Portraits

Muhammad Yunus

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Muhammad Yunus

Louise Pizon

In this article, Louise PIZON (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2020-2022) presents the portrait of Muhammad Yunus a well-known economist.

Muhammad Yunus or the “banker to the poor” was born in June 1940 in Bangladeshi in the city of Chittagong. He is a social entrepreneur, banker, economist and civil society leader. In 1976, he founded Grameen Bank, a micro finance organization and a community development bank. Microcredit is a delivery system to provide banking services to the rural poor. He is a pioneer of micro funding and microfinance concepts. In 2006, Muhammad Yunus was awarded Nobel Peace prize for these concepts.

Muhammad Yunus
Portrait Yunus
Source: Wikipédia

After his studies in United States, he came back to Bangladesh and worked for three months for the government’s Planning Commission. He quitted to join Chittagong University as head of the Economics department. He started to be involved in poverty reduction in 1974 when famine has struck Bangladesh.

Grameen bank (“village bank”)

It is in 1976, while visiting a poor village of Jobra next to Chittagong University that Muhammad Yunus has the idea of micro funding. He offered the opportunity to women to take a very small loan to create their business. He explains that at the beginning it was complicated to convince women to take loans because they were afraid of not being able to repay the loan. Also, he faced cultural problem; indeed, male didn’t agree to let women manage money.

Grameen Bank consists in constituting groups of solidarity within the villages of people who know each other. The risk of non-refunding is very low because the shame of mismanaging the loan money, naturally prevented borrowers from being dishonest with the Grameen Bank. At the very beginning groups were formed of five people, with one with the role of president and another one of secretary. Women are so proud to be part of these groups and they are meeting every week to check the status of their finance. Grameen bank allowed them to have an easier and more secure access to their money. It never had a shortage of funds for its loans. It was always local money for the poor women in the area. Members were always told that they had to create, operate and develop their branches with their own money.

Six years after the creation of Grameen Bank, the equality gender of the member rose to a 50/50 ratio. The bank observed that the impact on the family was significantly better in families where women were the borrowers compared to families where the borrowers were men. After this the priority for women borrower was set up and it became a common policy for all microcredit programs worldwide.

Link to VICOBA

Grameen Bank has many similarities with Village Community Bank (VICOBA). VICOBA is a savings and loan fund for members who have joined together and formed a group for economic improvement purposes. The system started in Tanzania twenty years ago and has shown great success for its members in being able to lend to each other, helping each other to solve various problems as well set up joint economic projects.

Both forms of micro funding aim at empowering women and lifting families out of poverty by allowing them to borrow a small amount of money to be able to start a business and generate more money. In both cases, the groups are formed in the same way: members come from the same village and in general it is group of close friends or family members. Within the group, a steering committee of five people is elected annually with the roles of chairperson, secretary, treasurer and two accountants. Both village community banks have weekly meetings to manage the accounts and ensure that people repay on time their loans.

However, there are some differences such as the number of members in the groups: five for Grameen bank versus fifteen to thirty members for VICOBA.

The biggest difference between Grameen and VICOBA is that people part of Grameen bank must open a bank account in Grameen bank whereas VICOBA is completely manage by the members of the group and the money is lock in a box by the treasurer of the group. In VICOBA they also have the possibility to follow business trainings to help them to build their businesses.

Why should I be interested in this post?

Do you want to know how an economist won a Nobel Peace Price? Find out the story of Muhammed Yunus or “the banker to the poor” who created the concept of micro funding to help the poor rural to lift out of the poverty and let them a chance to live in better conditions. Besides being a brilliant economist, he is also a humanitarian and a successful businessman whose purpose in life is creating a World without poverty.

Related posts on the SimTrade blog

   ▶ Louise PIZON Vicoba

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

Useful resources

Forbes Muhammed Yunus (Prix Nobel) (in French).

About the author

The article was written in August 2022 by Louise PIZON (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2020-2022).

David Ricardo

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David Ricardo (1772-1823)

Akshit Gupta

This article written by Akshit Gupta (ESSEC Business School, Master in Management, 2022) presents the portrait of David Ricardo, who is a well-known economist.

Introduction

David Ricardo, born in England in 1772, is one of the most well renowned economists of all times. He is famous for his contribution in the field of public finance and is known for his theories of labor value, comparative advantages and rents. He has also written many research papers and books on the policies of the British Central Bank and has made important contributions to the development of monetary policies in Great Britain.

David Ricardo

David Ricardo started his career in the stock markets at the age of 14 when he joined his father who used to work at the London Stock Exchange as a stockbroker. His talents and understanding about the financial markets helped him gain a good reputation in the market. He developed interest in economics in 1799 when he started following the work of Adam Smith, a renowned Scottish economist and philosopher.

Career in the stock market

What is lesser known about David Ricardo is the fact that alongside of being a famous economist, he was also very famous as a quantitative trader. He used to trade in the stock markets using his strong mathematical skills to buy under-priced stocks and short sell the overpriced stocks. He is believed to have made short-term investments in the stock market, investing large amounts of capital with a low-risk appetite, that helped him accumulate a huge wealth.

Two of the Ricardo’s primary rules for trading in the stock market included: a trader should “cut short his losses” and a trader should “let his profits run on”.
In the end, it’s not about making the correct choice always, but correcting the wrong choices at the right time.

Link with the SimTrade Certificate

The two rules by Ricardo by correlate to the learning we derive from the SimTrade Certificate.

The stop loss orders that are taught as part of the different exchange orders are an efficient way that every trader should use to protect their capital and cut short on their losses.

This type of order helps a trader to exit his/her position automatically if the prices of an asset declines by a predefined amount. Such orders are frequently used by traders as an effective risk management strategy to avoid huge losses which may arise if the markets move in the unfavorable direction.

The concepts about different trading strategies and their practical implementation can be learnt in the SimTrade Certificate:

  • About theory: by taking the Market information course, you will understand how information is incorporated into market prices and the associated concept of market efficiency.
  • About practice: by launching the market simulations, you will understand how financial markets really work and how to act in the market by sending orders. By executing the stop loss order, a trader will learn the risk management strategy of cutting short their losses.

Article written by Akshit Gupta (ESSEC Business School, Master in Management, 2022).

Warren Buffett – The Oracle of Omaha

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Warren Buffett – The oracle of Omaha

Akshit Gupta

This article written by Akshit Gupta (ESSEC Business School, Master in Management, 2022) presents a portrait of Warren Buffett – The Oracle of Omaha.

Introduction

Warren Buffett or commonly referred as the ‘Oracle of Omaha’ by global media outlets, was born on August 30, 1930 in the town of Omaha, Nebraska, United States. He is a profound US-based investor, a business tycoon and moreover, the #3rd richest individual in the world as per Forbes Billionaires List 2019.

Picture 1

Having started investing at a mere age of 11 years, Mr. Buffett went on to become the largest shareholder and CEO of one of the greatest investment companies around the globe, named Berkshire Hathaway. Originally started as a textile company in 1950s, the company was purchased by him in 1962 and then, converted into a holding company with a portfolio ranging across several industries.

Investment philosophy

Often referred to as ‘a man who values simplicity and frugality’, Mr. Buffett has based all his investments on a long-term strategy of value investing. In the Shareholder’s Annual letter of 1997, Mr. Buffett said “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”

The strategy followed by him is based on a fixed set of principles which include:

  • Looking for long term investments in stocks which are undervalued based on their fundamental value
  • Seeking out for competent and ethical corporate leadership
  • Investing in companies with strong earnings, where the long-term growth potential can easily be predicted

As per him, buying stocks at a discount to their intrinsic value would give investors a market-beating return only if the corporate leadership is dedicated to the company’s mission and shareholder’s welfare. Owing to his strategy of investing in companies with easy to understand business models, he didn’t suffer any significant losses during the dot-com bubble burst in the early 2000s since the internet businesses were new and difficult to comprehend.

Relevance to the course

SimTrade course teaches us about the use of market information, different types of orders, and firm valuation to execute trades in the market. The strategies followed by Mr. Warren Buffett correlate with the concepts of firm valuation and its use in value investing. He emphasizes upon the use of fundamental analysis of companies with high growth potential and easily understandable business models. He also teaches us to think beyond numbers in financial markets and translate the effects of non-financial factors, like honest and ethical corporate leadership, into economic gains. If learned and applied in day to day practices, these principles would give every investor a slight edge in building their portfolios efficiently and thereby, increasing their wealth.

Article written by Akshit GUPTA (ESSEC Business School, Master in Management, 2022) – October 2020.

Portrait of George Soros: a famous investor

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Portrait of George Soros: a famous investor

Akshit GUPTA

This article written by Akshit GUPTA (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) presents a portrait of George Soros: a famous investor who broke the Bank of England in 1992.

“I’m only rich because I know when I’m wrong.” – George Soros

Pondering upon the above quote makes me realize that successful people do make bad choices but what matters is the fact that how long you take to correct that choice.

George Soros

Introduction

George Soros or ‘Boogeyman’, as quoted in an article by the New York Times, is a leading and one of the most successful investors and trader of all time. Born on August 12, 1930 in Budapest, Mr. Soros is not only a successful trader but also a business magnate, philanthropist and an assertive author who owns a hedge fund named Soros Fund Management, registered in New York City, United States, which reported an earnings of $300 million in 2016 and is ranked amongst the Top 10 Global Hedge Funds in the Forbes list.

Apart from being well known for this trading style, Mr. Soros is also known as a person who broke the Bank of England on September 16, 1992, the day which is registered as a ‘Black Wednesday’ in the history of Britain.

Black Wednesday

In 1979, a European Exchange Rate Mechanism (ERM) was set up to reduce exchange rate variability and stabilize the monetary policies across the continent. Also, a stage was being set to introduce a unified common currency named Euro. Britain joined ERM in the late 1990s due to political instability in the country raising fears of higher currency fluctuations. Under this mechanism, a bar of 6% fluctuation in either direction was set up giving the central banks of European countries like the Bank of England the right to intervene in the currency market with counter trades during adverse situations.

The Pound Sterling shadowed the German mark but owing to challenges faced by Britain at that point in time, including lower interest rates, higher inflation rates and an unstable economy, the currency traders weren’t satisfied with the decision. In order to protect their position, the traders started shorting Pound Sterling and amongst one of the lead traders was Mr. Soros who took a short position in Pound Sterling amounting to $10 billion. Owing to such a mass sell-off for Pound Sterling, the British Government was forced to withdraw from the ERM system and following this decision, the country went into official recession. During this entire period, George Soros made a whopping $1 billion with his position and brought Bank of England on its knees.

Relevance to the SimTrade course

The SimTrade course teaches us the relevance of market news, types of orders and value creation while executing trades in the financial markets.  The experiences of Soros correlate with the concept of value creation and teach us a great deal about how a successful trader is not only a person who makes profits but also a person who knows how to cut upon the losses. It is always necessary to have a flexible approach towards the trades one has executed and, adapt with time. This relates to the risk management of a trading position.

George Soros is also a firm believer and propagator of the philosophy of ‘reflexivity’. Reflexivity relates to a feedback loop between the financial markets and the real economy. The fundamentals of the firms have an impact on financial markets, and reciprocally, financial markets have an impact on the firms.

Related posts on the SimTrade blog

   ▶ Youssef LOURAOUI Global macro strategy

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

   ▶ Akshit GUPTA Macro Funds

About the author

Article written in December 2022 by Akshit GUPTA (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).