Approaches to investment

Approaches to investment

Henri VANDECASTEELE

In this article, Henri VANDECASTEELE (ESSEC Business School, Master in Strategy & Management of International Business (MS SMIB), 2021-2022) explains the two main approaches to investment: fundamental analysis and technical analysis.

Fundamental analysis

Fundamental analysis (FA) is a way of determining the fundamental value of a securities by looking at linked economic and financial elements. Fundamental analysts look at everything that might impact the value of a security, from macroeconomic issues like the state of the economy and industry circumstances to microeconomic elements like management performance. All stock analysis attempts to evaluate if a security’s value in the larger market is right. Fundamental research is often conducted from a macro to micro viewpoint in order to find assets that the market has not valued appropriately. To get at a fair market valuation for the stock, analysts often look at the overall status of the economy, then the strength of the specific industry, before focusing on individual business performance.

Fundamental analysis evaluates the value of a stock or any other form of investment using publicly available data. An investor, for example, might undertake fundamental research on a bond’s value by looking at economic variables like interest rates and the overall status of the economy, then reviewing information about the bond issuer, such as probable changes in its credit rating.

The aim is to arrive at a figure that can be compared to the present price of an asset to determine whether it is undervalued or overpriced.

Fundamental analysis is based on both qualitative and quantitative publicly available historical and current data. This includes company statements, historical stock market data, company press releases, financial year statements, investor presentations, information found on internet fora, media articles, and broker/analyst reports.

Technical analysis

Technical analysis (TA) is a trading discipline that analyzes statistical trends acquired from trading activity, such as price movement and volume, to evaluate investments and uncover trading opportunities.

Technical analysis, as opposed to fundamental analysis, focuses on the examination of price and volume. Fundamental analysis aims to estimate a security’s worth based on business performance such as sales and earnings. Technical analysis methods are used to examine how variations in price, volume, and implied volatility are affected by supply and demand for a security. Any security with past trading data can benefit from technical analysis. This includes stocks, futures, commodities, bonds, currencies and other securities. In fact, technical analysis is much more common in commodities and forex markets where traders focus on short-term price fluctuations.

Technical analysis is commonly used to generate short-term trading signals from various charting tools, but it also helps to improve the assessment of securities strengths or weaknesses compared to one of the broader markets or sectors increase. This information helps analysts improve their overall rating estimates.

Technical analysis is performed on quantitative data only that recent and historical, but publicly available. It leverages mainly market information, namely daily transaction volumes, stock price, spread, volatility, … and performs trend analyses.

Link with market efficiency

When linking both approaches to investment to the market efficiency theory, we can state that fundamental analysis assumes that financial markets are not efficient in the semi-strong sense, whereas technical analysis assumes that financial markets are not efficient in the weak sense. But the trading activity of both fundamental analysts and technical analysts make the markets more efficient.

Useful resources

SimTrade courses Market information

Related posts on the SimTrade blog

   ▶ Shruti CHAND Technical Analysis

   ▶ Jayati WALIA Trend Analysis and Trading Signals

About the author

The article was written in November 2022 by Henri VANDECASTEELE (ESSEC Business School, Master in Strategy & Management of International Business (MS SMIB), 2021-2022).

Posted in Contributors, Financial techniques | Leave a comment

What are the different financial products traded in financial markets?

Louis DETALLE

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole – Master in Management, 2020-2023) explains what are the main financial products traded in financial markets.

What is a financial product?

Financial ‘products’ or ‘instruments’ are contracts that are traded on financial markets. Each type of product is traded in a specific financial market. In financial institutions, each type of product is managed by a dedicated team.

Financial products also differ in their type of risk and their risk level. As expected return and risk are positively related, (expected) returns on financial products also differ.

What are the three most simple types of financial products?

Shares

Investing in a share means acquiring a share in the capital of a company. The value of the share varies, depending in particular on investors’ expectations of the company’s earnings. These shares can be traded on the financial markets if the company is listed on a stock exchange.

As the value of the investment is not guaranteed, investing in shares is risky. It can be seen as a long-term investment with sometimes significant short-term fluctuations, as we can see at the moment with the disturbances linked to the war in Ukraine.

Bonds

Buying bonds therefore means lending at an interest rate and over a period known from the outset. For this reason, the cash flows of a bond can be computed from the outset. But financial risks (interest rate risk and credit risk) remain for such a product.

The risk associated with a bond is in fact that of a default by the lender, either that it cannot pay the interest or repay the capital. The stronger the borrower, the less risky the bond. As the expected return and risk of a bond are positively related, it is possible to anticipate the interest rate of a bond by looking at the rating of the company or the country according to the rating agencies (about credit rating you can read this post).

Foreign exchange

The foreign exchange market (or ‘forex’) is where currencies (dollar, euro, etc.) are traded. The exchange rates between currencies can fluctuate very quickly and create a currency risk in converting one currency into another.

What are the other types of financial products?

Options

Options are so-called “derivatives” because their value depends on the value of another asset, known as the “underlying”.

These underlyings can be simple financial products such as those mentioned above, or physical products (commodities) or stock market or weather indices, for example.1 in the Resources section) will not be affected by the new bond issue.

A special case: the Stock Options

The stock option program is a compensation tool available to companies with shares (listed or unlisted). It is generally not granted collectively, but rather seeks to build loyalty and motivate key employees for the company’s strategy by associating them with its results, such as top management.

Stock options are subscription options or stock purchase options. Certain employees or corporate officers have the right – but not the obligation – to buy shares in the company in which they work, at a price fixed at the time of grant. These are therefore similar to the options mentioned above, whose underlying asset is the share. However, the major difference is that, unlike options that can be traded on the financial markets, stock options are reserved for certain employees of the company who can only sell them if the bylaws enable them to do so.

Resources

Youtube 1-hour course explaining the main financial products for those who want to deepen their knowledge about it…

Related posts on the SimTrade blog

▶ Jayati WALIA Credit risk

▶ Bijal GANDHI Credit rating

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole – Master in Management, 2020-2023).

Posted in Contributors | Leave a comment

A quick review of the DCM (Debt Capital Market) analyst’s job…

Louis DETALLE

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole – Master in Management, 2020-2023) explains what an analyst in Debt Capital Market (DCM) works on, on a daily basis.

What does DCM consist in?

The Debt Capital Market or DCM teams are used to cover the debt financing needs of organizations via financial markets. For this reason, they assist companies in the issuance of bonds and loans. This job is perfectly centered between corporate finance and financial markets! The clients of a DCM team are very broad and regroup corporate, financial institutions and governments.

The DCM analyst’s job is therefore a financing-related job like the Equity Capital Market (ECM). However, it differs by the nature of the financing offered: debt or equity.

Why would a company resort to DCM rather than ECM?

The main advantage of issuing debt rather than equity is that a company will not have to sell any share of its capital. The company’s shareholders will maintain their shares in the company, in order to keep control of it. The counterpart to this is the repayment obligation inherent in the financial debt, which does not exist when the company issues shares. Indeed, legally, there is no obligation for a company to pay dividends to its shareholders, whereas the repayment of interest and principal on the debt is contractually binding.

The DCM is therefore an effective solution to attract a large number of clients such as companies, but also actors unable to intervene in the equity markets: the governments. Indeed, governments, supranational institutions or sovereign wealth funds cannot sell part of their capital; they find in the bond market a source of liquidity. Traditionally, countries offering solid guarantees of interest payments and bond repayment – the United States, Germany and France – are the biggest players on the bond markets.

What does an analyst in DCM work on?

The DCM team of a bank works mainly on three dimensions: commercial relationship, structuring, and syndication. There are usually dedicated analysts devoted to each task.

Commercial relationship

Through the commercial relationship, the DCM team will try to understand the client’s needs and find a customized solution. The objective is therefore to define the amount of debt to be issued, based on the client’s financing needs, outstanding debt and solvency. This origination work therefore requires an overall view of the client’s profile and capital structure to ensure that its rating will not be affected by the new bond issue (about credit rating you can read this post.

Structuring

This dimension is more technical. This is the case when an investment bank has to offer more sophisticated products such as convertible bonds, bonds with warrants or bonds redeemable in shares. Structuring is mainly concerned with hybrid debt issues. These products offer different levels of risk for investors who will participate to the issuance.

Syndication

Syndication relates to oversized loans that requires allocation among different banks.

Why do DCM jobs appeal so much to business school students?

First of all, it is the dynamic working environment that investment banking constitutes that attracts young graduates. Like ECM, DCM is marked by a culture of high standards and maximum commitment, with highly responsive teams and extremely competent colleagues. Working in a high-powerded team is very stimulating, and often makes it possible to approach the workload with less apprehension and to rapidly increase one’s competence.

The position of DCM divisions within investment banks also makes the job really interesting because the DCM can interact with other departments like M&A. Because as we have seen together, a DCM job requires the ability to manage theoretical models, market trends and legal specificities. For that matter, a DCM career can be very challenging, and this is what young graduates seek for.

Resources

Youtube Interview with a DCM originator at Natixis

Related posts on the SimTrade blog

▶ Louis DETALLE A quick review of the ECM (Equity Capital Market) analyst’s job…

▶ Jayati WALIA Credit risk

▶ Bijal GANDHI Credit rating

▶ Mohamed Dhia KHAIROUNI Analyse du documentaire « Inside Job »

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole – Master in Management, 2020-2023).

Posted in Contributors, Finance jobs | Leave a comment

Focus on the General Inspection in banks

Louis DETALLE

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole – Master in Management, 2020-2023) explains the General Inspection in banks.

What is the General Inspection?

The General Inspection (GI) path is a 3-to-9-year training program used to identify and develop the banking leaders of tomorrow. Indeed, during this extensive Gradutate Program, the General Inspectors (GI) will experiment many divisions of the bank (retail banking investment banking, asset management) and approach their functioning from different perspectives.

The GI’s tasks can be cross-cutting, specific or regulatory, and they change approximately every 6 months, allowing General Inspectors to work on new subjects each time. For example, they may relate to the global strategy of the retail bank or to the foreign exchange risk control process in the trading room. For a French bank, the assignments may take place both in France and abroad and therefore involve a lot of travel. During their missions, the GIs will meet regularly with senior managers, and by training, enabling the GI team to submit its recommendations, also known as the audit report.

What banks recruit General Inspectors and how does the recruitment process go?

Banks such as BNP Paribas, BPCE Société Générale, and La Banque Postale in France, organize competitive exams each year. Candidates are mainly freshly graduate students from business schools and sometimes from engineering schools. Foreign banks like HSBC recruit also inspectors with a few years’ experience.

This exam consists of a written test, followed by an oral test, and finally a presentation in front of a grand jury.

The written test lasts about four hours and consists of strategic and operational cases in which you will have to demonstrate your ability to analyze financial data by using relevant indicators.

The oral test consists of a group interview of about eight candidates in the form of a simulation during which you will be observed by a jury. You will then take part in a traditional motivational interview with former managers of the General Inspection who will ask you questions about your career objectives.

Finally, if you pass these two stages, you will be invited to an HR interview which will allow you to debrief on a personality questionnaire, before taking part in the grand oral in front of a jury composed of the bank’s managers.

What are the main exits for General Inspectors?

After completing the General Inspection track in a bank, a General Inspector may move into management positions (like in the retail division of the bank) or more operational and hands-on positions (structuring, trading or financing).

There are also opportunities in support functions such as the Risk and Compliance Office departments, as well as in the Middle Office, given the appropriate training provided by the General Inspection. Exits to the Front Office as well as to Trading and M&A are relatively less easy given the lack of operational experience.

Resources

BNP Paribas Job description: Inspector

BPCE Job description: Inspector

Société Générale Job description: Inspector

La Banque Postale Job description: Inspector

Related posts on the SimTrade blog

▶ Louis DETALLE A quick presentation of the M&A field…

▶ Frédéric ADAM Senior banker (coverage)

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole – Master in Management, 2020-2023).

Posted in Contributors | Leave a comment

The different legal types of companies in France

Louis DETALLE

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole – Master in Management, 2020-2023) explains what the different legal types of companies exist in France.

What are the main legal forms of companies that someone can create in France?

The limited liability company (Société à Responsabilité Limitée or SARL)

The SARL offers the advantage of a simple structure in which the liability of the partners (“associés” in French) is limited to the amount of their Initial Investment in capital.

The initial capital of the SARL, of which the French law sets a minimum amount of one euro, is divided between at least two partners.

The one-person” limited liability company (“Entreprise unipersonnelle à responsabilité limitée” or EURL)

A special type of SARL is the EURL with only one partner.

Its operating rules are very similar to those of the SARL. The main difference concerns its tax system: its profits are automatically taxed as income in the name of the partner, although it is possible to opt for corporation tax.

The simplified joint stock company (“Société par Action Simplifiée” or SAS)

This relatively recent form of company is enjoying some success (especially for start-ups). Many SAs have been transformed into SASs. The rules governing it are similar to those of the SA. However, some measures make it simpler. For example, there is no minimum amount of share capital required, you can create a SAS with €1!

The public limited company (“Société Anonyme” or SA)

The SA is formed by at least two shareholders with a minimum capital of €37,000. The number of shareholders is at least seven if the limited company is listed on the stock exchange. It is managed by a chairman and a managing director (who may be one and the same person) and by a board of directors composed of at least three people.

It is subject to the obligation to appoint an auditor (“commissaire aux comptes” in French), especially if it is listed!

General partnership (“Société en nom collectif” or SNC)

This form of company is rarely used because it has the disadvantage of not protecting the assets of its partners: they are indefinitely and jointly and severally liable for the company’s debts out of their personal assets.

What are the main characteristics that must be borne in mind when creating a company in France?

Let’s review what are the advantages of the main types of companies:

SAS vs SA

Compared to the SA, the SAS offers the advantage of flexibility: the French law allows the partners to organize its operation freely in the firm’s status. The writing of the status requires the advice of a qualified professional, as it can lead to the development of rules that would be difficult to apply later.

Because of its cumbersome operating rules, the SA should be reserved for projects of a certain size. It is also used when shareholders who are not involved in the business want to exercise control in the board of directors. The main advantage of this status is that it allows a very large amount of share capital to be built up in order to finance expensive investments.

SARL advantage: limited liability

The main advantage of the SARL status is the limited liability of the partners. They are free to determine the amount of share capital and therefore the contributions they wish to make when setting up the limited liability company and are only liable for the amount of their contributions. For that matter, these companies are especially adapted for partners who wish to protect their personal capital.

SNC

No minimum amount is required for the initial capital, which can be a major advantage. On the other hand, the shares of the capital can only be transferred after having obtained the agreement of all the partners, which makes any change in the composition of the capital complex.

EURL advantage: protecting your personal capital

The EURL allows you to secure your personal assets. By creating such a company, your liability is in principle limited to the amount of your contributions. Your professional creditors cannot therefore sue you personally unless you have committed management errors. If you are not guilty of mismanagement in your capacity as manager and you have not given any personal guarantees in connection with your project, your personal assets are safe in the event of difficulties in the company.

Useful resources

URSSAF Registration of a company in France

Insee Information for the registration of a company in France

Related posts on the SimTrade blog

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▶ Louis DETALLE A quick presentation of the M&A field…

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole – Master in Management, 2020-2023).

Posted in Contributors | Leave a comment

A quick review of the ECM (Equity Capital Market) analyst’s job…

Louis DETALLE

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole – Master in Management, 2020-2023) explains what an analyst in ECM works on, on a daily basis.

What does ECM consist in?

The Equity Capital Markets or ECM teams are used to cover the equity financing needs of companies via financial markets. For this reason, they assist companies in initial public offerings (IPOs) and then seasoned equity offerings (SEOs), convertible bond issuances, capital increases or squeeze. The ECM analyst’s job is therefore a financing-related job like the Debt Capital Market (DCM), which differs, however, by the nature of the financing offered: debt or equity.

What does an analyst work on?

The analyst may first work on the origination of the deal. This involves, for example, proposing a financing solution to the client in parallel with a merger or acquisition (M&A) transaction. This will require a major pitch to convince the client that the proposed financing solution is the most suitable for its needs. On the other hand, the analyst will also have to work upstream on the technical aspects of the ECM transaction, i.e., the pricing of the transaction to reassure the client that the transaction will be successful. This is both a technical and commercial job, with strong relations with clients and other teams in the bank.

In parallel to this technical and commercial work and directly linked to the ECM transaction, the analyst must also work with the legal teams on the structuring of the transaction. This is often overlooked, but a share issue is a financial as well as a legal operation. That is why ECM teams also work on the tax and legal aspects of a share issuance or IPO for example.

Finally, the ECM analyst must regularly inform himself on the behavior of the financial markets in order to choose the most opportune moment for an IPO or a share issuance for example. The current context of massive inflation and instability linked to the war in Ukraine, for example, invites investors in the financial markets to be very cautious and therefore to invest less than usual. This is the reason why IPOs are so rare at the moment, as players wishing to go public fear the response of the primary markets. This work of monitoring the financial markets will be done by looking at the records on Bloomberg for instance, in order to obtain insights on the major market trends.

Why does ECM jobs appeal so much to students?

First of all, it is the dynamic working atmosphere that investment banking constitute that also attracts young graduates. ECM is marked by a culture of high standards and maximum commitment, with highly responsive teams and extremely competent colleagues. Working in a quality team is very stimulating, and often makes it possible to approach the workload with less apprehension and to rapidly increase one’s competence.

The position of ECM divisions within the Investment Banks also makes the job really interesting. Because as we have seen together, an ECM job suggests an ability to manage both theoretical models, market trends and legal specificities. For that matter, an ECM career can be very challenging, and this is what young graduates seek for.

What are the main exits for ECM?

What is special about ECM is that it is a profession between corporate finance and market finance, which means that it is possible to move into one of these two branches after working in ECM. Some go into Venture Capital or late stage start-ups to build on their knowledge of IPOs. Others go into Sales & Trading, although this seems to be more rare.

Resources

Coursera’s Lecture on ECM & how they work

https://www.indeed.com/career-advice/interviewing/capital-market-interview-questions

Related posts on the SimTrade blog

▶ Louis DETALLE A quick presentation of the Private Equity field…

▶ Louis DETALLE A quick presentation of the M&A field…

▶ Frédéric ADAM Senior banker (coverage)

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole – Master in Management, 2020-2023).

Posted in Contributors, Finance jobs | Tagged | Leave a comment

What are the missions of the financial departments of CAC40 groups?

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole – Master in Management, 2020-2023) explains what are the missions of the financial departments in CAC40 groups.

What is the use of the Finance Department?

In a sentence, the Financial Department should be able to answer the following question at any time: “Who should I pay, when and how ?”

The finance department is a key department of the company as it implements financial tools to assist in strategic decision-making, and thus prevents financial risks. In other words, the finance department helps plan the development strategy of the company by ensuring all financial resources are available at any time for example.

For that matter, the financial department of the company works neck and neck with the Board of Directors of the CAC40 Group which define the strategy of the Groups for the months and years to come. The Chief Financial Officer (CFO) will then ensure that the financial resources needed by the company are available to the company at any time of the strategy implemented.

What are the main topics that the Financial Department deals with?

There are a great number of missions that the Chief Financial Officer will have to conduct, but here are the main ones:

About the Group’s solvency: At every time, a CAC40 Group must be solvent, that means they are supposed to be able to reimburse their debts at the previously agreed-upon time. To assess the ability of the Group to do so, the Financial Department has to create Excel models to anticipate the debt repayment over a short, medium & long terms. Obviously, that means the Financial Department will also conduct many calls with the banks to ask for the implementation of credit lines.

Ensuring the management of the company’s cash flow, i.e., its capacity to collect sufficient income to cover its operating cycle: permanent monitoring and management of the teams (customer accounting, supplier accounting, cash flow, etc.), and of the operational activities. The implementation of treasury boards allows the monitoring of the above criteria.

To perform well the previous missions, the CFO (and the Finance Department more generally) has to organize meetings with the lenders, the suppliers and the clients in order to negotiate the payment periods. Indeed, to alleviate the treasury of the CAC40 Group, many solutions exist & it is the CFO’s job to invent new ones.

What is interesting and demanding as a CAC40 CFO?

First of all, since the role of the financial department is crucial to ensure the sustainability of a company because they deal about the solvency of the Group, this suggests that they are implicated in every decision made. They intervene upstream and downstream of each management decision and comes up with corrective measures in the event of financial problems. For that matter, working as a CFO of a CAC40 company requires the ability to see the big picture.

On the other hand, since the financial departments of CAC40 groups are audited every year, the finance department must keep a written record to justify any accounting item from a legal point of view. This requires a high level of organizational skills and a minimum of legal knowledge for the time when the Big 4 firms will conduct the audit of the Group.

Resources

Association Nationale des Directeurs Financiers et de Contrôle de Gestion

Youtube Interview with Gilles Bogaert, CFO of Pernod Ricard

Ebook on the future of CFOs…

Related posts on the SimTrade blog

▶ Louis DETALLE A quick presentation of the Private Equity field…

▶ Louis DETALLE A quick presentation of the M&A field…

About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole – Master in Management, 2020-2023).

Posted in Contributors | Tagged | Leave a comment

Art as a financial asset class

Art as a financial asset class

Nakul Panjabi

In this article, Nakul PANJABI (ESSEC Business School, Grande Ecole – Master in Management, 2021-2024) talks about the Art as a financial asset class.

Before delving into the economics of the art market and art’s significance as an asset class, let us first recollect the definition of an asset and an asset class. An asset broadly refers to a resource from which future economic benefits are expected to flow. An asset class is a group of assets that have similar characteristics and related risk and return behavior. Common examples of asset class would be equities, fixed-income investments, and real estate.

Why have you not invested in art yet?

Although an age-old investment, art as an investment has been available to only a minority of investors most of whom are high-net-worth individuals (HNWI) or even ultra-high-net-worth individuals (UHNWI). The prime reason is that the market faces an inelastic supply. In simple terms, there are very few goods in market to be traded which leads to higher prices of each item and therefore, at equilibrium, only few people with such means could afford the good. This economic explanation of the art market would be enough if there were very few art items available to buy. However, as intuition might suggest, that is not the case. The world is filled with pieces of art and people who own it. Does this fact weaken our previous argument? The answer is simply No. Even though there are lots of art item and anyone with some spare money can buy a piece of art, almost none of those items would be classified as an asset. Art as an Asset class has an extremely limited supply. Only a few pieces of art are purchased as Asset.

Features of the Art Market

Besides limited supply and consequently higher prices, there are few other factors as well that makes art an interesting asset class. Firstly, the investable art items are highly illiquid. Selling a collectible art item is a time-consuming complex process. It requires dealers, auctions and most importantly potential buyers who could afford such an expensive item that provides no economic benefits except capital appreciation. As one might guess, there are only a handful of individuals in the world who own a 50-million-dollar painting.

Secondly, the supply of this asset class is not closely related to the cost of producing it. Most goods’ supply is based on the cost of producing them. For example, it is cheap to produce toothpaste, so it has an elastic supply. If there is a strike at a toothpaste factory, then there would be less people to make the toothpaste. This will increase the wages (cost of production) paid to them. Now fewer toothpastes would be produced at a higher price. This will make the supply of toothpaste relatively inelastic. However, this economic phenomenon seems to be missing in the art market. The supply of this asset class is highly inelastic but the goods that represent investable art are very cheap to produce. The low cost of production does not dictate the supply of collectible art. It is the rarity of these goods that cause such an inelastic supply. A lot of Investable art items are works of deceased artists. Although they probably were very cheap to produce, it is impossible to create more of them. The rarity of such items makes them so valuable.

Art has a very high maintenance cost and most of the art do not provide any recurring cashflows. One source of art cashflows is the income generated from renting art to museums. Because there is a limit to the number of paintings that can be displayed in museums, most of the return from art investments is generated through capital appreciation. However, as we discussed before, it is not so easy to sell a piece of art. Then, why would anyone, let alone the most sophisticated of investors, buy such an asset? Well, there are a lot of reason why one might invest in art.

Reasons to invest in the art market

Low correlation

Art has a low correlation with traditional asset class. Fluctuations in Apple’s stock price would probably have little effect on the price of an authentic Picasso painting. Thanks to this low correlation, a collectible painting can act as a hedge against inflation and market crashes. According to a 2022 Citibank report, art has either a weak positive correlation or zero correlation with other asset classes.

Tax Benefits

Given the fact that the value of investable art does not derive from either its future cashflows or its cost of production, it is relatively easier to manipulate its price than it is for other assets. Manipulating the price of an asset is extremely useful to manipulate income and consequently taxes.

Money laundering

Art Investments have also been used for money laundering. The logic is straightforward. A 50-million-dollar painting can be much easily hidden than cash or gold of similar value.


Status Symbol

Art is a very efficient status symbol. The rarity of the collectible art items makes owning them a source of prestige. If your friend owns one of the only five paintings created by a famous renaissance painter, you don’t need to be an expert in art to judge the economic worth of the painting or of your friend.

What Future looks like for the art market

According to the annual report by Art Basel and UBS Global Art, the worldwide art sales crossed $65.1 billion in 2021. This reflects a 29% increase from the previous year.

Moreover, with increase in the trend of NFT trading, millennials are more interested in (digital) art than ever. According to 2021 study by Art Basel and UBS Global Art, millennials were the highest spenders on fine art in 2020.

Now, with an increase in art investing funds, the barriers for art investing have also been reduced tremendously. People, who could not invest in art because of high capital requirement and lack of expertise, can now do so by investing in an art fund.

Why should I be interested in this post?

As an (wealthy) investor, art represents an asset class which is not highly correlated with traditional assets. It then can be useful for asset allocation in terms of diversification. When you think of your personal portfolio, you may think of art.

Related posts on the SimTrade blog

   ▶ Youssef LOURAOUI Portfolio

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   ▶ Nakul PANJABI Charging Bull on Wall Street

About the author

The article was written in November 2022 by Nakul PANJABI (ESSEC Business School, Grande Ecole – Master in Management, 2021-2024).

Posted in Art, Contributors, Culture | Tagged , , | Leave a comment

Charging Bull on Wall Street

Charging Bull on Wall Street

Nakul Panjabi

In this article, Nakul PANJABI (ESSEC Business School, Grande Ecole – Master in Management, 2021-2024) talks about the Charging Bull sculpture displayed on Wall Street.

About the Charging Bull sculpture

In mid of December 1989, a bronze sculpture of a bull in its charging position was dropped outside of the New York Stock Exchange. The Bull is a symbol of booming stock prices. Arturo Di Modica, an Italian-American artist, was responsible for this stunt. During the economically depressive period of late 80s, he intended to encourage optimism and hope for a prosperous future among the American Citizens. Anticlimactically, the sculpture was removed just after few hours but was placed just two blocks away from its original place.

Charging Bull sculpture on Wall Street.
Charging Bull sculpture on Wall Street
Source: Arturo Di Modica.

Although the Charging Bull has already become a global symbol for an upward stock price movements and prosperity, understanding the basics of Bull and Bear markets can be useful for Investment Management. Bull market represents the time period where asset and security prices are rising, and it reflects the heightened investor confidence in the financial markets. Conversely, Bear market represents a downward movement in security prices and an increased investor pessimism. The terminology evolves from the behaviour of the animals. Bull market derives its name from the upward attacking technique of a bull and the bear market from the downward attacking technique of a bear.

Price trends

Generally, fundamental investing deals with the fundamental value of the security rather than the movement of its price. However, it does not mean that price movements are completely irrelevant in investment decisions of an individual. It is useful to know whether the market is bullish or bearish. If the security is currently overvalued according to your fundamental analysis, then the ideal action would be to sell the security while it is overvalued. But if the price is expected to rise even higher in the near future, then the rational behaviour would be to sell the Security later at that higher price and to sell it now if the price is expected to dip. Judging the market trends is an important skill to maximise returns on investment.

The price trend approach and market efficiency

Classifying a market as bull or bear derives from studying the trends in prices of assets. The method to identify patterns in price movements and forecasting the direction of price using past market data is known as technical analysis’. Profiting from technical analysis requires the market to be inefficient. It simply means that the current stock price does not reflect all the information represented in the past price points as well as all the public and private information in the market. However, it is widely assumed that developed markets are usually efficient in the semi-strong sense. This means that the prices of the assets reflect all the information from past price points and all the information publicly available. Theoretically, in such a situation an investor cannot benefit (have abnormal returns) by using technical or fundamental analysis.

However, this does not mean that studying price trends is completely useless. In markets which are inefficient, using technical analysis might be even more profitable than fundamental analysis. Generally, the developing economies such as Africa have inefficient markets. In those markets analyzing the past price points might give a reasonable edge to forecast short-term asset prices. Using fundamental analysis can also be tricky in this case. If a stock is undervalued, then the rational behavior would be to buy the stock and wait for its price to increase. However, since the market is inefficient, it is very uncertain when the prices will reflect the public information and, consequently, whether the investor will make a profit or not. In such a case, technical analysis might still work as it relies on market sentiment.

Why should I be interested in this post?

The Charging Bull sculpture on Wall Street is part of the financial culture of every business school student. It is a must see when you visit New York City.

Bull and bear markets are terms that have to be well understood by every investor in financial markets.

Useful resources

Wikipedia Arturo Di Modica.

Antoine Bourdon (22/10/2021) Mort d’Arturo Di Modica, sculpteur du célèbre Charging Bull de Wall Street à New York Connaissances des arts.

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About the author

The article was written in November 2022 by Nakul PANJABI (ESSEC Business School, Grande Ecole – Master in Management, 2021-2024).

Posted in Art, Contributors, Culture | Tagged , , , | Leave a comment

A quick presentation of the Restructuring job…

Louis DETALLE

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole – Master in Management, 2020-2023) explains the job of an analyst in Restructuring.

What does Restructuring consist in?

Restructuring is a term that encompasses all professionals working to assist companies in difficulty. In this market, various categories of actors are involved: debtors (often the company in difficulty), creditors (which may be banks), shareholders (of the company in difficulty) and managers.

Restructuring is an activity that comes to the aid of companies facing economic and financial difficulties in the course of their lives that could threaten their survival in the short or medium term. The particularity of this sector is that it requires both a real financial technicality and a legal technicality, which are invaluable during complex collective procedures.

This activity is particularly fashionable in the current context, marked by the post-covid period, and it should be noted that the restructuring profession generally does well in periods of crisis or post-crisis since the number of companies in difficulty increases.

What does an analyst in Restructuring work on?

There are several situations in which a company in difficulty may call on the services of a restructuring consultancy.

However, if a general methodology is to be given, the missions of a restructuring analyst are generally as follow:

Analysis of the company’s history and the choices that led it to find itself in this situation (collective procedure in France for example). The first step is therefore to determine how the company got into such difficulties. The objective is simply to understand the choices and events that led to this situation.

A strategic due diligence is then required: In order to understand the prospects for improving the company and its activity, the business plan submitted by the company must be carefully examined in order to gauge the company’s future ability to repay its creditors.

To do this, a comparative analysis of the business plans of the last 10 years compared to the results actually achieved may be judicious in order to gauge the realistic nature of the company’s management. A forecast analysis of the evolution of the company’s market is also essential to assess whether the company will evolve in a favorable context or not. A strategic analysis must complete this due diligence work to see if the business strategy implemented is consistent with the developments anticipated by the restructuring firm.

Definition of the sustainable debt level and production of a debt repayment plan: Next comes a turnaround plan to suggest ways to improve the company’s management and profitability. This may involve reducing the cost structure, requesting longer payment terms to relieve pressure on operating cash flow.

Finally, the company will have to define its sustainable debt level. The company will propose a new sustainable debt according to the estimates made by the Restructuring firm. This will allow the company to continue its activity under new conditions that will enable it to repay the old debts that have not been honored as well as the new debt intended for the continuation of the activity.

In doing so, the restructuring firm will enable the creditors to assess the company’s future capacity to honor its debts in the event of a continuation of its activity under the terms proposed in the turnaround plan.

What is interesting & demanding in Restructuring?

First of all, a restructuring analyst can work on extremely complex cases, both because of the number and nature of the players involved and because of the situations of the companies in difficulty.

Indeed, if all economic crises are different, it is also because all the events that cause them have a different impact on companies. This is why each restructuring assignment is different from another, and this is an aspect that many professionals in this sector stress.

However, this diversity of subjects obviously suggests complexity since each subject is not like any other. On the other hand, the topics encountered are related to both legal and financial considerations, which requires skills in Law as well as in Financial Modelling. Profiles with these two facets are therefore highly appreciated.

Useful resources

KPMG’s definition of Restructuring
An article about how Restructuring creates value for companies…

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About the author

The article was written in October 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole – Master in Management, 2020-2023).

Posted in Contributors, Finance jobs | Tagged , | Leave a comment