Posted on

Investments: 5 false myths to dispel

Investments: 5 False Myths

It’s a common misconception that you must constantly follow the markets to invest. Discover the five most prevalent myths about investing.

What are the common myths about active market investors? Many misconceptions exist, much like the popular beliefs that wholemeal bread has fewer calories than regular bread, that eating carbohydrates in the evening causes weight gain, and that dogs perceive the world in black and white. These false myths permeate our daily lives until we accidentally uncover the truth, often by reading a revealing article like this one. When it comes to finances, these myths can resemble urban legends. So, what are some of the most prevalent misconceptions in the world of investments?

In this article, we will examine various myths, including the unrealistic time horizons that young investors often believe they have, as well as the paradox of the over-informed investor who ultimately harms themselves.

The CAP is the best way to invest.

What? We started with a cannonball, huh? Is this a myth? Hold on, don’t run away; I’ll explain. The CAP, or Capital Accumulation Plan, is undoubtedly a great way to build wealth, especially if you don’t have large sums of money available or if the idea of investing everything at once makes you anxious. 

Regularly setting aside a small amount of money not only reduces the risk of entering the market at the wrong time, but it also helps you develop self-discipline—much like a Tibetan monk—especially when you use automatic deposits. Plus, let’s be honest: it lessens the emotional toll of experiencing the market’s ups and downs.

However, there is always a caveat: this approach is not the most mathematically efficient way to invest. Statistically, putting all your capital into a single, bold solution (PIC) offers higher returns. Why is that? It’s simple: all your capital works for you immediately, allowing you to fully benefit from the power of compound interest from day one. Additionally, since markets tend to rise over the long term, the likelihood of buying an asset at a lower price today is generally higher than it will be tomorrow or the day after.

The effectiveness of a Premium Allocation Contract (PAC) in managing purchase prices during bearish market phases is somewhat limited, particularly if the portfolio is still in its growth phase. Initially, payments into a PAC are more likely to influence the average price positively, but this effectiveness tends to decrease as the portfolio matures.

That said, I want to emphasise that a PAC remains a strong investment option while also providing a savings mechanism. For many investors—likely the majority—it is the best solution available. Although it may not be the most efficient option in absolute terms, the peace of mind it offers can often outweigh the benefits of marginal gains.

More risk means more return.

This may sound controversial, almost like a challenge to the popular saying “no pain, no gain.” How can the concept of balancing risk and return be deemed a myth?

To clarify this, we need to explore the physical and statistical idea of ergodicity. In simple terms, a system is considered ergodic if, over the long run, the time average of a single path equals the average across all possible paths. If this sounds confusing, you’re not alone.

Let’s use a more relatable example. Imagine your favourite motorcyclist, who is exceptionally talented and often finishes on the podium. However, he rides recklessly—he brakes at the last moment and performs wheelies in corners, which leads to frequent crashes and injuries. For simplicity, let’s say he has a 20% chance of winning each race but also faces a 20% chance of getting seriously injured and missing the rest of the championship. What are his chances of winning in a 10-race championship?

Intuition might suggest that with a 20% chance of winning each race, our hero could expect to win about 2 out of 10 races. This seems logical. However, the situation is more complicated than it appears. The high risk of injury is a significant factor to consider. Supposef our daring competitor suffers a serious injury—there’s a 20% chance of this in every race—his dreams of glory could come to a swift end. An injury would prevent him from participating in the rest of the championship, effectively eliminating his chances of overall victory. He could win two races and then spend the remainder of the season watching from the sidelines, perhaps with a leg in a cast.

Non-ergodicity is a crucial concept to understand in this context. It emphasises that a person’s skill is closely linked to their willingness to take risks, which can sometimes lead to “ruin”—especially in sports. Similarly, in investments, taking high risks, even with the potential for significant returns, can result in the investor’s downfall and render historical averages irrelevant. In non-ergodic situations, the focus shifts from maximising yields to ensuring survival. To reduce these serious risks, diversification is essential; it helps lower the chances of facing losses from which one might never recover.

To invest, one must be informed

It may surprise you, but sometimes an investor who is blissfully unaware of market happenings—meaning they choose to ignore the noise—can be more effective. Yes, you read that correctly. This is because those overwhelmed with information, charts, opinions, and alarmist tweets are more likely to make impulsive decisions.

Additionally, investors who see themselves as the next Warren Buffett—always well-informed and on top of everything—might be tempted to experiment. They may use complex financial instruments that seem straight out of a science fiction movie, buy ‘exotic’ assets, or develop strategies so intricate they would challenge a NASA engineer. The outcome? Often, they take on more risk and lose control. Sometimes, the overly informed investor ends up like a cook who ruins an otherwise good dish by adding too many ‘special’ spices.

Young people have a long-term horizon.

More than just a common misconception, we are facing a logical fallacy—a classic error in perspective. Many people believe that young individuals have decades ahead of them to invest: twenty years, twenty-five, thirty… it feels like an eternity! This mindset stems from thinking of ourselves as if we are playing a video game, to maximise our final score, which in this case means accumulating capital for retirement.

However, the reality is quite different. Suppose you are young and take a moment to reflect. In that case, you may realise that the money you plan to invest might be needed long before you reach your golden years—if those years even include a pension, given the uncertainties around social security. You may need that money for a down payment on a house, a wedding, an expensive master’s degree, or that dream trip you’ve always wanted. In short, sooner or later, you will enjoy—or need—to use that money.

Investing exclusively in equities simply because “there’s still time” is similar to preparing for a marathon by consuming only sweets. It’s essential to include a mix of assets with varying risk and return profiles in addition to stocks, as these may take time to generate positive results. For example, consider incorporating bonds or bond ETFs, as well as cryptocurrencies or commodities, to diversify your investment portfolio.

The global ETF is the holy grail that faithfully replicates the world economy

We arrive at a fundamental principle for forum investors known as ‘VWCE & Chill’ (or its global equivalent). This philosophy resembles a way of life, almost akin to a religion, complete with excommunications for those who dare to stray from the established path of the global index. Many investors adopt this nearly blind faith approach, overlooking the true nature of their investment choices.

It’s crucial to understand that the stock market does not comprehensively represent the entire world economy. Instead, it only reflects a large subset of companies that choose—and are able—to go public. In the United States, financial culture and demand for the stock market are so ingrained that a significant number of large companies are publicly listed. In contrast, many successful companies in Europe and other parts of the world opt to remain private, choosing alternative forms of financing. Consequently, a global equity ETF, no matter how diversified, may overlook essential segments of the real economy.

How can we exclude the crypto world from this discussion? Bitcoin, in particular, has become a focal point in recent years due to its relatively predictable growth, which results from the cyclical nature of its price movements. It has created fortunes for many investors and has become one of the most popular assets globally, thanks in part to exchange-traded funds (ETFs) issued by major American investment firms. Often referred to as “digital gold,” Bitcoin serves as a crucial haven asset in today’s financial landscape.

Bitcoin’s mathematically finite supply and decentralised nature position it as a safeguard against unregulated monetary policies and missteps by central banks. In the context of soaring U.S. government debt and ongoing turmoil that erodes confidence in traditional currencies, Bitcoin is not merely an alternative; it is a resilient solution and a strategic store of value. Thus, it becomes an essential component of conscious asset diversification, helping to protect against the evident and increasing vulnerabilities of the traditional financial system.Bitcoin’s volatility is undeniable, but it is also a hallmark of a revolutionary asset class that is still working towards global acceptance. Ignoring Bitcoin in today’s financial climate would be akin to repeating the mistake of those who underestimated the internet’s potential in its early days.

Posted on

Cognitive Bias in Finance: A Guide to Conscious Investing

Cognitive Bias in Finance: Invest More Consciously

Cognitive biases have a greater impact on your investment decisions than you realise. Explore the most prevalent ones in finance and practical strategies for recognising, managing, and overcoming them.

Cognitive biases are mental distortions that affect our thinking and decision-making, often clashing with the fundamentals of traditional economic theory. Because of these systematic biases, we, as investors in the financial world, are far from being the ‘rational actors’ that classical economists envisioned.

For a long time, the significance of cognitive biases has been overlooked. People tended to view individuals as robots, acting solely based on a balance of risk versus return and costs versus benefits. However, reality—and particularly the data, which rarely lies—presents a very different picture. 

What exactly are cognitive biases? How does behavioural finance define them? And, most importantly, how frequently do we fall victim to them?

Cognitive bias:  The origin of the term

Do you think you’re a good driver? Maybe you believe you’re better than the “average Italian driver.” If so, you’re not alone; most drivers share the same conviction. This phenomenon itself is paradoxical. The reason behind it? The overconfidence bias. But let’s not get ahead of ourselves; we’ll discuss that shortly.

To explore the intriguing world of cognitive bias in finance, we first need to understand what “bias” means. It’s an English term derived from the Greek word “epikársios,” which means “slanted” or “skewed.” Initially related to the game of bowls, it described a slightly off-target shot. You probably never heard your grandfather shout “Bias!” at the bowling alley, and there’s a reason for that: since the 1500s, the term has taken on a broader meaning. Today, we often refer to it as a “predisposition to bias” or, more specifically, in our context, a “systematic distortion of judgment.” In short, it refers to the tendency to see things a bit… askew.

What are Cognitive Biases?

The term “cognitive bias” has its origins in etymology, which we have briefly touched upon. It is essential to note that this concept has a strong foundation in psychology, mainly due to the pioneering research of two prominent figures: Daniel Kahneman and Amos Tversky. These Nobel laureates began exploring this complex topic in the 1970s.

So, what does “cognitive bias” actually mean? One could consider it synonymous with mental automatism or shortcuts, though these terms often carry a negative connotation. Our brains, to conserve energy, tend to take shortcuts instead of processing information straightforwardly. Unfortunately, these shortcuts can sometimes lead us astray. Cognitive biases can influence the beliefs we hold, the decisions we make, and even our habits. In summary, cognitive biases are serious matters; they can significantly alter our thinking processes, especially if we fail to recognise and address them. The key to managing these biases is to acknowledge their existence and thoroughly understand them.

Heuristics, sometimes dangerous mental deterrents

We are discussing cognitive biases related to finance, but money and investments often lack concrete evidence, don’t they? Don’t worry; we’re getting there. First, we need to clarify one last fundamental concept: heuristics, a term you will frequently hear in connection with bias.

In simple terms, heuristics are mental shortcuts that help us make quick decisions. The word originates from the Greek “heurískein, “meaning “to discover” or “to find.” These quick mental processes allow us to reach conclusions swiftly, enabling us to make decisions on the fly. Isn’t that fascinating? When an idea suddenly “pops into your head” without the need for extensive thought or complicated reasoning, that’s heuristics at work!

This phenomenon, often referred to as ‘magic’, occurs in our brains through a process known as attribute substitution. This process usually happens without our awareness. Our brain replaces complex concepts with simpler ones, allowing us to reach quick conclusions with minimal cognitive effort.

This intriguing mechanism can lead to cognitive biases. However, it is essential to recognise that not all heuristics are detrimental; some are known as ‘effective heuristics’. These are shortcuts that can be beneficial and make our lives easier. The real issue arises when we rely too heavily on ‘lazy’ or flawed heuristics, which can lead to problems, especially in finance.

Cognitive bias in the world of finance: When shortcuts become traps

Have you ever made a trade and felt like the Warren Buffett of your region, almost invincible? Or, conversely, have you recorded a loss and, instead of taking a moment to reflect, decided to increase your investment to try to “recover quickly”? If you’ve nodded in agreement at least once, welcome to the club—you’ve had your encounter with cognitive bias.

Don’t feel alone or wrong; this is entirely normal. Research shows that irrational thinking patterns are pervasive and significantly influence the decisions of many individuals when faced with uncertainty, such as in financial markets. Kahneman, in his book “Thinking, Fast and Slow,” explains that these “systematic errors” are an integral part of our thought processes.

It is essential to closely examine the most prevalent biases that impact the investment world. The goal is to recognise these biases so we can work to mitigate their impact. While eliminating them may be nearly impossible, we can aim to manage and reduce their influence.

Confirmation Bias

Confirmation bias refers to the tendency to seek out, interpret, favour, and remember information that supports our pre-existing beliefs or values, essentially acting as a form of selective blindness. 

For example, suppose you invest in shares of ‘Company X’ or a trending cryptocurrency. In that case, you may actively search for positive news about that asset on forums or social media, while ignoring or downplaying any negative information. You might think, “Oh, that famous analyst says it will go up? That’s fantastic! The other analyst believes it’s a bubble. He doesn’t know what he’s talking about!”

A study conducted by Park in 2010 and published in the Journal of Cognitive Neuroscience utilised functional magnetic resonance imaging (fMRI) to demonstrate that when confirmation bias is at work, areas of the brain associated with reward become activated. In simple terms, our brains release dopamine when we encounter information that aligns with our beliefs, even if those beliefs are incorrect.

Overconfidence bias

It is a very human tendency to overestimate one’s abilities, knowledge, and the accuracy of one’s predictions. Consider entrepreneurs who underestimate the challenges of starting a business or employees who are convinced they can meet unreasonably tight deadlines. While optimism can be a powerful motivator, it becomes problematic when confidence turns into arrogance. This overconfidence can lead to hasty decisions, disregard for genuine risks, and ultimately disappointing outcomes.

Research by Barber and Odean (2001), titled “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment,” highlights that this cognitive bias occurs more frequently among male investors. Males tend to overestimate their capabilities, which often results in more frequent trading and lower net returns compared to their female counterparts.

Anchorage bias

Anchoring refers to our tendency to rely too heavily on the first piece of information we receive about a topic, even if that information is not particularly relevant or accurate. This initial piece of information acts as a mental ‘anchor’ that affects all subsequent judgments. For instance, when we are tasked with making a numerical estimate, we are often influenced by a number we have encountered before, regardless of its relevance to the current situation.

A study by Hersh Shefrin in 2000, which is detailed in his book ‘Beyond Greed and Fear’—a classic in the field of behavioural finance—demonstrates how investors tend to ‘anchor’ themselves to historical price levels. This could be the price at which they purchased a stock or its historical high. These ‘anchors’ can significantly influence their expectations and future decision-making.

Bias of the Present

You may fall victim to this cognitive bias, which can lead to adverse outcomes, when you overvalue immediate benefits at the expense of future gains, even though the latter could be significantly greater. This reflects the mindset of “everything and now.” 

A 2008 study on retirement savings by Laibson, Repetto, and Tobacman demonstrates how this bias can contribute to chronic procrastination in long-term savings decisions. The common thought of “I’ll start my savings plan next month” often shifts to “next year,” and, eventually, “when the kids are grown up.”

This bias is effectively illustrated by economic models such as the “beta-delta” model, which simply shows that people do not discount time uniformly. We tend to give much more weight to rewards we can obtain immediately than to those that will come in the future, even when the wait is minimal. It’s as if our “future self” is a stranger to whom we are reluctant to show kindness.

Representativeness Bias

Tversky and Kahneman extensively addressed this heuristic in their seminal 1974 article, “Judgment under Uncertainty: Heuristics and Biases.” This heuristic is based on our tendency to evaluate the likelihood of an event or its association with a category by comparing it to a well-established prototype or stereotype in our minds. Unfortunately, this often leads us to ignore what is known as ‘base probability’—the actual frequency of that event in reality.

A classic example in finance is when investors choose to invest in a company merely because it belongs to a ‘hot’ sector, such as artificial intelligence today or renewable energy yesterday. They might also invest simply because the company’s name resembles that of a successful enterprise or because its founder has a likeness to Steve Jobs. In these cases, people focus on superficial similarities while neglecting essential fundamental analysis.

Consider roulette: if red appears five times in a row, many people would choose to bet on black, thinking it must come up next. This belief stems from the idea that the sequence R-R-R-R does not fit our perception of randomness. However, it’s important to remember that the roulette ball has no memory, and the probability remains the same with each spin.

Framing Effect

Even when not influenced by bias, we must acknowledge the framing effect. This psychological phenomenon illustrates how our decisions can change significantly based on how information is presented, or “framed.” Although the underlying facts may be the same, our perception—and ultimately our choice—can vary significantly depending on the way they are framed.

As Kahneman and Tversky have taught us, how a choice is formulated in terms of potential gains or losses can make a considerable difference. For instance, stating that a medical treatment has a “90% chance of success” feels much more reassuring than saying it has a “10% chance of failure,” even though both statements convey the same information.

Similarly, when we say that an active investment fund generated a 4% return while the reference market yielded only 2%, it can be framed as a success. However, if the annual management fees are 3.5% and inflation is 3%, the actual return is negative.

.

How to unhinge cognitive bias

Now that we’ve become familiar with this cheerful little collection of mental traps, you might be asking yourself, “Am I destined to make poor financial decisions for the rest of my life?” The answer is a resounding NO! Understanding the problem is the first essential step toward overcoming it. Here are some practical tips—no magic formulas, just genuinely helpful advice:

  1. Give yourself clear rules and follow them:
  • Set clear financial goals: what do you want from your investments? A quiet retirement? Buying a house? Having defined goals and a defined time horizon helps you keep a straight tiller when the seas get rough;
  • Create a written investment plan: do not navigate by sight. Decide on your risk profile first, how to diversify your portfolio, and set clear rules for buying, selling and rebalancing. Write it down in black and white! And, above all, stick to the plan, even when instinct (or a damn bias!) screams at you to do the exact opposite.
  • Automate as much as possible: accumulation plans are a blessing. Regular, automatic deposits and purchases save you the agony of deciding ‘when is the right time to enter’ (spoiler: nobody knows for sure) and protect you from impulsive decisions dictated by the emotionality of the moment.
  1. Scepticism, in finance, is a virtue:
  • Actively seek divergent opinions: Are you overwhelmingly convinced you want to invest in a specific crypto, e.g. SOL? Perfect. Now go and look up all the reasons why it might be a bad idea. Read analyses from those who think differently and compare your thoughts.
  • Draw up a ‘pre-mortem’: before making a significant financial decision, imagine for a moment that it went wrong, a complete disaster. What could have been the causes? This mental exercise can help you identify risks and flaws in your reasoning that you might otherwise overlook.
  1. Keep an investment diary:
  • Write down why you made a specific investment decision, what you expected at the time, and how you felt (euphoric? worried?). Rereading the diary after a while is a powerful way to recognise your ‘favourite’ behavioural patterns and biases, the ones you fall into most often.
  1. Think long term:
  • The financial and cryptocurrency markets are generally considered risky and volatile in the short term. If you stand there every day checking the charts and getting anxious about every little change, the bias will have an easy time. Take a deep breath, remember your long-term goals and don’t get overwhelmed by the panic or euphoria of the moment. As Warren Buffett says, “The stock market is a mechanism for transferring money from the impatient to the patient.” 

Cognitive bias in finance: Frequently asked questions

After all this immersion in the somewhat convoluted world of bias, it is normal to have a few doubts or curiosities. Let’s try to anticipate a few, see if we get it right:

  • Is it possible to eliminate cognitive bias? 

The honest answer is that cognitive biases likely cannot be eliminated. They are a fundamental part of being human, much like our shadows or our regional accents. Instead of trying to eradicate these biases—an unrealistic goal akin to never feeling hungry—the more realistic approach is to recognise and understand them. By developing strategies to manage and mitigate their effects, we can work toward a better understanding of ourselves. This is an ongoing process, much like constant mental maintenance..

  • How important is the psychological factor in finance?

It’s crucial to remember that knowledge alone isn’t enough. You might have read every finance book available, but when it comes time to click ‘buy’ or ‘sell’, letting emotions and biases influence your decisions can jeopardise all your analytical insights. Many experts and successful investors argue that a significant portion of successful investing—possibly as much as 50% or more—depends on managing one’s psychology. Therefore, analysis and psychology must work together in a seamless manner.

  • Are there biases that are more ‘dangerous’ than others for beginning investors?

For beginners in the market, certain biases can be particularly dangerous. For instance, overconfidence following initial gains can create a false sense of security, leading to unnecessary risks. Additionally, confirmation bias is often prevalent among individuals with limited trading experience.

  • How can I identify the biases I am more susceptible to?

The most effective approach to self-improvement is through honest and consistent self-observation. One helpful technique is to maintain a diary of your investment decisions. In this diary, record not only what you buy or sell but also the reasons behind your choices and how you felt at the time (were you euphoric, worried, or feeling pressured?). Over time, when you reread your entries, you may notice recurring patterns in your behaviour. For example, did you make impulsive decisions during a market crash? Did you hold onto a stock ‘out of principle’ even as its value continued to decline?

  • Are financial professionals (traders, fund managers) immune?

Not! Cognitive biases are universal; they affect everyone because they are rooted in the way the human brain processes information and makes decisions. It is often overconfidence that can mislead those who consider themselves exceptionally knowledgeable. The key difference is that a good professional should be trained to recognise these biases and develop strategies to mitigate their impact. However, nobody is perfect—not even those who work on Wall Street!

We have reached the end of our journey to explore cognitive biases in the realm of finance. If you have made it this far, you have already taken a significant and crucial step: you have become aware that these “mental biases,” or “deceptive shortcuts,” truly exist. They impact you, just as they affect every single person on this planet.

Biases are not just a product of psychologists trying to sell more books; they are fundamental mechanisms that are deeply ingrained in our way of thinking, stemming from our evolutionary history. These biases serve as shortcuts that our brains, which prefer efficiency over effort, use to navigate an incredibly complex world filled with vast amounts of information. Sometimes, these shortcuts help us reach our goals quickly and safely. However, other times—especially when it comes to our hard-earned savings and the unpredictable nature of financial markets—these biases can lead us to make significant mistakes.

The good news is that we are not bound to be mere puppets of our biases! Awareness is our most powerful tool. By understanding how these mechanisms work, recognising the warning signs in our behaviour and thoughts, and adopting effective strategies to ‘defuse’ them or at least reduce their impact, we can make a significant difference in our lives.

The next time you hear that little voice inside urging you to make an impulsive financial decision, —making you think, “What the heck, I’m going to jump!”—pause for a moment. Take a deep breath and ask yourself, “Am I being influenced by some cognitive bias that might lead me astray?”

Posted on

Supply chain and open finance: the integration that could revolutionise the supply chain concept

Supply chain and open finance: revolution?

The integration of open finance could transform the supply chain by making financial flows more efficient and transparent. How can this be achieved?

The supply chain is prepared to collaborate with open finance, creating a synergy that promises significant advancements. Thanks to APIs, stakeholders at various stages of the supply chain can greatly enhance financial flows. In this article, we will explore how this can be achieved. Let’s get started!

Supply chain: meaning and how it works

The supply chain refers to all the elements involved in the journey from product creation to delivery to the end consumer. The term “chain” is intentional, as it conveys the idea of a series of interconnected stages where each link depends on the proper functioning of the previous and subsequent ones.

While the supply chain manages the physical flow of goods and services, supply chain finance (SCF) oversees the financial flow. SCF is defined as a collection of solutions aimed at optimising financial transactions between supplier and buyer companies within the supply chain. It includes various strategies designed to enhance collaboration and trust between these parties, providing mutual benefits to both producers and buyers.

This collaborative approach is essential because the supply chain is exposed to various risks. Common issues include situations where the buyer pays, but the supplier fails to ship, or where the supplier ships, but the buyer does not make payment. Such problems can significantly disrupt the stability and efficiency of the supply chain, resulting in substantial economic consequences.

Supply chain finance (SCF) includes key features such as reverse factoring and dynamic discounting. Reverse factoring, which can be inaccurately translated into Italian as “reverse invoice advance,” is the primary solution offered by SCF. But what does “reverse” mean in this context? Unlike direct factoring, where a supplier sells their outstanding invoices to a third party for immediate liquidity (often paying a commission to the intermediary), reverse factoring flips the roles. In this scenario, it’s the buyer—a large company—that approaches the third party for the advance, enabling the supplier to access capital under more favourable terms to fulfil their order. Essentially, the purchasing company reassures the supplier, saying, “Don’t worry, I’ve got your back; this way, you can get paid sooner and pay less for the loan.” The purchasing company then repays the advance at a significantly lower interest rate than what the financing company would charge in a direct factoring arrangement. Consequently, the purchasing company benefits from a lower final price.

Dynamic discounting operates on the same principle, with the purchasing company advancing liquidity without any intermediaries. In this case, the supplier issues an invoice with a due date, and the buyer collects it and provides the advance directly. What does the purchasing company gain? They receive an invoice discount, termed “dynamic” because it varies depending on when the payment is made: the sooner the payment is made, the less is paid, and vice versa.

In summary, the solutions offered by SCF aim to enhance capital management and reduce payment times by providing suppliers with early access to liquidity. Additionally, they enable small and medium-sized enterprises (SMEs) to obtain financing on more favourable terms by leveraging the creditworthiness of their buyers, who effectively support them in this process.

Open Finance: what it is and how it works   

Open Finance refers to a system that enables the secure and consensual sharing of customer financial data among various participants to develop innovative products and services. The term “consensual” emphasises​​ the necessity of obtaining permission from the data owner before sharing their information. Open Finance is rooted in the concept of Open Innovation, which views innovation not as a product of competitive secrecy but rather as a result of collaboration, sharing, and transparency. 

Open Finance is seen as an evolution of Open Banking. While Open Banking primarily focuses on banking data, Open Finance broadens this scope to encompass the entire financial sector. As a result, Open Finance aims to create an interconnected financial ecosystem that encompasses not only banking services but also mortgages, insurance policies, investment portfolios, pension funds, and other financial products.

Open Finance is fundamentally built on the interactions between three key actors: customers, financial institutions, and Third Party Providers (TPPs). TPPs are external companies that exchange, process, and utilise financial data. In essence, customers decide whether to grant TPPs access to their financial data held by various institutions. 

Once permission is granted, APIs (Application Programming Interfaces) serve as the technological backbone of Open Finance, acting as a ‘bridge’ between different IT systems. This enables efficient and secure communication of financial information. As a result, an ecosystem emerges where various entities share knowledge and collaborate to generate innovative solutions, ultimately aiming to enhance the economic structure as a whole.

To grasp the significance of this new paradigm, let’s use an example of organising an Easter Monday gathering. Imagine you want to arrange a traditional lunch with friends. You assign tasks, such as who will handle the barbecuing, who will cook the vegetables, who will bring the drinks, and who will buy the plates and glasses. As the organiser, you receive countless messages: the person in charge of the barbecue asks if the vegetable cook would like to grill, the drinks coordinator is unsure if they should also bring glasses, and the plate buyer wants to know how many courses are planned. It quickly becomes chaotic. You are the organiser, not the switchboard operator.

To streamline communication, you create a WhatsApp group titled ‘Easter Monday 2025.’ This innovation enables all participants to interact directly with one another without going through you. Similarly, Open Finance can be compared to this WhatsApp group, facilitating direct communication among various stakeholders. 

We have previously explored the concepts of supply chains and Open Finance, as well as their operational aspects. Now, it’s time to examine how these two concepts could work together and the benefits this synergy could bring to the infrastructure.

If Supply Chain and Open Finance Integrate

The supply chain is a network of interconnected units that are constantly communicating with one another. However, the main challenge is that this communication often follows a linear and fragmented approach. Integrating Open Finance into the supply chain can make processes more fluid and enhance the overall infrastructure by increasing efficiency and operational efficiency.

So, how does this work? It’s through APIs (Application Programming Interfaces), which enable the continuous exchange of data and the execution of transactions among various participants, such as banking institutions, third-party companies (TPPs), supply chain finance (SCF) intermediaries, and different business management systems (ERPs). 

The result is an ecosystem that enables the secure and rapid transfer of information, where processes are automated and optimised. The more efficient, transparent, and collaborative the communication is, the smoother and more stable the supply chain becomes.

The processes, the higher the productivity and, consequently, the turnover. 

The Open Finance API specifically facilitates access to account information services (AIS) and payment initiation services (PIS). AIS allows for the retrieval of account balances and transaction details, while PIS enables the automatic authorisation of payments under certain conditions. This functionality provides a current and comprehensive view of a company’s financial status, allowing the assessment of its liquidity and spending capacity. Additionally, it streamlines and speeds up transactions within the supply chain. Let’s explore a practical example.

As the owner of GiardiNani S.r.l., a company that manufactures garden figurines, you receive a large order from a purchasing company in the UK. This is the first time you’ve had to produce such a significant quantity of garden figurines, and you lack the funds to begin production. Fortunately, the purchasing company introduces you to reverse factoring, which you find promising.

You issue an invoice with a 60-day due date to the purchasing company, which approves it through its ERP management system. Via an API, the ERP automatically sends the invoice data to a third-party reverse factoring company, which determines whether to provide financing. This financing company can access the financial information (AIS) of both the purchasing company and GiardiNani to assess their financial situations and develop loan terms.

Due to the purchasing company’s high credit rating, it offers a loan with excellent terms, which GiardiNani gladly accepts. After this, the reverse factoring company issues the payment automatically (PIS). With the cash received, your factory can begin producing garden figurines.Finally, the purchasing company is responsible for repaying the loan to the reverse factoring company at the end of the 60 days. Their management systems, connected via an API, communicate seamlessly to facilitate the transaction.

What happened? Almost automatically, GiardiNani gained access to liquidity at much more favourable costs and conditions than it would have obtained through traditional financing. Open Finance enables quicker transactions by providing access to financial data (Account Information Services – AIS) and facilitating automatic payments (Payment Initiation Services – PIS). 

The exchange of information and communication between management systems reduces human error and accelerates the entire process. Transparent data allows for a more accurate, timely, and efficient assessment of credit risk. 

Overall, the supply chain benefits from these improvements because the processes run smoothly, without any lost time. And as we know, time is money.

A consideration for the future 

The integration of supply chain management with Open Finance currently focuses on enhancing system responsiveness and improving process efficiency. The next phase involves implementing artificial intelligence and machine learning to develop systems capable of predicting liquidity crises and insolvency risks. These advancements will enable the dynamic optimisation of services based on market conditions, as well as the creation of risk-balancing models and other benefits.

Given that transparency is a key principle of Open Finance, blockchain technology is likely to play a significant role in this new approach to managing and optimising financial flows. In the cryptocurrency sector, we can already see examples of initiatives aimed at improving supply chain processes, such as VeChain. We are still in the early stages of this development and will continue to closely monitor this trend. 

Posted on

ESG and sustainability: ethical investment towards an uncertain future?

ESG and sustainability: ethical investment towards an uncertain future?

ESG and sustainability were once fashionable terms in traditional finance. Recently, however, the climate has shifted, leaving the future uncertain. What has happened?

Sustainable ESG (Environmental, Social, and Governance) investment has been a hot topic for several years. A Google search for ‘ESG’ in 2022 yielded over 200 million results. This aligns with a historical period marked by heightened awareness of climate change risks and the implementation of green policies by various institutions. However, recent data suggests that we may be experiencing a shift in this trend. In this article, we will explore what ESG investments are and examine why their popularity might be waning. Enjoy your reading!

ESG: meaning, criteria and ratings

ESG stands for Environmental, Social, and Governance, representing the key pillars used to evaluate a company’s or investment’s sustainability, Corporate Social Responsibility (CSR), and ethical impact. ESG is part of the broader concept of sustainable and responsible investing (SRI). The emergence of ESG can be traced back to a historical moment characterised by a heightened focus on environmental issues. In essence, ESG investing involves selecting and supporting companies that actively protect the environment and uphold human and workers’ rights. This selection is based on specific criteria.

ESG (Environmental, Social, and Governance) criteria are categorised into three main areas and are essential for assessing the sustainability and social responsibility of a company or investment. If you were the manager of a sustainable mega hedge fund tasked with evaluating a company for potential investment, you would begin by examining the environmental criteria. This involves assessing the impact of the company’s activities on the environment and its willingness to mitigate any harm. Key factors in the Environmental section include the use of natural resources, waste management, pollution, and overall environmental compliance.

Next, you would analyse the social criteria, part of the Social pillar, to evaluate the company’s relationships with its stakeholders, which include employees, suppliers, customers, and the local community. The goal of this assessment is to gauge the implications of the company’s operations and its demonstrated accountability toward the various stakeholders mentioned above.

Specifically, you should check employees’ working conditions, respect for human rights, product quality and commitment to local communities.

In conclusion, it’s essential to study the corporate governance model, specifically the governance criteria. This section examines the company’s corporate structure, decision-making processes, and policies to ensure they align with ethical principles and best practices. Key aspects to focus on include transparency, anti-corruption measures, the independence of board members, respect for minority interests, and gender diversity. You can conduct these assessments yourself or delegate the task to specialised agencies that provide ESG ratings.

ESG ratings are evaluations presented as numerical scores or alphabetical scales that aim to assess the overall sustainability of corporations. Their primary function is to provide investors with additional information to aid in their investment decisions. Globally, some of the most well-known ESG rating agencies include MSCI ESG Research, Sustainalytics, S&P Global ESG scores, and Moody’s ESG Solutions. Additionally, there are specialised providers like Standard Ethics, which focuses specifically on compliance with international standards.

However, there is often a significant gap between intentions and actions. Let’s examine some major defects associated with this financial trend, which contribute to the ongoing shift in its momentum.

ESG and contradictions: scandals and greenwashing

Sustainable ESG investing is a commendable effort that merges the pursuit of profit with an awareness of the real impact that economic and financial decisions have on our planet. However, some large companies and investment funds have taken advantage of the growing popularity of this ethical approach to enhance their image in front of investors and consumers, without genuinely fulfilling their promises. Their ultimate goal? To boost their revenues.

An example of corporate misconduct is the Dieselgate scandal of 2015 involving Volkswagen. Investigations revealed that the car manufacturer had been rigging emissions tests for its diesel vehicles to make them appear more environmentally friendly. This was part of an effort to position Volkswagen as a leader in green technology. Ultimately, the class action lawsuit was settled, with Volkswagen agreeing to pay $14.7 billion to affected owners.

Another case is that of Wirecard, a German digital payment services company. This scandal is particularly noteworthy because it also implicated ESG (Environmental, Social, and Governance) rating agencies. Despite receiving average ratings—considered neither outstanding nor poor compared to its competitors—Wirecard declared bankruptcy in June 2020 due to a $1.9 billion hole in its balance sheet. This situation recalls the 2008 financial crisis, when rating agencies incorrectly assigned triple-A ratings to subprime financial products.

On the investment fund side, a report by the European Securities and Markets Authority (ESMA) highlights that simply adopting ESG (Environmental, Social, and Governance) designations can lead to significant increases in investment. On average, there is an 8.9% increase in capital during the first year following the name change, with terms related to the environment—particularly those associated with the Environmental pillar—showing the most pronounced effects. However, the report also identifies a key risk: the potential for greenwashing, a marketing strategy that promotes an image of environmental sustainability while downplaying or concealing its negative impacts. To address this issue, the report provides guidelines for best practices.

One important factor that remains to be examined in understanding the decline in popularity of ESG sustainable investing is the election of Donald Trump.

ESG sustainability and Donald Trump don’t mix: ‘Drill, baby, drill!’

Last November, Donald J. Trump became the President of the United States of America thanks to an election campaign based on American isolationism and the desire to put an end to the ‘woke‘ ideology. This umbrella term also includes climate and environmental issues. At his inauguration speech on 20 January, The Donald immediately made things clear: ‘with my actions today, we will end the Green New Deal‘ – a plan of economic and social reforms focused on climate change and inequality. Suddenly, the scenario has changed, or, to stay on topic, the climate has undergone a change.

Global ESG sustainable funds, according to a Morningstar report, suffered record outflows of $8.6 billion in Q1 2025, compared to $18.1 billion in inflows in the previous quarter. The same report also tells us that investors in the US withdrew money from these funds for the tenth consecutive quarter. At the same time, Europe recorded its first net outflows since 2018, with $1.2 billion withdrawn, compared to $20.4 billion in inflows in Q4 2024. It is also worth noting that, despite this, ESG funds globally manage more than $3 trillion in assets. 

Another interesting statistic, again from Morningstar, concerns the closing and rebranding activity of ESG funds: as of 2024, 94 sustainable funds were closed in Q4, for a total of 351 in the year, while 213 European funds changed their names, according to the guidelines of the ESMA report we saw earlier. Of these, 50 introduced ESG references, 115 removed them, and 48 changed them. 

Finally, we get a survey from Stanford University that could provide helpful information for understanding the direction of the ESG trend. In 2022, 44% of young investors thought it was essential for investment funds to use their influence on the companies they invest in to prioritise environmental issues. In 2023, 27% thought so, while the latest survey, covering 2024, reveals that only 11% of the sample surveyed held the same opinion. When asked the same question about improving social and governance practices, the drop was even more pronounced: for social practices, from 47% to 10%, and for governance practices, from 46% to 7%. 

Sustainability and Bitcoin: an open challenge

When it comes to sustainability and Bitcoin, the primary challenge is the energy consumption required for mining, which we covered in depth in this article on Proof-of-Work from 2021. Considerable progress has been made since then, so much so that the CCAF (Cambridge Center for Alternative Finance) of the University of Cambridge, in a report published in April 2025, estimated that to date 52.4% of the energy used for mining comes from sustainable sources – of which 23.4% from hydroelectricity, 15.4% from wind power and 9.8% from nuclear power. 

There are also other innovative ideas, such as in the case of El Salvador, which is implementing a mining system based on the integration of geothermal energy from the volcanic region and solar and wind energy. In addition to production, there is also talk of energy recovery. MARA, one of the world’s largest mining companies, is mining Bitcoin by converting Associated Petroleum Gas (APG) into electricity. APG, put simply, is a gas that is discarded during the extraction of oil and then burned or dispersed into the atmosphere. Here, instead, it is recovered and converted into electricity through combustion to power mining centres, saving costs.

ESG in the future: What’s the point?

And so, as is often said, nobody has the glass ball. The dilemma is always the same: is this the end of ESG funds, or is it just a time of readjustment? What idea did you get from reading the article? If in doubt, subscribe to Young Platform and stay up-to-date on what’s important!

Posted on

Skyrocketing gold price: what’s happening?

Skyrocketing gold price: what's happening?

The gold price continues its upward journey, having broken the $3,500/ounce mark and now hovering around $3,300. What is happening? 

Over the past year, the price of gold has increased from approximately $2,300 to $3,300 per ounce, representing a 42% rise. This surge has broken through the psychological threshold of $3,500. Factors such as the pandemic and ongoing wars have created a volatile environment, prompting investors to seek safer options. But what exactly has led to this situation? And most importantly, is the bullish trend likely to continue?

Understanding gold prices: A premise that might help you

Understanding gold price movements requires an appreciation of the historical significance and characteristics that make this metal precious. Gold is a unique commodity that has been a part of human culture for thousands of years. The earliest evidence of its use as a medium of exchange dates back to ancient Egyptian and Sumerian civilisations, with the first gold coins minted as early as the eighth century BC. This lasting presence is due to its intrinsic physical properties, such as malleability, durability, divisibility, and rarity, which make it highly sought after. Additionally, with the rise of the electronics industry, gold’s capabilities in thermal and electrical conduction are increasingly being utilised.

Throughout history, gold has been consistently recognised as a reliable store of value, serving as a means to preserve wealth over time. Major events, such as the collapse of monarchies and empires, wars, pandemics, and financial crises, have led to significant changes in historical epochs and economic systems. However, these events have not diminished the collective perception of gold. Its association with security, stability, and wealth preservation is deeply embedded in the ordinary consciousness, which contributes to high investor confidence.

This combination of factors ensures that gold remains in high demand. However, this demand must contend with the limited supply available on our planet. As a result, the price of gold in the markets is determined by the balance of supply and demand.

Once we grasp how gold operates, we can analyse the factors influencing its market performance.

What is driving the gold price upwards?

As we have mentioned, the price of gold is influenced by the law of supply and demand, along with a complex set of underlying dynamics that involve numerous variables. However, we prefer to keep things simple. Essentially, the price of gold is directly proportional to the level of instability, whether perceived or real, in various situations, such as economic, geopolitical, or health-related issues. The greater the instability, the higher the demand for gold, which in turn increases its price. Conversely, when the situation is more stable, the price tends to be more consistent and less affected by sudden fluctuations in demand.

Remember the frantic rush at supermarkets when the lockdown was announced? In that moment of panic, people rushed to buy staples like pulses, which are considered essential survival foods due to their long shelf life, ease of storage, and nutritional value. In normal circumstances, how often do you keep borlotti beans stocked at home? Not very likely. Similarly, gold acts like legumes—it’s not something you consume, but rather the ultimate haven during times of significant stress. 

So, why has gold reached record highs this time around?

Pandemics, wars and inflation: the perfect storm

Since March 2024, the price of gold has surged from EUR 2,000 to EUR 3,300 per ounce—an impressive 63% increase—breaking through the psychological threshold of EUR 3,500. It’s remarkable to consider that just twenty years ago, the price of gold ranged between $400 and $500 per ounce. 

This trend is not surprising when we examine individual adverse macroeconomic events that correlate with gold’s price increases. For instance, during the 2008 financial crisis, the price of gold rose from $711 an ounce to $1,820 within three years. Similarly, from January 2020 to July 2020, the COVID-19 pandemic and associated lockdowns drove the price up by 30%. More recently, from February 2022 to the present, factors such as the Russian invasion of Ukraine, the escalation of the Israeli-Palestinian conflict, and the election of Donald Trump have contributed to a nearly 85% increase in gold prices.

Black clouds gather on the horizon: Covid-19 breaks out.

During the COVID-19 years, governments and central banks around the world implemented unprecedented expansionary fiscal measures to support their economies, businesses, and citizens. For instance, in Europe, the NextGenerationEU initiative amounts to EUR 806 billion, which is part of a larger EUR 2 trillion aid package. In the United States, the total fiscal stimulus approved during this period reached approximately USD 6.9 trillion. Throughout all of this, interest rates remained near zero. 

What happens when the amount of money in circulation increases so dramatically? The answer is that inflation rises. So, how do major investors typically respond to rising inflation? They tend to turn to gold to protect their capital from devaluation.

It’s starting to pour: Russia invades Ukraine.e

Despite various challenges, the economy began to recover, allowing central banks to finally address the issue of inflation. In 2022, the Federal Reserve started raising interest rates, followed by the European Central Bank and other central banks and financial institutions. However, at that time, Vladimir Putin decided to invade Ukraine, leading to a significant shock in the supply of energy and raw materials, particularly food. Russia is a major exporter of gas and oil, while Ukraine, often referred to as the “Granary of Europe,” is a vital supplier of grain. 

This situation led to​​ another spike in prices, further increasing the cost of living. Do you remember how much gasoline cost in the summer of 2022? It was around €2 per litre. Setting aside the discussion about energy-intensive businesses, the rise in road transport costs alone contributed to price increases across various sectors. We know that rising prices lead to a decrease in purchasing power, which in turn fuels inflation. And when inflation rises, a “gold rush” begins, reminiscent of Scrooge McDuck’s Klondike adventures.

Lightning and thunderbolts: the Middle East catches fire

The geopolitical situation is precarious; however, overall, economies are managing to hold up, partly due to the expansive policies implemented during the COVID-19 era. Yet, less than a year after the invasion, another front of conflict emerges: the Israeli-Palestinian conflict escalates once again, igniting tensions in the Middle East. Among the events that unfold, the Houthi terrorist group begins launching missiles in retaliation near the Bab-el-Mandeb Strait, a crucial maritime chokepoint between Yemen and the Horn of Africa that leads to the Suez Canal, through which approximately 15% of global maritime trade passes. Commercial cargo ships, the primary targets of Houthi attacks, are now compelled to avoid the Suez Canal and instead sail around Africa to reach Europe, resulting in an additional 10 to 15 days of travel time. This diversion has inevitably led to a widespread increase in prices. And when prices rise, inflation follows, prompting many to rush to check the gold price in hopes of purchasing a few ounces.

The storm is now perfect: Donald Trump announces customs duties 

Just when you thought the situation couldn’t get any worse, Donald Trump won the election. He decides to create panic in the world’s economic and financial institutions by mentioning one key term: tariffs and duties. In a highly globalised and interconnected market like that of the 21st century, if the leading economy imposes significant tariffs, suspended until Jul, the situation becomes quite serious. This not only increases the risk of inflation, as the barriers to entry drive up the final prices of imported goods, but also raises fears of a recession due to a substantial slowdown in economic activity.

Since April 9, the day Trump announced the tariffs, the price of gold has surpassed the psychological barrier of $3,500 an ounce, marking a 15% increase, before retracing and stabilising around $3,300.

Gold prices in the future: Will the trend continue?

A report by Goldman Sachs highlights an intriguing fact regarding central banks’ interest in gold. Since the freezing of the Russian central bank’s assets in 2022, following the invasion of Ukraine, the average monthly demand for gold has surged from 17 to 108 tonnes. Goldman Sachs predicts that by the end of 2025, the price of gold could reach between $3,650 and $3,950 per ounce, while JP Morgan estimates it may exceed $4,000 per ounce in 2026. In summary, many authoritative sources believe that the combination of pandemics, wars, and tariffs will continue to drive gold prices upward.

Now that you’re familiar with gold, its history, and its characteristics as an anti-inflation safe-haven asset, you might be interested in learning about ‘digital gold,’ which is Bitcoin. A good starting point is our article explaining how to protect yourself from inflation using Bitcoin. Don’t forget to subscribe below to stay updated!

Posted on

Nintendo shares: Switch 2 drives the stock

Actions Nintendo : Switch 2 relance le titre en Bourse

Nintendo’s shares, listed on the Tokyo Stock Exchange (TSE), have doubled in value over the past two years, representing a 93% increase. Will the trend continue?

Nearly eight years after the original launch of the Switch, Nintendo has officially announced the release of the Switch 2, scheduled for June 5. Fueled by speculation regarding the new console, the stock has surged by 93% over the past two years, climbing from approximately 5,600 yen ($38.60) to its current price of 10,040 yen ($70.50). What are the future forecasts for the stock?

Nintendo shares: the rally begins with Switch

With the launch of the first Nintendo Switch in 2017, Nintendo successfully overcame the challenges that had caused many iconic companies from the 1990s to 2010s to fail, such as Blockbuster, which struggled to adapt to change. After the disappointing performance of the Wii U, Nintendo found itself at a crossroads, as the gaming landscape was undergoing a significant transformation. The market seemed to have little room left for the ‘old-fashioned‘ consoles that had defined the childhood of entire generations.

Recognizing the need for a clear change—a ‘switch’—the company’s top management initiated work on the new product. As rumors began to circulate, Nintendo’s share price soared by 74% in July 2016. By March 2017, when the Switch was launched, the share price jumped from 2,300 yen to around 7,800 yen by June 2021, marking a remarkable increase of 190%. However, as innovation continued to accelerate, the Switch began to feel outdated, and the demand for an upgraded model started to grow.

Nintendo and Switch 2 shares: the stock’s resurgence

Nintendo shares experienced a decline, losing up to 25 percent between 2021 and 2023, reaching a low of 5,000 yen ($33.80). While the Nintendo Switch performed well, selling more than 120 million units by the end of 2022 and ranking among the top three best-selling consoles of all time, following the Nintendo DS and the PlayStation 2, it had been six years since its launch, leading fans to desire something new. 

As rumors about the next product began to circulate, the share price rose by 30% from April to July 2023, stabilizing between 6,000 and 6,500 yen (between $40 and $45). This rally was fueled by excitement surrounding various statements, leaks, and significant news, such as the reduction of the Saudi sovereign wealth fund’s (PIF) stake in the company, which enhanced the perception of Nintendo’s financial stability and reduced exposure to speculation. 

The long-awaited Switch 2 was finally revealed on YouTube on January 21, 2025. Following this announcement, Nintendo shares reached an all-time high (ATH) on February 19, hitting a peak of 11,800 yen ($78.70).

Nintendo shares and the future: duties could complicate the situation

Since reaching an all-time high (ATH) of 19,000 yen on February 19, Nintendo shares have declined by just over 12% and are currently hovering around 10,000 yen. This decline can be attributed to several factors. Firstly, there has been negative news, including the postponement of the sale date to June 5 (originally scheduled for early spring) and concerns that the price of €469/$530 is too high. Secondly, the economic policies and tariffs associated with the Trump administration could further increase prices, particularly in China, which is one of the most important and profitable gaming markets in the world. Looking ahead, TradingView surveyed 23 analysts for their one-year projections on Nintendo’s stock performance. The highest price estimate is 16,000 yen (+59%), while the lowest is 6,000 yen (-39%), with an average estimate of 11,530 yen (+14%). Will Nintendo manage to defy expectations once more? Sign up to stay updated!

Posted on

Investing with artificial intelligence: the future of finance?

Investing with AI: the future of finance?

Investing in the stock market using artificial intelligence is a trend worth monitoring. What are its applications? Is it the future of finance?

Increasingly, financial players are leveraging artificial intelligence to invest in the stock market. The integration of AI-based systems and algorithms in portfolio management and trading is a trend worth exploring. In this article, you will find all the details about the implementation of artificial intelligence in investments. Happy reading!

Why invest in artificial intelligence? 

As psychologists and economists, Herbert Simon demonstrated that individuals never make entirely rational decisions because several factors limit their rationality. These factors include the amount of information available, the cognitive limitations of the mind, and the time constraints that prevent entirely rational and impartial decision-making. In the world of finance, where individual decisions significantly impact outcomes, haste and emotions often influence buying and selling transactions. Have you ever purchased out of fear of missing out (FOMO) or sold your holdings because the market was crashing? In this context, artificial intelligence can help mitigate the influence of human factors, as it does not face the same structural limitations that Simon identified in our thinking.

As we shall see, artificial intelligence can be a fundamental aid to financial traders in various ways, from processing vast amounts of data to risk management, as well as in portfolio composition and trading automation. Of course, not all that glitters is gold: as we will see later in the article, an investment strategy cannot be based on AI. But let us go step by step.

How to use artificial intelligence to invest in the stock market?

Integrating artificial intelligence into investments involves using technology that merges financial analysis and data science with machine learning. This approach utilises systems that can examine vast amounts of economic data to identify recurring patterns and correlations. Artificial intelligence is capable of analysing and processing both quantitative data, such as balance sheets, price movements, and trading volumes, as well as qualitative data, including images, text, and sentiment from social media.

Artificial intelligence (AI) can provide a broader perspective and offer a more comprehensive overview of financial data. It enables the real-time analysis of hundreds of publicly traded companies using specialised financial software, such as AlphaSense, Kensho, or IBM Watson. Initially, this innovation was primarily leveraged by financial giants, such as hedge funds and asset management firms. However, investing in the stock market with AI tools is no longer exclusive to these large players, and we will explore how that has changed. So, how is AI applied in the finance sector?

Artificial intelligence and investment: use cases

As we anticipated, artificial intelligence significantly impacts financial strategies by streamlining and optimising processes that would otherwise be time-consuming. It also helps to mitigate the effects of haste and emotions in decision-making. Now, let’s explore specific functionalities that highlight the attractive synergy between artificial intelligence and investments:

Predictive analysis and price forecasting

Investing with artificial intelligence (AI) has become one of the most sought-after functions in the financial world. AI systems are capable of analysing vast amounts of both quantitative and qualitative data, ranging from fundamental company analysis to social media posts. They can identify complex patterns that may elude human analysts or traditional statistical algorithms. The goal is to discover correlations that could indicate potential future price movements. While academic research has shown that these systems can accurately predict economic scenarios, it’s essential to remember that market unpredictability is an inherent variable that must be considered in both analysis and decision-making.

Algorithmic and High-Frequency Trading (HFT)

Artificial intelligence (AI) can process vast amounts of information in fractions of a second, making it valuable for developing and executing algorithmic trading strategies. Algorithmic trading involves using algorithms to conduct trades automatically based on predefined rules. AI algorithms can be trained to perform financial transactions efficiently and at high speeds.

High-Frequency Trading (HFT) is a specialised​​ type of algorithmic trading that leverages AI’s computational power to execute trades in less than a millisecond. This method capitalises on market micro-inefficiencies, such as arbitrage opportunities. Due to the requirement for significant liquidity and advanced, costly systems, HFT is predominantly utilised by major financial institutions, including hedge funds and investment banks.

Sentiment analysis

The emotional nature of the markets is well-known, and artificial intelligence can be a valuable tool for investing. It can summarise investor sentiment through textual analysis. Unlike traditional news classification algorithms, which usually provide a binary assessment—simply labelling sentiments as ‘Yes/No’ or ‘Positive/Negative’—artificial intelligence conducts a more in-depth analysis of the content. It examines contextual elements such as ‘why‘ or ‘when,’ resulting in more accurate insights.

Portfolio optimisation and risk management

Investing with artificial intelligence involves using AI systems for the construction and management of investment portfolios. AI algorithms can analyse historical data to identify assets that are likely to perform well under specific market conditions. After a portfolio is assembled, AI systems can monitor its performance and suggest adjustments or dynamically rebalance it based on investment objectives or changing market conditions.

Risk management, which involves measuring risk to develop strategies for containment or reduction, can also benefit from the application of artificial intelligence. AI systems can create sophisticated risk models that take into account adverse macroeconomic variables, such as potential international conflicts, as well as portfolio vulnerabilities, like excessive exposure to specific sectors. Once critical issues are identified, the AI can recommend strategies to mitigate and reduce these risk factors.

Extraction of synthetic data:

Thanks to advancements in computing speed and machine learning, artificial intelligence can create realistic market scenarios by combining historical data—such as the dot-com bubble and the 2008 financial crisis—with synthetic data. This allows AI to generate models or portfolios optimised for specific situations. For example, if we had asked an AI in 2021 to provide an overview of market reactions to a hypothetical Russian invasion of Ukraine (which occurred in 2022), it would likely have predicted a rise in commodity and energy prices, enabling the development of a tailored strategy.

Retailers can also invest in the stock market with artificial intelligence

In recent years, several tools and platforms based on artificial intelligence have emerged, making this technology accessible to the retail market of individual investors. These include: 

AI-based Robo-Advisors

Automated investment platforms that use algorithms to create and manage portfolios structured on questionnaires that reflect the retail investor’s preferences (risk, time horizon, objectives). The advantages of these instruments primarily concern management costs and access to capital, which are typically lower than average. However, the excessive responsibility entrusted to algorithms could prove counterproductive in situations of high volatility. Specifically, significant price fluctuations could ‘throw off’ the criteria that manage the operations of robo-advisors and lead them into error.

Trading platforms with integrated AI

Many trading platforms have begun to incorporate AI-related features to enhance investment efficiency. TrendSpider is one of the most popular platforms, offering automated technical analysis and tools for designing and testing algorithmic strategies without the need for coding. Other tools are focused on generating real-time trading signals or implementing algorithmic trading.

AI-managed ETFs

These are exchange-traded funds (ETFs) that are constructed and managed by artificial intelligence (AI) algorithms. They incorporate functions such as portfolio optimisation and risk management, enabling individual investors to harness the potential of artificial intelligence for stock market investments. One example is the Amplify AI-Powered Equity ETF (AIEQ), which analyses millions of data points using IBM’s Watson.

Sentiment and market analysis with generative AI

Chatbots like ChatGPT, which we use daily, can serve as aggregators of financial news and also help us deepen our understanding of the topic. However, it’s essential to fact-check the information provided, as it may be out of context or outdated.

Not only traditional finance, but also artificial intelligence and cryptocurrencies

Artificial intelligence and cryptocurrencies are two fields that share many similarities and represent some of the most significant technological advancements of our time. Within the crypto space, there is a specific sector focused on integrating AI with blockchain technology, commonly referred to as Crypto AI. Cryptocurrencies like Render (RNDR), The Graph (GRT), and Near (NEAR) are designed to decentralise AI services, ensure the authenticity of information through blockchain transparency, and enhance data computing and storage capabilities.  

Using human intelligence to invest in the stock market with artificial intelligence 

The tools we’ve just explored have significant potential in both traditional and decentralised finance. However, it’s essential to stay informed and critically assess both the advantages and disadvantages of investing with artificial intelligence (AI). Often, when a disruptive technology like AI emerges into our lives, there’s a risk of becoming overly fascinated and falling into traps set by those who exploit the excitement surrounding these innovations.

A rise in AI-related fraud has unfortunately accompanied the growth of AI. According to the American Securities and Exchange Commission (SEC), there has been an increase in unregistered and illegal trading platforms, as well as scam platforms that utilise artificial intelligence (AI) to appear credible. These fraudsters may use AI to create deepfake videos or produce fake phone calls from authoritative figures, thereby manipulating potential victims. They also design convincing websites and generate promotional content to enhance the perceived legitimacy of their platforms.

It’s crucial to remain grounded and use our judgment to avoid unpleasant situations. Take the time to study the platforms and make informed decisions—don’t let the fear of missing out (FOMO) influence you. In the meantime, stay informed: at Young Platform, we continually publish relevant news updates. Subscribe below to stay updated!

Posted on

High fashion: Who was Charles Frederick Worth?

Haute couture: Who was Charles Frederick Worth?

Haute couture is an industry focused on creating unique, high-quality clothing. What is its origin and history?

Haute couture, a term meaning “high sewing” in French, originated in Paris through the vision of an English gentleman. With the assistance of his wife, he succeeded in capturing the hearts—and wallets—of the wealthiest ladies in the French aristocracy, upper middle class, and beyond. Today, this industry is worth billions and caters primarily to the wealthiest 1% of the world’s population. Let’s explore the history of the legendary Charles Frederick Worth and his wife!

High fashion: a very special niche 

Haute couture refers to high-quality garments that exemplify exceptional craftsmanship and represent the pinnacle of the fashion industry. Clothing in this category, designed by fashion house stylists, must meet specific standards set by the French Ministry of Industry and the Fédération Française de la Couture. These standards include four essential criteria that define haute couture.

A maison, which refers to a production company, must exclusively create made-to-measure clothing to hold the haute couture label. Each haute couture dress is unique and can be viewed as an actual non-fungible piece of art. Additionally, the maison must have an atelier in Paris with at least twenty full-time technical staff members. Lastly, it is required to present its collections twice a year, in January and July, showcasing a total of 50 original designs for both day and evening wear.

Rose Bertin was a French milliner who lived during the late 18th and early 19th centuries. She is regarded as the pioneer of haute couture for creating original custom-made dresses for Marie Antoinette, the wife of Louis XVI and Queen of France. However, the formal concept of haute couture is more accurately attributed to Charles Frederick Worth, who became prominent in Paris about thirty years later.

In any case, the high fashion industry, as you may have guessed, is based on the concept of scarcity—a principle that we at Young Platform adore, almost as much as the digital asset that best embodies it: Bitcoin. But back to us. The prices of the garments, which hover between tens and hundreds of thousands of euros, are justified precisely by their irreplicable nature, as well as by the infinite number of hours required for production – 150 for a simple dress, 1,000 (41 days) for a piece with delicate embroidery and finishing touches. Of course, the materials chosen also play a significant role in the final cost calculation. 

High fashion: how, when and where?

As we have already mentioned, the invention of haute couture is attributed to Rose Bertin, who, however, cannot yet be called a ‘designer’ since this profession was not yet established after the French Revolution. And this is where our Charles Frederick Worth comes in: born in 1825 in Lincolnshire, England, he moved to London at the age of 13 and began working in an extensive fabric warehouse on the famous Regent Street, where he came into contact with the world of silk and fabrics. At the age of 20, in 1845, he moved to Paris, already the European centre – and not only – of fashion, where he worked as an assistant at the fabric boutique Gagelin. It was here that his life changed: it was his acquaintance with Marie Augustine Vernet, his future wife and inspirational muse, that made his breakthrough. But we will get there.

Worth proves to be an excellent salesman as well as a great fabric expert and has all the makings of a career. In fact, after five years, he became head of the tailoring department of the Gagelin boutique and, in 1853, an equal partner with the other two owners. Things seemed to be going well, but after a few years, the moment of break came: Worth was ready to strike out on his own and in 1858 opened his atelier at 7 rue de la Paix.  

Charles Frederick Worth and Marie Augustine Vernet: Let the Revolution begin

Charles Frederick Worth and Marie Augustine Vernet, together, are the architects of a real revolution in the universe of fashion as it had been conceived until then. Charles was already a respected tailor in mid-nineteenth-century Paris, but the real turning point was the result of a move as shrewd as it was daring on the part of Marie Augustine. Aware of the power of word of mouth among high society women, the designer’s wife decides to sell two dresses to the Princess of Metternich at a ridiculous price – almost a gift. The princess chose to wear one of them to the ball at the Tuileries, the main venue of the Parisian elite. Her dress, beautiful and different from the usual, caught the attention of the most influential woman of the French jet set: Empress Eugénie de Montijo, wife of Napoleon III, Emperor of France from 1852 to 1870. Charles Worth, from then on, became the court tailor and official supplier to the Empress of France. 

Charles Frederick Worth became the most important and popular stylist among the ladies of the Parisian Gotha and, with him, there was a clear reversal of perspective: whereas before it was the women, aristocratic or upper-class, who commissioned the textile artisans, choosing the fabrics and creating the models, now it was the stylist who proposed the clothes and, therefore, dictated the fashion. 

Our Charles is also responsible for two of the most important innovations the fashion world has seen: the first concerns the division of collections according to season; the second refers to the use of ‘living models‘ rather than mannequins, as was traditional up to that time – his wife Marie is considered the first model in history. Charles Worth, in essence, invented fashion shows. 

In 1868, he was one of the founders of the Syndicale de la Haute Couture (Chambre Syndicale de la Couture), a collective fashion decision-making body, of which today some 100 of the world’s most important fashion houses, including Balenciaga, Balmain, Jean Paul Gaultier, and Versace, are members. This apparatus also has the power to decide who can use the term ‘haute couture‘ and who cannot, based on compliance with the requirements we have mentioned. 

Charles Frederick Worth died in 1895, and the administration of his maison, the House of Worth, passed into the hands of his wife Marie and son Gaston. The second son, Jean-Philippe, on the other hand, followed in his father’s artistic footsteps: in 1903, he created the famous Peacock Dress for Mary Victoria Curzon, wife of the Viceroy of India and therefore Viceress. The fashion house was officially sold to the French fashion house Paquin in 1953.

Haute couture on show: Charles Frederick Worth’s dresses at the Petit Palais in Paris

From 7 May to 7 September – we hypothesise that the choice of 7 is due to the street number where he opened his atelier, 7 rue de la Paix – in the splendid setting of the Petit Palais in Paris, the first exhibition dedicated to the inventor of haute couture and his House of Worth maison will take place. For the occasion, we are talking about more than 400 objects from the most important museums in the world, from the Palazzo Pitti in Florence to the Metropolitan in New York, passing through the Victoria and Albert in London: paintings, accessories and above all clothes designed and created by Charles Worth dating back to the historical period between the Second French Empire (1852-1870) and the first post-war period. 

Posted on

Long-term Investing ETF on S&P 500 or Bitcoin?

S&P 500 ETF or Bitcoin: Which Is Better for Long-Term Investing?

Is it still wise to invest solely in S&P 500 ETFs? We compare this traditional strategy with Bitcoin.

The long term is generally considered safe, but as Keynes noted, “In the long run, we are all dead.” The idea of the long run is often associated with investing in assets that have a medium to high risk and volatility profile, as time is the key factor that increases the likelihood of a positive return.

But is the best investment strategy really to simply buy an ETF that tracks the S&P 500 and wait 30 years?

The time horizon in which one invests is a personal factor

The statement that concludes this introduction is likely something you’ve heard before, and it holds a kernel of truth. Since the 1980s, the main index of the US stock market has increased by over 6000%. However, the investment horizon varies for each individual, primarily depending on the investor’s goals.

While a longer investment horizon—especially for equity investments—can increase the likelihood of achieving a positive return, it’s essential to recognise that this probability will never reach 100%. In other words, a risky investment can never guarantee a predictable return.

Time is our greatest ally as investors. Unless we want to bet against the market, it’s best to let it work in our favour. Time also enables us to maximise the benefits of compound interest, which is essential for achieving outstanding results over the long term.

While compound interest drives returns on established indices like the S&P 500, the modern market also offers instruments that promise exponential growth in potentially shorter timeframes, albeit with varying degrees of risk. This perspective aligns perfectly with the ongoing debate surrounding Bitcoin.

The alternative: Bitcoin

The approval of spot Bitcoin ETFs in January 2024 made an investment that was previously confined to complex procedures accessible to a wider audience. This raises a question: Can Bitcoin, or its ETFs, serve as an alternative or complement to the S&P 500 in a long-term portfolio?

The most obvious argument in favour is related to the potential asymmetric return: against a risk of total loss, there is a growth potential of several orders of magnitude, much higher than that of a mature index. Theoretically, then, Bitcoin could also act as a diversifier, given its historically low correlation with equities, although this tends to increase during periods of high financial stress.

However, the critical points are equally important. The first is extreme volatility. While the S&P 500 has suffered 30-50% crashes in conjunction with epochal crises, Bitcoin has regularly experienced 7 drawdowns of 0-80%. A very long time horizon may not be enough to recover if you enter a market peak.

Second, unlike the S&P 500, which represents the ownership of real companies that generate profits, Bitcoin does not produce cash flows. Its value is driven solely by the law of supply and demand, relying on trust and its planned scarcity. This makes it more like a digital commodity than a productive investment. Finally, regulatory uncertainty should not be overlooked: as a young asset, it is exposed to future regulatory changes that could drastically impact its value.

Conclusion: What is the best strategy?

So, can the Bitcoin ETF stand alongside or even replace the S&P 500 in a long-term perspective? The answer, again, is not unambiguous and goes back to the heart of our discussion: it depends entirely on the risk profile, objectives and awareness of the individual investor.

For those seeking stable, relatively predictable growth based on economic fundamentals, passive investing in the S&P 500 remains the most logical and proven choice.

For those with a very high risk tolerance, who understand the speculative nature of the asset and want to allocate a small portion of their capital to a potentially disruptive technology, an ETF on Bitcoin may be an interesting addition.Ultimately, the question is not which of the two is ‘better’ in absolute terms, but which is the most suitable instrument to help us achieve our personal goals, accepting a level of risk that we can live with peacefully over the long, and sometimes turbulent, period.

Posted on

What Labubu are and why they are viral

Labubu: Why These Plush Toys Are Going Viral

Labubu: The Viral Soft Toys Loved by the Stars. Is the “Lipstick Effect” at Play?

Have you ever noticed how specific trends suddenly go viral on social media? Well, “Labubu” is the latest sensation capturing everyone’s attention. These furry little creatures have quickly become fixtures on the bags of the world’s most celebrities, dominating TikTok and creating a buzz at major fashion week events.

But what exactly are Labubu? How did they rise from being simple keychains to coveted status symbols? And, most importantly, how does this phenomenon relate to the economic theory known as the “lipstick effect”?

The history of the Labubu

To fully understand what Labubu is, we should start with their origin as plush puppets initially created as cute key rings. These key rings can be attached to backpacks, bags, or anywhere you want to add a touch of extravagance. A notable episode in Italy illustrates the popularity of this phenomenon. Picture this: in Milan, on Corso Buenos Aires – one of the prime shopping destinations – a queue stretching a kilometre long formed at dawn in front of the Pop Mart store, a Chinese giant in the collectable toy industry. This long line was reminiscent of hype surrounding an iPhone launch or a rock star concert. The reason for such excitement? The arrival of the latest and highly anticipated Labubu collection. This event even piqued the interest of those who had never heard of these furry little monsters before.

Who is responsible for the creation of these now-viral objects of desire? The father of the Labubu is Kasing Lung, an artist originally from Hong Kong. These puppets are not solitary beings; they belong to a much larger universe filled with a variety of little monsters, collectively known as “The Monsters.” 

Artistically speaking, what makes the Labubu particularly fascinating is its ability to blend two styles that might initially seem contradictory. On one hand, there are the oriental influences stemming from the artist’s heritage, and on the other, the imagery drawn from Nordic European fairy tales. Kasing Lung is intimately familiar with this latter world, having spent part of his childhood in Belgium.

Interestingly, the Labubu is not a recent creation; the first models were introduced in 2015. However, it wasn’t until 2019 that Pop Mart recognised their potential, acquiring the rights and preparing them for a leap to global fame.

But why does everyone go crazy over a Labubu?

Labubu’s rise to popularity has been notable for some time, but the real surge—what can be described as a tsunami—has a specific epicentre: the social media profile of Lisa Manoban, the charismatic rapper and singer of Blackpink, the most famous and influential K-Pop girl group in the world. Lisa, who also starred in the acclaimed latest season of *The White Lotus*, has played a pivotal role in this phenomenon. 

Towards the end of 2024, she began sharing her passion for small animals with her millions of followers, regularly showcasing them as fashionable accessories at glamorous events, often attached to her designer bags. The effect was profound: an unstoppable media wave, one that only social networks, with their viral power, can generate and amplify.

From that point onward, a collective frenzy ensued. Other international divas, such as Dua Lipa, Kim Kardashian, Selena Gomez, and Rihanna, began sporting these unique accessories, attaching them to their fashionable bags. The result? An unprecedented Labubu hunt, leading to a staggering increase in the prices of the rarest specimens and limited editions. These items have now become authentic collectors’ pieces and lucrative investments.

Does the Labubu phenomenon mean recession?

Now, let’s delve into the less glamorous yet more intriguing aspect of this phenomenon: its potential connection to the current period of economic uncertainty, or even outright recession. This seemingly strange link can be explained by an economic concept known as the “lipstick effect.” Don’t worry; you don’t need an economics degree to grasp it! In short, this theory outlines a tendency that has been observed throughout history: during times of economic crisis, consumers tend to prefer purchasing cheaper and more accessible luxury goods. When finances are tight and larger purchases, such as a new car or a house, feel out of reach, we often seek small comforts—little luxuries that provide a sense of satisfaction without significantly impacting our budgets.

The concept of lipstick as an economic indicator, known as the “lipstick effect,” originated from observations made by Leonard Lauder, the son of Estée Lauder and chairman emeritus of the Estée Lauder Companies. This idea gained popularity during the recession that followed the September 11, 2001, attacks and the beginning of the war in Afghanistan. Lauder noticed an interesting trend: while many sectors of the economy struggled and demand for luxury goods declined, sales of cosmetics—especially lipsticks—remained steady and even increased. It’s intriguing, isn’t it? After all, lipstick is not a basic necessity.

The idea that small luxuries can play a significant role during difficult times isn’t entirely new. For instance, it is said that Winston Churchill, during the Second World War, chose to exclude cosmetics from rationing. He reasoned that these products were essential for maintaining the morale of the population, particularly women, during a time marked by immense sacrifices and concerns. Allowing for a small act of normalcy and self-care helped people cope in a world turned upside down.

Why do lipsticks, and by extension, other small pleasures like Labubu today, become “crisis-proof” goods? The answer lies in the psychological gratification that comes from purchasing something that satisfies a small desire or vanity, especially when we have to give up so much else. During times of crisis, when morale is often low and worries about financial security are prevalent, buying a product that appeals to the aesthetic sphere or personal pleasure can significantly boost one’s mood. 

A branded lipstick, a fragrance, or a cute accessory like a Labubu, while not strictly necessary, serve as affordable luxuries that provide a sense of pampering and help one feel more at ease. Sometimes, people forgo their usual inexpensive options to indulge in a slightly more expensive and desirable version of these small luxuries. This behaviour is known as compensatory consumption: I may not be able to afford a thousand-euro designer bag, but I can attach a collector’s Labubu to my existing bag, which yields a similar, albeit lesser, dopamine rush.

Social dynamics also play an essential role in this phenomenon. Maintaining a certain aesthetic standard or possessing trendy items can help preserve self-esteem and foster a sense of belonging.

The effects of consumer behaviour observed in previous years are still evident today. Market data from 2022- 2023, analysed by companies like Circana, reveals that sales of beauty products have continued to grow, including a notable increase in luxury cosmetics, despite a challenging global economic environment.

To understand the connection between these cute (and often pricey for collectors!) Labubu puppets and the economy make it clearer that they may represent a ‘lipstick effect’ 2.0. This phenomenon suggests that, similar to the past with lipsticks, people are seeking small joys and affordable status symbols as a way to momentarily escape the complexities and uncertainties of the world around them.