important indicator of a company’s financial strength. It shows how efficient a company is at generating cash and is often used by analysts and investors to assess whether a company has the financial flexibility to invest in its business, pay down debt, return money to shareholders, or weather economic downturns.

Factors Impacting Free Cash Flow

While many elements can impact the calculation of FCF, some key influencers include:

  • Revenue Growth: Increases in sales can lead to higher operating cash flows.
  • Operating Margins: Efficiency in managing operational costs can lead to better margins and in turn affect FCF positively.
  • Capital Efficiency: Companies that manage their capital expenses efficiently can have higher free cash flows, as they spend less on fixed assets relative to the cash they generate.

The Dual Nature of FCF

A consistently positive FCF indicates a company’s ability to generate surplus cash after meeting all its operational and capital requirements. On the other hand, consistently negative FCF might suggest that the company is investing heavily for future growth or struggling to generate enough cash.

Interpreting Free Cash Flow

It’s crucial to contextualize FCF within the industry and the specific company’s growth stage. High-growth firms might have lower FCF due to heavy investments, while mature companies might generate more consistent free cash flows.

Why should I be interested in this post?

Understanding Free Cash Flow is indispensable for management students. It not only measures a company’s profitability but also its liquidity, solvency, and the overall health of its business model. By assessing FCF in conjunction with other financial metrics, students can gain a comprehensive view of a company’s financial health, aiding them in making informed investment or management decisions. Whether it’s for investment appraisal or corporate financial analysis, understanding the nuances of FCF is fundamental for anyone in the realm of finance and business.

Related posts on the SimTrade blog

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Useful resources

Damodaran A. (2012) Investment Valuation: Tools and Techniques for Determining the Value of Any Asset 3rd ed. New York: Wiley.

Brealey R.A., Myers S.C., and Allen F. (2011) Principles of Corporate Finance 11th ed. New York: McGraw-Hill/Irwin.

Ross S.A., Westerfield R.W., and Jaffe J. (2016) Corporate Finance 11th ed. New York: McGraw-Hill/Irwin.

About the author

The article was written in December 2023 by Lou PERRONE (ESSEC Business School, Global BBA, 2019-2023).

My Experience as a Communication Officer at La Française des Jeux (FDJ)

My Experience as a Communication Officer at La Française des Jeux (FDJ)

Lou PERRONE

In this article, Lou PERRONE (ESSEC Business School, Global Bachelor of Business Administration (GBBA), 2019-2023) shares her professional experience as a Communication Officer at La Française des Jeux (FDJ).

About the company

La Française des Jeux, more widely recognized by its acronym FDJ, stands as an iconic pillar in the French lottery and gambling arena. Established in 1976, FDJ is not just a corporate entity but an embodiment of French heritage and communal festivities. Over the decades, it has ingrained itself into the very fabric of French culture and tradition, offering a diverse portfolio that encompasses lottery games, instant scratch tickets, and an array of sports betting services.
Functioning as a public entity, FDJ’s significance goes beyond entertainment. It plays a pivotal role in the nation’s economic framework, channeling a substantial portion of its revenues into the state’s coffers. This financial contribution has been instrumental in bolstering various sectors, including social welfare programs, sports development, and numerous cultural endeavors that enrich the French way of life.

Recognizing the winds of change and the digital transformation of the entertainment industry, FDJ has not remained complacent. In recent years, it has undertaken a digital metamorphosis. By harnessing the latest technological advancements, FDJ has unveiled a suite of online gaming experiences and user-friendly mobile applications. This digital leap is a testament to FDJ’s commitment to evolving with the times and catering to the preferences of a wide-ranging user base, from traditionalists who have been with the company since its inception to the tech-savvy younger generations seeking on-the-go entertainment solutions.

Logo of  FDJ
Source: the company.

My apprenticeship

Embarking on my journey with FDJ as a Communication Officer wasn’t just the beginning of a new job; it signified my induction into a vibrant ecosystem, pulsating with innovation, challenges, and endless learning opportunities. FDJ, with its rich history and significant national footprint, presented a unique landscape where tradition intertwined with modernity. This duality was reflected in every facet of my work, whether communicating the time-honored joy of a lottery win or promoting the cutting-edge digital interfaces of our latest gaming apps.

In the heart of this dynamic environment, my role was multifaceted. While the title ‘Communication Officer’ might evoke images of drafting press releases or handling social media, the reality was a tapestry of responsibilities that spanned across strategic planning, content creation, media relationship management, and more. The position was a constant balancing act: upholding the legacy and values of FDJ while simultaneously pushing the envelope, striving for innovation, and setting new benchmarks in the realm of corporate communication.

Each day presented its unique set of challenges. From navigating the intricate nuances of communicating gaming responsibly to orchestrating large-scale promotional events during national festivals, my role was as much about creativity as it was about strategy and meticulous planning.

One of the most enriching aspects of my apprenticeship was the diversity of people I interacted with. From seasoned professionals who had witnessed FDJ’s transformation over decades to young innovators brimming with fresh ideas, every interaction was a lesson in itself. These encounters not only honed my communication skills but also broadened my perspective, enabling me to view challenges as opportunities and to approach problems with a multifaceted lens.

My missions

Strategy Formulation

Every campaign began with in-depth brainstorming sessions. Collaborating with various internal teams, I led ideation stages, where we’d evaluate current market trends, assess FDJ’s positioning, and devise innovative communication strategies. For each campaign, we identified our target demographics, created tailored messages, and chose the most effective communication channels – from traditional billboards to emerging social media platforms.

Content Creation

This wasn’t simply about drafting text; it involved creating a narrative. Each press release or promotional material told a story, resonating with our audience’s aspirations and emotions. I also collaborated closely with our in-house graphic design team, ensuring visual elements impeccably echoed our narratives. For digital campaigns, A/B testing became a routine, helping us fine-tune our content for maximum engagement.

Event Coordination

FDJ’s presence at exhibitions and conferences wasn’t just about setting up a booth. Each event was an opportunity to entrench our brand deeper into the public consciousness. I meticulously planned every detail, from the booth’s design to the merchandise distributed. Training the staff for these events became pivotal; ensuring they not only knew about FDJ’s offerings but also imbibed the company’s ethos in every interaction.

Media Relations

Building and nurturing relationships with journalists, bloggers, and influencers was crucial. Regular media briefings were organized, where we’d discuss FDJ’s latest ventures, answer queries, and sometimes even handle challenging questions regarding industry controversies. Managing media relations was not just about promoting our brand but also about ensuring FDJ’s voice was accurately represented in the public domain.

Required skills and knowledge

In my dynamic role as a Communication Officer at FDJ, I quickly realized the vast spectrum of responsibilities and the ever-evolving landscape of skills required. Central to my role was the art of communication, both written and oral. Crafting press releases, coordinating with media personnel, or pitching fresh ideas, I always aimed for clarity and resonance with the audience. It was equally important to adapt my tone and style to match the specific audience and occasion.

But communication wasn’t just about creating the message; it was also about measuring its impact. Here, the world of data analytics became an invaluable ally. Metrics like engagement rates and conversion rates offered a window into the effectiveness of our campaigns and highlighted areas ripe for improvement. As the digital world expanded, I delved deeper into tools like Search Engine Optimization (SEO) and Search Engine Marketing (SEM) to ensure FDJ’s prominence in the vast online landscape.

One of the most critical facets of my role was crisis management. While not every day brought a storm, being prepared for them was essential. Specialized workshops in crisis communication provided the knowledge and tactics to manage challenges and ensure FDJ’s reputation remained impeccable.

Understanding FDJ’s brand essence allowed for the creation of cohesive narratives across all communication platforms, fostering consistency and a deeper connection with the audience. The world of communications is vast, and every project came with its timelines and nuances. Efficiently organizing, prioritizing, and monitoring became second nature to me, aided by tools and platforms that ensured timely delivery and informed stakeholders.

Visual storytelling, an integral part of modern communication, often saw me collaborating closely with graphic designers. A foundational understanding of design tools ensured that our visual campaigns harmoniously merged with our narratives. Beyond internal collaborations, my role also demanded external networking. Building genuine relationships with media representatives, influencers, and other industry stakeholders was pivotal. Regular participation in industry events kept me connected and informed about the latest trends.

The digital realm further expanded with platforms like WordPress and Joomla playing a pivotal role. Even a basic grasp of these Content Management Systems smoothed interactions with the IT team, ensuring our online content was always up to date. Given FDJ’s diverse audience, cultural awareness was of paramount importance. Recognizing and respecting cultural nuances ensured our communications were not just well-received but also deeply resonated with our varied demographic.

This journey was more than just a job; it was a continuous learning experience, ensuring I stayed abreast with the best practices and evolving trends in the world of corporate communication.

What I learned

Adaptability

Thriving in a dynamic environment like FDJ was an exercise in adaptability. The rapidly shifting terrain of the gaming and gambling industry, influenced by evolving market trends, customer behavior, and technological breakthroughs, taught me that flexibility wasn’t just an asset—it was a necessity. Whether it was adjusting campaign strategies in response to unexpected market shifts or incorporating feedback from real-time analytics, I learned the importance of being agile, proactive, and receptive to change. It wasn’t just about adjusting to change but leveraging it to foster innovation and drive growth.

Collaboration

My role at FDJ was not siloed; it was deeply intertwined with various departments, from marketing and digital to events and customer service. This cross-functional collaboration was a masterclass in teamwork. I realized that the success of a campaign or project was often the culmination of diverse inputs, insights, and expertise. Engaging with colleagues from different backgrounds and specializations enriched my perspective, helping me appreciate the value of collective brainstorming and problem-solving. It emphasized the importance of open communication, mutual respect, and the synergies created when individuals come together with a shared purpose.

Strategic Thinking

Beyond the day-to-day tasks and immediate goals lay the broader vision of FDJ. My tenure taught me the significance of strategic foresight. It wasn’t enough to create impactful campaigns; these campaigns needed to be aligned with FDJ’s long-term objectives and brand ethos. I learned to view projects not as standalone endeavors but as interconnected pieces of a larger puzzle. By keeping an eye on the bigger picture and anticipating future trends, I could make decisions that not only addressed immediate challenges but also positioned FDJ for sustained success in the years to come.

Financial concepts related my internship

Return on Investment (ROI )

In the intricate realm of communication, the concept of Return on Investment (ROI) transcends its traditional financial boundaries. For every campaign I led or contributed to at FDJ, the metrics weren’t limited to immediate financial returns. We delved deep into intangible metrics like brand recall, media impressions, and customer sentiment analysis. Parameters such as engagement rates, share of voice in media, and other key performance indicators (KPIs) served as compasses, guiding our strategic adjustments. These metrics, while not directly financial, held significant implications for FDJ’s long-term revenue potential. An impactful campaign with high brand recall, for instance, could drive customer loyalty, leading to repeat purchases and sustained revenue streams.

Budget Management

Managing a campaign’s budget wasn’t just about allocation; it was a strategic endeavor in its own right. With every campaign at FDJ, we had to ensure that the funds were deployed where they’d yield the most impact. This involved making tough decisions, prioritizing certain channels over others, and sometimes innovating cost-effective solutions without compromising the campaign’s efficacy. Regular tracking of expenses, juxtaposed against campaign milestones and KPIs, ensured that we remained within the stipulated budgetary confines. Through continuous monitoring and adaptive allocation strategies, I learned the delicate art of optimizing returns while maintaining fiscal discipline.

Risk Management

Operating in the gambling and lottery sector came with its unique set of challenges, the most paramount being the responsibility towards our customers and stakeholders. While the overarching goal was to promote FDJ’s offerings, it was crucial to strike a balance with responsible gaming narratives. Every promotional message was meticulously crafted to ensure it didn’t inadvertently promote irresponsible gambling behavior. This not only mitigated potential reputational risks but also preempted regulatory backlash. Beyond communications, risk management also extended to assessing financial vulnerabilities in our campaigns, such as over-reliance on a single promotional channel or unforeseen market fluctuations that could impact campaign outcomes.

In conclusion, my apprenticeship at FDJ was a deeply immersive journey, one that sharpened my skills in corporate communication while concurrently highlighting its symbiotic relationship with core business and financial principles. Every campaign, every message, and every budgetary decision was a lesson in strategic foresight, underscoring the intricate balance between effective communication and fiscal responsibility.

Why should I be interested in this post?

If the world of finance and a company’s profitability pique your interest, this article is tailored for you. Through my experience at FDJ, I unveil the communication strategies of a major company and the financial impact of every decision made. From ROI to risk management, and budgetary control, this deep dive provides you with a tangible insight into how communication is shaped by financial imperatives.

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Useful resources

La Française des Jeux (FDJ)

About the author

The article was written in December 2023 by Lou PERRONE (ESSEC Business School, Global Bachelor of Business Administration (GBBA), 2019-2023).