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).

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

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   ▶ 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).

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

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   ▶ 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).

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).

Knowledge is power

Knowledge is power!

Jayna MELWANI

In this article, Jayna MELWANI (ESSEC Business School, Global BBA, 2019-2023) comments on a quote by Benjamin Franklin about the power of knowledge in finance.

“An investment in knowledge pays the best interest.” – Benjamin Franklin

Analysis of the quote

The quote suggests that investing in knowledge and education can be one of the most profitable investments a person can make. This is because knowledge and skills are assets that can appreciate over time, leading to greater personal and professional success. When people invest in themselves through education and self-improvement, they can develop skills and knowledge that can lead to better job opportunities, higher salaries, and more fulfilling careers. Additionally, by staying informed and up-to-date on trends and developments in their field, they can position themselves to be more successful over the long term.

In the context of personal finance, the quote implies that investing in one’s own education and skills can be more valuable than simply focusing on accumulating wealth through savings or investments. While it is important to save and invest wisely, the returns on those investments may be limited without the skills and knowledge needed to identify opportunities and make informed decisions.

About the author of the quote

Benjamin Franklin is one of the founding fathers of the United States and a prominent inventor, writer, and statesman.

Financial concepts related to the quote

The financial concepts related to this quote include the following:

Return on investment (ROI)

ROI refers to the amount of profit or benefit earned on an investment relative to the cost of the investment. In the context of the quote, the ROI on investing in knowledge is believed to be high, as the benefits of knowledge can be long-lasting and contribute to personal and professional success over time.

Time Value of Money

The time value of money refers to the idea that money received in the future is worth less than money received today due to the effects of inflation and the opportunity cost of not being able to invest that money today. Investing in knowledge can provide a long-term return on investment that can increase in value over time, potentially providing a higher return than other types of investments.

Risk and Return

The concept of risk and return refers to the idea that higher risk investments typically offer higher potential returns, while lower risk investments typically offer lower potential returns. Investing in knowledge can be considered a low-risk investment with potentially high returns, as knowledge gained can help individuals make better financial decisions, potentially leading to higher financial rewards in the long term.

Human Capital

Human capital refers to the skills, knowledge, and abilities that individuals possess that can increase their value in the job market and contribute to their earning potential. Investing in knowledge can increase an individual’s human capital, leading to higher income and financial stability in the long term.

Opportunity cost

Opportunity cost refers to the cost of choosing one option over another, including the potential benefits of the option that was not chosen. Investing in knowledge may require a time and financial investment, but the potential benefits of increased knowledge and skills can outweigh the opportunity cost of not investing in oneself.

Compound interest

Compound interest refers to the interest earned on both the principal and the accumulated interest from previous periods. Investing in knowledge can provide a similar effect, as the knowledge gained can be applied over time to further increase one’s earning potential and financial success.

Overall, the financial concepts related to the quote emphasize the value of investing in oneself through education and self-improvement. Just as investing in financial assets can yield returns, investing in knowledge can yield returns in the form of personal and professional growth, which can lead to increased financial stability and success.

My opinion about this quote

In my opinion, this quote highlights the importance of continuous learning and self-improvement as a means to achieve greater success and financial security. I believe that anyone can take your money from you, but no one can take your education away from you.

Why should I be interested in this post?

Business students and students in general are advised to make the most of their education and in fact, continue to educate themselves as having a good education can provide a solid foundation for future success.

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Useful resources

SimTrade course Discover SimTrade

About the author

The article was written in April 2023 by Jayna MELWANI (ESSEC Business School, Global BBA, 2019-2023).

Time is money

Time is money

Pranay KUMAR

In this article, Pranay KUMAR (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2022-2023) comments on a quote about the time value of money.

Quote

“Remember that time is money.” – Benjamin Franklin

Analysis of the quote

Time value of money is the concept that the value of money changes over time due to various factors, such as inflation, interest rates, and the opportunity cost of investing or borrowing money.

In the context of Franklin’s quote, he is suggesting that time is as valuable as money. This implies that every moment lost is an opportunity lost, just like losing money. This is because the time we spend on an activity or investment can have an impact on its potential future value.
For instance, if we invest money today, it will grow in value over time due to interest and compounding. Therefore, the longer we wait to invest, the less potential value we can derive from that investment. Similarly, if we delay taking action on an opportunity, we risk losing its potential value as time goes by.

In summary, Benjamin Franklin’s quote can be interpreted as a reminder to be mindful of the time value of money. We should strive to use our time effectively, just as we would with our money, in order to maximize its potential value.

About the author of the quote

Benjamin Franklin was a Founding Father of the United States and a polymath who excelled in many fields, including science, writing, and politics. He was also an inventor, diplomat, and one of the most influential figures of the American Enlightenment. Franklin was known for his wit, wisdom, and practical advice. This quote reflects his pragmatic approach to life and his belief in the value of hard work and frugality. Franklin was a self-made man who rose from humble beginnings to become one of the most respected and admired figures of his time.

Financial concepts related to the quote

Time Value of Money

The concept of time value of money suggests that the value of money today is worth more than the same amount of money in the future, due to the potential for earning interest or returns on investment.

Compounding

Compounding is the process of earning interest on interest. It occurs when interest is added to the principal amount, and the interest earned on the new total is calculated in the next period. This results in the investment growing at an accelerating rate over time.

Opportunity cost

Opportunity cost is the cost of forgoing an opportunity or the benefits that could have been gained from an alternative choice. In the context of the quote, the opportunity cost of not investing earlier is the potential returns that could have been earned if the investment had been made earlier.

My opinion about this quote

I believe this quote is a reminder that it is never too late to start investing or saving. While it is true that starting early provides an advantage in terms of the time value of money, it is better to start late than never. By taking action now, individuals can still benefit from the power of compounding and the potential for returns on their investments.

Why should I be interested in this post?

This post is relevant for ESSEC students interested in finance and investing. The concept of time value of money is fundamental to understanding financial decision-making, and this post provides a simple explanation of the concept and its relevance in real life.

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Financial techniques

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Useful resources

Time Value of Money

About the author

The article was written in April 2023 by Pranay KUMAR (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2022-2023).

It's not whether you're right or wrong

It’s not whether you’re right or wrong

Jianen HUANG

In this article, Jianen HUANG (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2023) comments on a quote by George Soros.

Quote

“It’s not whether you’re right or wrong, but how much money you make when you’re right and how much you lose when you’re wrong.” – George Soros

Analysis of the quote

With the development of the business world, the financial market nowadays becomes more and more unpredictable because of the fast evolving of innovation, more different business models, and shorter horizons of business plans. And the financial market is not only about stocks (or any asset), but also the collective behavior of the crowds, markets, and organizations. In this case, the decision can be right or wrong in every trade. As an investor, if we are not able to ensure the correctness of our decision, then we need to focus on what we can control, which is maximizing the gain from the correct decision and minimizing the loss from the wrong decision. Thus, a great investment strategy and risk management strategy are vital for investors to be in the financial market.

My opinion about this quote

This quote taught us that instead of focusing on personal pride, ego, and hesitation, what matters are the outcome and the rewards. We should enhance our knowledge, be result-oriented, and be prepared to fight any risks it might occur.

Practical Implementation

Suppose you are an investor in the stock market and you hold shares of a company that you believe will perform well in the near future. You bought the shares at $9 each and you have a target profit of 44%. However, you also want to minimize your potential loss in case the stock performs poorly.

To take profit, you could set a sell limit order at $13 per share, which means that if the stock price reaches that level, your shares will automatically be sold at that price, locking in your 44% profit.

To limit loss, you could set a sell stop-loss order at $8 per share, which means that if the stock price drops to that level, your shares will automatically be sold at that price, limiting your loss to 10%.

In this example, you are using two different types of orders to both maximize your potential profit and minimize your potential loss. By using a sell limit order, you are ensuring that you sell your shares at a profit, while the stop-loss order helps to protect your investment by limiting your potential loss.

Related posts on the SimTrade blog

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Useful resources

George Soros

About the author

The article was written in April 2023 by Jianen HUANG (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2023).

Money is a terrible master but an excellent servant

“Money is a terrible master but an excellent servant”

Fatimata KANE

In this article, Fatimata KANE (ESSEC Business School, Master in Strategy & Management of International Business, 2022-2023) comments on a quote by Phineas Taylor Barnum about money management.

“Money is a terrible master but an excellent servant.”

Analysis of the quote

This quote by Phineas Taylor Barnum reflects the idea that while money can be a powerful tool to achieve our goals and desires, it can also become a source of stress and anxiety when we become too attached to it. The key is to use money as a servant to achieve our objectives, rather than allowing it to become our master and controlling our lives.

About the author

Phineas Taylor Barnum, also called P.T. Barnum, was an American showman and entrepreneur who lived in the 19th century. He is best known for founding the Barnum & Bailey Circus, which became known as “The Greatest Show on Earth.” Barnum was also a politician, author, and philanthropist, and he is famous for his promotional skills and his ability to attract audiences to his shows through various forms of advertising and publicity stunts. However, some of his displays, such as the exhibition of people with physical abnormalities or disabilities, have been criticized for being exploitative.

Financial concepts related to the quote

Financial Independence

The concept of financial independence is related to using money as a servant rather than a master. It involves achieving a level of financial stability and freedom where you have enough resources to support your desired lifestyle without being overly dependent on a job or other external factors.

Budgeting

Budgeting is a financial concept that involves creating a plan for how you will spend your money. When we use money as a servant, we create a budget that aligns with our values and goals, and we use our resources to support those priorities.

Opportunity Cost

Opportunity cost is the concept that every decision has a cost, and we must weigh the potential benefits against the potential drawbacks. When we use money as a servant, we make conscious decisions about how we spend our money, considering the opportunity cost of each option.

My opinion about this quote

I strongly agree with P.T. Barnum’s quote that “Money is a terrible master but an excellent servant”. While money is an important resource that can help us achieve our goals and live our desired lifestyle, it should never become our primary focus or source of stress. Instead, we should view money as a tool that can support our values and priorities, rather than allowing it to control our lives. By using money as a servant, we can achieve financial stability and independence, create a budget that aligns with our values, and make conscious decisions about how we use our resources to achieve our goals.

Why should I be interested in this post?

Financial literacy and money management philosophy are directly touched upon by this quote, which is why it could be of much interest to you, as a business school student.

Related posts on the SimTrade blog

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▶ Federico MARTINETTO Money never sleeps

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

Useful resources

Learn more about P.T. Barnum (in French)

About the author

The article was written in April 2023 by Fatimata KANE (ESSEC Business School, Master in Strategy & Management of International Business, 2022-2023).

Money never sleeps

Money never sleeps

Federico MARTINETTO

In this article, Federico MARTINETTO (ESSEC Business School, Exchange Global BBA, 2021) comments on a quote from Gordon Gekko in the famous Wall Street film.

Quote: Money never sleeps

The quote “Money never sleeps” is a famous line from the 1987 film “Wall Street” and has become a popular saying in popular culture. The phrase “money never sleeps” is commonly used in the context of financial markets and reflects the idea that financial activity never truly ceases, even outside of traditional business hours. This reflects the fast-paced nature of the global financial system, where transactions can occur at any time and from any location around the world. This concept is particularly relevant in the field of finance and investment, where the value of stocks, bonds, and other securities can fluctuate rapidly based on changes in market conditions or geopolitical events. As such, traders and investors must remain vigilant and stay informed about market developments, as opportunities and risks can arise at any time.

The idea that “money never sleeps” also highlights the interconnectedness of the global financial system, where events in one part of the world can have significant impacts on financial markets and economic activity in other regions. As a result, the ability to respond quickly and effectively to market changes is critical for success in the world of finance and investment.

Overall, the phrase “money never sleeps” reflects the dynamic and constantly evolving nature of the global economy, where financial activity never truly stops, and opportunities and risks can arise at any time.

Wall Street movie

Analysis of the quote

The quote “money never sleeps” can be analyzed as a reflection of the constantly changing and dynamic nature of financial markets. The phrase suggests that financial activity is always occurring, even outside of traditional business hours, and that investors and traders must be vigilant and responsive to changes in order to succeed.

One of the key factors that drives the ongoing nature of financial activity is the 24-hour nature of global financial markets. Financial exchanges around the world operate in different time zones, meaning that trading activity can occur at any time. This means that traders and investors must be prepared to respond quickly to market changes, even if they occur outside of normal working hours.

In addition to the 24-hour nature of financial markets, the phrase “money never sleeps” also reflects the rapid pace of financial activity. Financial markets are characterized by their fast-paced nature, with changes in market conditions or geopolitical events leading to rapid fluctuations in the value of securities. This creates both opportunities and risks for traders and investors, who must remain alert and responsive to these changes in order to make informed investment decisions. Furthermore, the interconnectedness of global financial systems is a third factor that contributes to the ongoing nature of financial activity. Events in one part of the world can have significant impacts on financial markets and economic activity in other regions. This means that traders and investors must be aware of global market trends and be prepared to adapt to changing circumstances in order to succeed.

From an academic perspective, the quote “money never sleeps” highlights the importance of remaining vigilant and responsive to changes in financial markets. By doing so, investors and traders can position themselves to take advantage of opportunities and manage risks in order to achieve their investment objectives. Additionally, the ongoing nature of financial activity underscores the importance of financial literacy and education, as individuals must be prepared to make informed decisions in an ever-changing financial landscape.

About the author

Gordon Gekko is a fictional character who appears as the villain in the popular 1987 Oliver Stone movie “Wall Street” and its 2010 sequel “Wall Street: Money Never Sleeps.” The character, a ruthless and wildly wealthy investor and corporate raider, has become a cultural symbol for greed, as epitomized by the famous “Wall Street” quote “Greed is good.”

In “Wall Street,” the protagonist, a young stockbroker named Bud Fox, is desperate to work with Gordon Gekko, who is a legend in the world of finance. Predatory, amoral Gekko is only impressed when Fox is willing to compromise his ethics and provide Gekko with inside information about his father’s company. Gekko makes Fox wealthy, but eventually, Fox regrets what he has done and turns state’s evidence against Gekko, who is sent to prison for securities fraud and insider trading.

For his portrayal of Gordon Gekko in the original film, Michael Douglas won an Academy Award.

Financial concepts related to the quote

The quote “money never sleeps” can be said to refer to three key financial concepts: the 24-hour nature of global financial markets, the rapid pace of financial activity, and the interconnectedness of global financial systems.

The 24-hour nature of global financial markets

One of the key reasons why “money never sleeps” is a relevant concept in finance is the 24-hour nature of global financial markets. Financial exchanges around the world operate in different time zones, meaning that trading activity can occur at any time. For example, the New York Stock Exchange is open from 9:30am to 4:00pm Eastern Time, while the Tokyo Stock Exchange operates from 9:00am to 3:00pm Japan Standard Time. This means that financial transactions can occur at any time, even outside of traditional business hours.

The rapid pace of financial activity

Another reason why “money never sleeps” is an important concept in finance is the rapid pace of financial activity. Financial markets are characterized by their fast-paced nature, with changes in market conditions or geopolitical events leading to rapid fluctuations in the value of securities. This can create both opportunities and risks for traders and investors, who must remain alert and responsive to these changes in order to make informed investment decisions.

The interconnectedness of global financial systems

The interconnectedness of global financial systems is a third reason why “money never sleeps” is a relevant concept in finance. Events in one part of the world can have significant impacts on financial markets and economic activity in other regions. For example, a change in monetary policy by the US Federal Reserve can impact the value of the US dollar and influence economic activity in other countries that trade with the US. This means that financial activity never truly stops, as the effects of market changes and economic events can continue to reverberate around the world.

Overall, the phrase “money never sleeps” reflects the dynamic and constantly evolving nature of the global economy, where financial activity never truly ceases, and opportunities and risks can arise at any time. As a result, traders and investors must remain alert and responsive to changes in financial markets and be prepared to adapt to changing circumstances in order to achieve their investment objectives.

My opinion about this quote

I like so much this quote because it means there are opportunities to make money at any time of the day. One reason why I find the quote appealing is because it suggests a sense of excitement and energy. The phrase implies that financial markets are always active, and that there is always something happening that can impact the value of securities or other financial instruments. For some people, this sense of constant motion and activity can be invigorating and attractive.

Additionally, the quote can be seen as a reminder of the importance of remaining engaged and aware in the pursuit of financial success. By suggesting that “money never sleeps”, the quote underscores the idea that financial markets are always evolving and changing, and that individuals who are not actively engaged in managing their investments may miss out on opportunities or be exposed to unnecessary risks.

Moreover, the quote can also be interpreted as reflective of the importance of hard work and dedication in the pursuit of financial success. The phrase “money never sleeps” suggests that financial success is not achieved through passive investment strategies, but rather through active engagement and a willingness to put in the time and effort required to stay informed and make informed decisions.

For individuals who are interested in finance and investing, the quote can be seen as a motivational reminder of the importance of remaining engaged and committed to achieving one’s financial goals. It encourages individuals to remain vigilant, respond quickly to changes in financial markets, and continually seek out opportunities to maximize their returns.

In conclusion, the quote “money never sleeps” can be appealing for a variety of reasons, including its suggestion of excitement and energy, its reminder of the importance of remaining engaged and aware in the pursuit of financial success, and its emphasis on the importance of hard work and dedication.

Why should I be interested in this post?

The quote “Money never sleeps” relates to the SimTrade certificate in different ways.

Concerning the practice by launching the Efficient market simulation, you will practice how information is incorporated into market prices through the trading of market participants and grasp the concept of market efficiency. By launching the Sending an order simulation, you will practice how financial markets really work and how to act in the market by sending orders.

Regarding the theory for example by taking the Market information course, you will understand how information is incorporated into market prices and the associated concept of market efficiency. By taking the Trade orders course, you will know more about the different type of orders that you can use to buy and sell assets in financial markets.

Related posts on the SimTrade blog

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▶ Akshit GUPTA Analysis of the movie Wall Street: Money Never Sleeps

▶ Kunal SAREEN Analysis of the Wall Street movie

Useful resources

SimTrade course Trade orders

SimTrade course Market information

SimTrade course Leverage

SimTrade simulations Efficient market

About the author

The article was written in April 2023 by Federico MARTINETTO (ESSEC Business School, Exchange Global BBA, 2021).

Investment is a flighty bird which needs to be controlled

“Investment is a flighty bird which needs to be controlled”

Clara PINTO

In this article, Clara PINTO (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2020-2023) comments on a quote by Sir John Richard Hicks about investing.

Investment is a flighty bird which needs to be controlled

“Investment is a flighty bird which needs to be controlled” is a famous quote from Sir John Richard Hicks.

This quote means that investment is unpredictable and can easily change direction or fly away, so it needs to be managed or controlled carefully. Just like a bird, investment can be difficult to catch and keep in one place, so investors need to constantly monitor and adjust their strategies to ensure that their investments are secure and profitable. Without proper control over the portfolio and monitoring of the news, an investor can make decisions which could be risky and lead to financial losses.

About the author

The author is a British neo-Keynesian theorist and considered as one of the most influential economists of the XXth century.

Financial concepts related to the quote

It is important to understand the risks associated with investing before making any investment decisions. It is also important to diversify your portfolio by investing in a variety of different assets, to minimize the risk of losses due to the failure of any single investment. Additionally, investors should consider their investment goals, time horizon, and risk tolerance when making investment decisions. Some common risks associated with investing include:

  • Market Risk: The possibility of losing money due to the fluctuations in the stock market, commodity prices, or interest rates.
  • Credit Risk: The risk of losing money when a borrower fails to repay a loan or debt.
  • Inflation Risk: The risk that the purchasing power of your investments will decrease due to inflation.
  • Liquidity Risk: The risk that an investment cannot be sold quickly enough to avoid a loss.
  • Operational Risk: The risk of losing money due to errors, fraud, or other operational problems.

My opinion about this quote

I like this quote because today, many successes such as the Pinduoduo investment story about investment are shared (see the article “five investing success stories from five international women”), but without the proper knowledge and understanding of the risks, the loss that can occur is often underestimated.

Why should I be interested in this post?

As many business students are advised to invest early in their careers, and many are offered the chance to do it with money that they did not earn by themselves, this quote shall remind them of the consequences of bad decision making and the risks.

Related posts on the SimTrade blog

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Useful resources

4 Real Risks Of Investing (And What To Do About Them)

Five Investing Success Stories from Five International Women

Pin Duo Duo

About the author

The article was written in March 2023 by Clara PINTO (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2022-2023).

The Power of Patience: Warren Buffett's Advice on Investing in the Stock Market

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

Federico De ROSSI

In this article, Federico De ROSSI (ESSEC Business School, Master in Strategy and Management of International Business, 2020-2023) comments on a quote by Warren Buffet about patience.

Quote

The stock market is a device for transferring money from the impatient to the patient.

Analysis of the quote

The quote “The stock market is a device for transferring money from the impatient to the patient” was written by none other than Warren Buffett, widely regarded as one of the greatest investors of all time. Buffett is the chairman and CEO of Berkshire Hathaway, a multinational conglomerate holding company with a diverse portfolio of businesses in insurance, energy, railroads, manufacturing, and retail. As of the 2nd of March 2023, the oracle of Omaha has amassed a net worth of more than $100 billion over the course of his career, owing largely to his astute stock market investments. Buffett’s investment philosophy revolves around identifying high-quality companies with strong competitive advantages and investing in them for the long term, often with a holding period of 10 years or even more. A strategy also known as value investing.

Financial concepts related to the quote

Related to this quote, I spotted three main financial concepts: compounding returns, long-term investment strategy, and risk and reward.

Compounding returns

One of the financial concepts associated with Buffett’s quote is the idea of compounding returns. Essentially, the longer you hold onto a stock, the more money you stand to make. By reinvesting your earnings and letting them compound over time, you can potentially turn a small initial investment into a large sum of money over the course of several years or even decades. This is where patience comes in – if you’re constantly buying and selling stocks, you’re unlikely to see the full benefits of compounding returns.

Long-term investment strategy

Another concept that ties into Buffett’s quote is the importance of having a long-term investment strategy. The stock market can be incredibly volatile in the short-term, with prices fluctuating wildly based on a variety of factors such as news events, economic data, and investor sentiment. However, over the long-term, the stock market tends to follow a generally upward trend, as companies grow and earnings increase. By having a long-term investment strategy and holding onto your stocks through market fluctuations, you can avoid making rash decisions based on short-term movements and instead focus on the bigger picture.

Risk and reward

A third financial concept related to Buffett’s quote is the idea of risk and reward. The higher the potential reward, the higher the level of risk involved. Stocks with high growth potential may offer greater returns, but they also come with greater risk of volatility and price fluctuations. On the other hand, more stable, established companies may offer lower returns but come with lower risk. By being patient and willing to wait for your investments to pay off over the long-term, you can potentially reap the rewards of higher returns while minimizing your risk.

My opinion about this quote

In my opinion, Buffett’s quote is a testament to the power of patience and long-term thinking when it comes to investing. Too often, people are tempted to make quick, impulsive decisions based on short-term market movements or the latest hot stock tip. However, this approach rarely leads to long-term success. Instead, by taking a patient, disciplined approach to investing and focusing on high-quality companies with strong fundamentals, you can potentially build wealth over the course of years or even decades. While investing in the stock market always involves some level of risk, by being patient and letting your investments compound over time, you can potentially reap the rewards of higher returns and build a more secure financial future.

Why should I be interested in this post?

This quote is a great reminder to always invest money with your brain and not based on your emotions. Be patient – fools rush in where angels fear to tread.

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   ▶ Rayan AKKAWI Warren Buffet and his basket of eggs

   ▶ Youssef EL QAMCAOUI The Warren Buffett Indicator

Useful resources

Berkshire Hathaway

About the author

The article was written in March 2023 by Federico De ROSSI (ESSEC Business School, Master in Strategy and Management of International Business, 2020-2023).

The Islamic financial system as a solution to tackle social issues

The Islamic financial system as a solution to tackle social issues

Evan CHAISSON

In this article, Evan CHAISSON (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2022-2023) comments on a quote by Wolfgang Schafuble about Islamic finance.

Quote

Islamic finance is growing in importance for the global economy. It is therefore important consider questions related to integrating Islamic finance into global finance.

Analysis of the quote

This quote, by Wolfgang Schauble, highlights the growing importance of Islamic finance in the global economy. Islamic finance is a rapidly growing sector, with an estimated value of over $2 trillion in assets worldwide. Figure 1 below gives the Global Islamic Finance Assets Growth (in US$ Trillions). As you can see from the figure, the sector is projected to more than double in value in 2024 based on its 2012 value.

Figure 1. Global Islamic Finance Assets Growth.
Global Islamic Finance Assets Growth
Source: ICD – Refinitiv Islamic Finance Development Report (December 2020).

As such, it is becoming increasingly important for the global financial system to consider questions related to integrating Islamic finance into global finance.

Additionally, this quote presents Islamic finance as a financial system that is different from the classical “Western” system that is commonplace today. As such, it may be able to offer solutions to global issues that the current system is unable to solve.

About the author

Wolfgang Schauble is a German politician who has played a prominent role in German and European politics for several decades. He served as Germany’s Minister of Finance from 2009 to 2017, during which time he played a key role in managing the global financial crisis and the European debt crisis.

Prior to serving as Minister of Finance, Schauble served as Minister of the Interior, where he was responsible for domestic security and law enforcement. He is widely regarded as a conservative politician and has been a member of the Christian Democratic Union (CDU) since 1974.

Financial concepts related to the quote

Although much separates Islamic law from the Western system, there are three main aspects that stand out: prohibition of interest, asset-based financing, and ethical and social considerations.

Prohibition of interest

The prohibition of interest, or riba, is one of the foundational principles of Islamic finance. This principle is based on the Islamic belief that money should not be used as a commodity to generate profit. The concept of riba is not limited to charging interest on loans, but also includes any type of fixed, predetermined, or guaranteed return on investment. Instead of interest-based lending, Islamic finance relies on profit-and-loss sharing (PLS) arrangements, where both the lender and the borrower share the risks and rewards of a particular investment.

PLS contracts take several forms, including mudarabah, musharakah, and ijara. In mudarabah, one party provides the capital, and the other party provides the expertise to invest the capital. Profits are shared according to a pre-agreed ratio, but losses are borne solely by the provider of capital. In musharakah, both parties provide capital and expertise, and profits and losses are shared according to a pre-agreed ratio. In ijara, the financier purchases an asset and leases it to the borrower for a fixed period of time, with the option to purchase the asset at the end of the lease term.

Asset-based financing

In Islamic finance, financial investments are tied to physical assets, such as property or commodities, rather than financial instruments such as stocks, bonds, or, say mutual funds. This is known as asset-based financing, and it is designed to promote stability in the financial system. By tying financial investments to tangible, physical assets, Islamic finance encourages investment in the real economy and discourages speculation.

The use of asset-based financing also has implications for risk management. Since investments are tied to real assets, the risks associated with those investments are more tangible and can be more easily managed. This also encourages all parties involved to share the risk of the venture. In turn, this will help build trust between partners, and, as more time goes by, investment risk will steadily decrease.

Ethical and social considerations

Islamic finance places a strong emphasis on ethical and social considerations in investment decisions. This includes avoiding investments in industries such as alcohol, tobacco, and gambling, which are considered harmful to society. Additionally, Islamic finance institutions often have social welfare programs that aim to promote social justice and alleviate poverty.

One example of a social welfare program in Islamic finance is zakat, which is a form of mandatory charitable giving. Muslims are required to give a portion of their wealth to those in need, and Islamic finance institutions often collect and distribute zakat on behalf of their clients. Islamic finance institutions may also engage in other forms of social welfare, such as providing interest-free loans to small businesses or supporting community development projects.

My opinion about this quote

Having stumbled on this quote by chance, I chose it because it made me curious about a financial system which I previously was not familiar with. This then led me to learn about a financial system which operates in a way that is decidedly different from what Westerners are used to. As a young adult growing up in an increasingly uncertain world with more than its fair share of issues, I am always searching for a solution. Thanks to this quote, I have discovered a financial system that, perhaps, can shape a path towards a better future.

Why should I be interested in this post?

Any student of business and finance, regardless of its origins, has much to gain from simply learning about the Islamic financial system.

This system should be studied, first and foremost, simply because Islamic finance is an increasingly important and influential component of the global financial system. According to the Islamic Financial Services Board, the global Islamic finance industry had assets worth $2.88 trillion in 2019. As the industry continues to grow, there will be a growing demand for professionals who understand the principles and practices of Islamic finance.

Another more ethical reason is because, as mentioned earlier, Islamic finance places a strong emphasis on ethical and social considerations in investment decisions. This includes avoiding investments in industries such as alcohol, tobacco, and gambling, which are considered harmful to society. For students who are interested in pursuing careers in finance with a social and ethical focus, Islamic finance may be of particular interest.

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Useful resources

Islamic Finance: Principles, Performance and Prospects

About the author

The article was written in March 2023 by Evan CHAISSON (ESSEC Business School, Grande Ecole – Master in Strategy & Management of International Business, 2022-2023).