Investing in the age of social media - How does it influence your investment decisions?
Written by Sanni Heikkinen
Investing in the age of social media - How does it influence your investment decisions?
Investing has grown in popularity over the last ten years, for example, and is no longer just for professionals. With the mainstreaming of investing, it is also increasingly present on social media. Almost 80% of institutional investors regularly use social media in their work, and around 30% report that information from social media has influenced their investment recommendations or decisions (Technology in Society 2022). In this post, we explore the opportunities and challenges that social media can bring to investing.
Let's start by looking at why investing is so popular today.
Technological advances have opened up numerous opportunities for investing. New easy-to-use platforms allow you to invest directly from your phone, making it more accessible than ever before. The threshold to start investing is therefore much lower. On the other hand, technological advances have made it easier to exchange ideas and thus learn new things. You can find investment-related content just by browsing the social media.
Low interest rates are another key reason for the growth in investment popularity. Traditional forms of savings, such as savings accounts, no longer offer a significant return on money, which has led many people to seek better returns in the investment market. In addition, growing uncertainty about future pensions is prompting many to invest their assets to secure their future income.
Since the beginning of 2020, it has also been possible to invest in Finland through an equity savings account, which has contributed to making investing simpler and more attractive, as investors only have to take tax into account when withdrawing income from their account. The ease of opening and maintaining an equity savings account is therefore likely to attract more people to invest.
HOW DOES SOCIAL MEDIA AFFECT INVESTING?
Social media is full of information and tips on investing. On different platforms, private investors can engage in discussions about the market, watch educational videos or read analyses written by professionals. Information structured in an easy-to-understand format is available to everyone, making investing itself more accessible. It also brings a sense of community to an otherwise rather lonely investment hobby.
Young people in particular have taken to social media as a source of investment information, which may help to explain the growing popularity of investing among young people. Did you know that up to 44% of investors aged 16-25 in Finland have heard or learned most about investing from social media (OP Group 2023)? Podcasts and videos offer a comprehensive range of diversified information and picking up a book is no longer the only way to learn about growing your wealth. For older age groups, on the other hand, the bank is the main channel for learning about investing, while traditional media such as newspapers and television play a more important role compared to young people. Family and friends also have a major influence on learning about investing, especially for young people.
On the other hand, social media can even make investing look too easy. Indeed, you often come across stories of sudden wealth creation, which gives the impression that you can double your wealth very quickly. In reality, however, investing is a long-term activity that requires time and patience, which may come as a surprise to many beginning investors.
FOMO, the fear of missing out on something important if you don't participate, is also an essential part of social media. Investors may also feel pressure to participate in trends when they see others succeeding and hear about it on social media. This can even lead to overly hasty investment decisions, which may be based more on emotion than on thorough research. Hastiness is therefore one of the downsides of the social media.
It is also possible for investors to influence markets and, for example, individual share prices through their collective actions, but this requires a number of people. More on this next!
SOCIAL MEDIA & INVESTMENT SCAMS
While social media is a great platform to find good information and useful tips, there is also a lot of misinformation out there. It is therefore extremely important to take all information with a grain of salt and not directly believe everything you see on social media. It is also wise to do your own research before making a purchase decision, rather than blindly following the masses. It is also worth bearing in mind that tips or advertisements that often seem too good can be deceptive. Let's look at some of the common scams that you may come across on social media.
Pump and Dump is a well-known investment scam where investors artificially increase the value of a stock or other investment by spreading positive information about it, creating demand and causing the stock price to rise. They then sell their own shares at a high price, which causes the value of the item to fall sharply and other investors may lose money.
GameStop share price
In 2021, GameStop's share price exploded. This event was triggered on Reddit's Wallstreetbets discussion board, where retail investors encouraged each other to buy a stock that had been shorted by many large hedge funds (a mutual fund that seeks to increase its value regardless of market conditions). This phenomenon is known as meme investing, where investment decisions are based on social media hype and not necessarily on traditional analysis. The schematic below explains in more detail what really happened back then.
Short-selling is an activity where an investor borrows shares with the intention of selling them on to the market in the hope that they will fall in value and can be bought back at a lower price, thus making a profit.
Source: J.P. Morgan Private Bank
Cryptocurrency scams are also unfortunately common on various social media platforms. Advertisements, made as believable as possible, are used to promote shady sites that claim to offer a cheap and fast way to buy cryptocurrencies. Often the risk is claimed to be almost zero and the returns are high. Scammers seek to create a sense of urgency and pressure on their target, making irrational decisions more likely.
A typical feature of such scams is that the investment is often initially rewarded in order to make the activity look credible and to induce the client to invest larger sums. In reality, however, the investor may never get their money back as these sites turn out to be scams.
In 2023, Finns lost at least €16 million to investment fraud and up to €44 million to all online fraud (Finanssiala ry 2024). The increase from the 2022 figure was as much as 91%, which may be partly explained by the growing popularity of cryptocurrencies and the resulting rise in the number of related scams. In reality, the amounts are likely to be much higher, as not all information is passed on to the banks.
But don't be discouraged! There is also a lot of valuable and interesting information on social media. The key is to use your own common sense and think twice if something looks too good to be true.
Geopolitical influences on markets
Written by Sanni Heikkinen
Geopolitical influences on markets - War in Ukraine and China’s influence
Geopolitical events and decisions have a significant impact on global markets and the investment climate. Geopolitical factors such as international relations, political tensions, trade wars, military conflicts and environmental issues can create uncertainty and directly affect the economic outlook. In this post, we will examine the impact of geopolitical factors on markets and investing using current examples. It also concludes with a discussion of how investors can prepare for potential risks.
In global markets, geopolitical events and decisions affect the global economy. It is therefore worthwhile for investors to follow developments in global politics.
The term geopolitics refers to the impact of countries and their relations on world politics, taking into account in particular geographical factors. Geopolitics therefore refers to the impact of the geographical location of countries on their political, economic and strategic activities on the international stage. It also focuses on the efforts of states to achieve strategic interests within their own territory as well as internationally. Geopolitics helps to understand why countries react in certain ways in certain situations and how these reactions can affect markets and investors.
GEOPOLITICAL RISKS & MARKET UNCERTAINTY
When you open the news, you can hardly avoid the various geopolitical threats. The first geopolitical risk that may come to mind is that of various armed or diplomatic conflicts, of which there are many examples when we look at the events of recent years. But there are also other important risks, such as environmental and climate crises and currency risks.
One visible manifestation of risk realisation is the fall in share prices as investors seek better risk/return ratios elsewhere. This is because investors may react to increased uncertainty by selling their holdings and switching to investments they perceive as safer. This phenomenon is often associated with fears of large price fluctuations or significant losses.
However, it can be said that even major wars do not have a long-term impact on markets. Investors may therefore see the fall in prices as an opportunity, as markets often recover relatively quickly from geopolitical shocks. However, this does not mean that military conflicts, for example, cannot have serious economic effects in the short term.
In the context of various crises, there is also often talk of safe havens, which are generally considered to be relatively safe and stable places to invest in times of uncertainty. When major crises take hold, investors turn to these safe havens. One traditional example is gold, which is often seen as a store of value and does not carry any political risk. However, it should be noted that no investment is completely risk-free.
war in ukraine
Russia's war of aggression against Ukraine in February 2022 is a current example of a geopolitical threat. The uncertainty created by the state of war has forced many companies operating in the Russian market to react quickly to the new uncertainties. The effects can be seen, for example, in changes in production, both in export and import activities. Many companies that were considered to have significant links with Russia, for example through production or sourcing, found themselves in a difficult situation and withdrew from the Russian market altogether. Consequently, share prices also reacted to this change.
This war has also had an inflationary impact. Russia has been a major importer of oil globally. In the graph below, we see that light fuel oil prices shot up significantly when the war in Ukraine started. The price rose as Russia first reduced gas exports to Europe and eventually cut them off completely to all countries that supported Ukraine. However, Russia's energy would have been cut off completely, including through sanctions. This led to an energy crisis, i.e. energy supplies suddenly became insufficient to meet demand, which eventually led to a price rise. In addition, up to one third of the electricity imported into Finland was originally from Russia, which helps to explain the increased electricity prices in our country.
CHINA'S IMPACT ON THE WORLD ECONOMY
In recent years, world markets have been characterised by an increase in trade wars. Trade wars between the US and China have spilled over to many other economies, creating uncertainty in global markets. Tariffs and trade barriers can have a direct impact on the profitability of companies and global supply chains, affecting investors' expectations and decisions.
The importance of the Chinese economy is also reflected in stock markets. China's activities and economy can cause major fluctuations in stock markets around the world. For example, in 2015, the collapse of the Chinese stock market had a negative impact beyond China's borders.
China is the world's second largest economy and has become a major player in the global market. Its rapid growth has led, among other things, to many countries now being dependent on the Chinese economy. This dependence on China is reflected, among other things, in the outsourcing of production. The words "made in China" are certainly familiar from clothing or electronics, for example.
Long-standing tensions between China and Taiwan pose a general risk to the global economy. Should the situation escalate, the global repercussions could be significant, as Taiwan is responsible for a large share of world semiconductor supplies. This could lead to disruptions in the semiconductor market and possible global semiconductor shortages. This event would have a huge impact on the global economy, as semiconductors are essential for devices ranging from refrigerators to airplanes. A further concern in this situation would be that the imposition of serious sanctions would be complicated by the so-called China dependency, which would add to the complexity of dealing with the situation.
On the other hand, China's economic growth could also create opportunities for investors. Its growing middle class and consumption can provide opportunities for companies active in consumer goods and services.
WHAT SHOULD AN INVESTOR CONSIDER?
When we talk about investing in the midst of geopolitical turmoil, one smart way to protect your savings is to diversify. I'm sure almost everyone more or less familiar with investing has heard the importance of diversification mentioned. In simple terms, this means that investors should not invest too much of their assets in the same industry or geographical area and should diversify their investments over time. By buying shares or different funds in different sectors and geographical areas, the investor avoids excessive individual risks.
It is also worth remembering that stock markets have generally recovered quite effectively after crises, so there is no reason to panic when the unexpected happens.
DIVING INTO THE WORLD OF FIXED INCOME INVESTING
Written by: Ida Saari
DIVING INTO THE WORLD OF FIXED INCOME INVESTING
Do you have money in a savings account?
Many of us unconsciously invest in fixed income securities, since some banks pay a small interest rate on money deposited in a bank account. Especially if you commit to hold your money for a certain period without withdrawing it, some form of interest is often paid.
However, on a “regular” bank account, you hardly ever get any return, which is why inflation constantly erodes the money kept there.
And as we know, instead of a savings account you can invest your money in much better ways.
In this blog post, we will discuss what fixed income investing returns are based on, why it has become an interesting investment option in recent times, and what different options there are for those investing in fixed-income securities.
However, let's first go through how interest rates work.
Interest is the price of borrowed money, the compensation that an investor demands in return for lending their money. Compensation for the borrowed money is required because there is always a risk that the borrower may not be able to pay it back for some reason. Additionally, the borrowed amount is also out of the investor's use for a specified period.
Consider, for example, a situation where a company wants to take out a loan for a new project. It asks investors for a loan with interest which reflects the company's riskiness - the riskier the company, the higher the return required by investors, meaning the higher interest they want for their investment.
Changes in interest rates for corporate bonds depend largely on the riskiness of the companies. On the other hand, there are many other interest rate products, and all of them are influenced by changes in general market interest rates.
Market interest rates are affected by factors such as economic fluctuations, inflation, and changes in central bank interest rates.
So, what are the returns on fixed income investments based on?
Imagine a situation where a company called Screen Co, which manufactures computer screens, wants to raise funds for an upcoming investment. In collaboration with financial institutions and banks, the company issues a corporate bond, which investors can participate in by investing a certain amount of money.
Let's say Sanna decides to invest 1000 euros in Screen Co’s corporate bond.
After the issue, investors have the opportunity to trade their bonds on the secondary market. One day, Sanna reads in the news that the situation in Taiwan has escalated, and she knows that Screen Co purchases all its semiconductors from Taiwan.
Sanna deduces that Screen Co’s next financial quarter is likely to be weaker, and the company may need to take on new debt at higher interest rates.
Sanna doesn't want to carry on with the increased risk and decides to sell the bond to Roosa on the secondary market.
The greater the risk, the higher the interest rate Roosa demands in return for the loan. Alternatively, the more risk, the less she is willing to pay Sanna for the bond. A key principle in fixed income investing is that when interest rates rise, bond prices fall, and vice versa.
Roosa is willing to take on more risk but wants a higher return in exchange, which is why she agrees to pay Sanna only 900 euros instead of the 1000 euros.
A crucial element in fixed income investing, the coupon, is often a predetermined return paid annually to the bondholder, which is a fixed amount, in our case, 50 euros.
So, Roosa pays 900 euros for a bond with a face value of 1000 euros and receives a 50 euro coupon annually. Compared to Sanna who had a coupon rate of 5%, Roosa's coupon is now 5.56%.
Roosa hopes that interest rates do not rise now because otherwise, the market value of the bond she bought from Sanna will decrease.
It is also important to note that at the end of the loan term, Roosa will still be paid the nominal value, which is 1000 euros.
Interest rates are particularly interesting now - why is that?
During the COVID-19 pandemic, the global economy was stimulated by lowering the central bank policy rates, which led to a flood of “loose money” into the markets. Inflation started to rise, and due to the conflict in Ukraine, it rose up to around 10%. Central banks around the world, which aim for an annual inflation rate of 2%, tried to control the situation by raising the policy rates.
In the beginning of 21st century, investing in fixed income securities has not been particularly popular because of very low interest rates (= very modest returns). However, the situation has changed due to the aggressive rise in interest rates.
Source: The Bank of Finland
So, when should you consider investing in fixed income, and what risks are associated with it?
With stocks, the common thinking is to buy at the bottom when the stock's value is believed to be about to rise. In fixed income investing, the situation can be perceived somewhat oppositely - a favorable buying time is when interest rates are high and expected to fall. This thinking is based on the fact that bond prices are lower at such times, as seen in the example above.
However, it is important to be aware that low prices and high interest rates signal heightened risk. As rates rise, the market value of the investment falls.
A more risk-tolerant investor may prefer to invest directly in stocks or, for example, the S&P 500 index, which has historically outperformed many fixed income investments.
It should be noted that although the S&P 500 index is sometimes referred to as "risk-free," historically it actually carries more risk than many fixed income investments.
Investing in fixed income securities is less risky due to the structure of the company, which includes both equity and debt. If a company faces financial difficulties, debts are paid off before the owners receive their money. Therefore, lending is less risky than owning stocks, and that's why stocks yield better returns: owners demand higher returns than lenders because their risk of losing invested money is higher.
Various fixed income instruments
Investors have numerous options when it comes to investing in fixed income, and they are classified based on their risk profile using credit ratings.
Lower-risk options include many short-term investments and government bonds from stable and large countries.
However, it is important to note that the risk of government bonds is entirely country-specific. For example, Finnish government bonds offer a yield of just over 3%, while currently Russia offers investors more than 13% interest on its bonds. (Investing in Russian government bonds is morally questionable and very difficult due to sanctions...)
There are also several companies with better credit ratings than some countries.
Corporate bonds can be roughly divided into two main categories.
Investment-grade bonds are issued by companies with a good credit rating, making them lower-risk and therefore more moderate investment options. High-yield bonds, also known as "junk bonds," are riskier corporate bonds that can potentially offer higher returns to investors.
In addition to bonds, investors have many other options, from various securities to investment contracts. The image below illustrates the returns and risks of different investments.
Source: Danske Bank
A popular way to invest in interest rates is through funds. Instead of direct investments, funds offer diversified packages selected based on various criteria, containing bonds from different issuers, such as governments and companies.
Each fund is its own product, so their risk-return profiles vary greatly. It is also important to note that the funds can either reinvest the received coupons back into the fund or share them as 'dividends' to fund shareholders.
Bond funds can be categorized by their maturity into short-term, intermediate-term, and long-term. Short-term bond funds have maturities of approximately one year, while long-term bond funds include securities with maturities spanning several years. Intermediate-term bond funds combine both short and long-term securities.
Mixed funds are not purely bond funds but may also include stocks and other securities alongside bond instruments. They can be an option for investors seeking slightly better returns.
Could fixed income investing be suitable for you?
Source: Bloomberg
If you are looking for relatively stable, lower-risk returns on your money, it may very well be! However, we encourage diversifying your investments wisely and exploring investment options that interest you using your own judgment.
For more information and different perspectives, if you wish to learn more:
Your bank’s website, Nordnet.fi, Inderes.fi.
THE MIND OF AN INVESTOR - FOMO, EMOTIONS & HEURISTICS
Written by: Ida Saari
THE MIND OF AN INVESTOR - FOMO, EMOTIONS & HEURISTICS
How do psychological heuristics affect our decisions as investors?
Throughout history economists have perceived humans as rational animals, that make coldly rational, objective decisions.
However, theories are often very far from reality, and already for some decades have one specific area of economics, behavioural economics, rebelled for this view, and embraced the irrationality of humans. Behavioural economics as well as the behavioural theory of finance see that our humane weaknesses can be seen in all communication situations and decision making, which is why they are relevant to consider both in human relationships and business. Many cognitive, emotional and social factors expose our minds to illogical thought chains and mistakes.
Profit from understanding behaviour
Psychology of investing is a field of behavioural economics that studies all factors affecting our investing decisions. Understanding these factors is useful so we could make better decisions and avoid possibly expensive errors. In this post we will discuss these factors and consider their significance when building an investment strategy.
Subconsciousness plays tricks with our minds - cognitive factors
Our minds tends to form subconscious thought chains, heuristics, that can lead us to make wrong estimates when investing.
“An investor that believes their possessed stock to perform well, will more likely focus solely on the positive information about the company to confirm this belief.”
Confirmation bias is a tendency to search and absorb the kind of information that we already agree with, and on the other hand ignore contradictory believes. On average, people are more likely to invest in companies that they are familiar with. Additionally, an investor that believes their possessed stock to perform well, will more likely focus solely on the positive news and information about the specific company to confirm this belief.
Optimism bias stands for our tendency to overestimate our own investing skills and knowledge. Usually investors believe that they are better at forecasting market movements, if they have succeeded in the past. On the other hand, failed investment decisions are often blamed on outside factors, that “have nothing to do with the investor themselves”. Optimism bias might lead to excessive risk-taking, and it’s existence is good to remember in both successful and not-so-successful trades.
Sometimes the first observed information (f.ex. the first observation of a stock’s price) works as “an anchor” when making investment decisions. For example, if an investor has bought a stock at a specific price, they might be unwilling to sell it later at a lower price, even if the stock’s value has gone down significantly. Anchoring bias also works the other way around: investors perceive stocks to be worth more if they’ve been overvalued for a long time in the market.
In addition to this, investors also have a humane tendency to overestimate probabilities of unlikely events, if they are associated with personal experiences or if they’re discussed in the media. An investor might think, for example, that the general probability of financial banks going bankrupt is higher, if a single bank has gone bankrupt recently. In reality no probabilities have changed, although sometimes our irrational actions might lead to real consequences, such as bank run. This illusion is called the availability bias.
“Man is by nature a social animal”, said Aristotle, the legendary Greek philosopher. We have a tendency to make decisions based on other people’s opinions and views, and it’s very much the reality in what comes to investing, too. We might buy something just because it seem to be popular or trendy, even thought we know that in more effective markets this can be a weak strategy. If everyone is able to note the growth potential of a stock, the value reflects to it immediately. In order to control the group thinking bias, it can be useful to learn how to look for information independently.
Emotional investor is vulnerable to make bad choices - emotional factors
People are emotionally very complex creatures, and in addition to the cognitive biases numerous emotions affect our decision making. Fear of losing money can lead to premature sells and really low risk tolerance. Greed on the other hand can cause excessively gambling. Overly optimistic investor ignores the risk factors and focuses on the pleasant-sounding profits, when a pessimistic one might not even have the courage to begin.
“An investment said to have an 80 % chance of success sounds far more attractive than one with a 20 % chance of failure. The mind can’t easily recognize that they are the same.”
When FOMO hits - social factors
Social structures and pressure also have a huge effect on our willingness to make decisions. For example, FOMO (the fear of missing out), doesn’t only have to do with our friends gatherings or vacations that we didn't join in, but is also a big part of the world of investments. FOMO can get investors to follow others blindly (group thinking bias), and invest in things that they are not personally so familiar with. For example, from the point of view of investing psychology, the sudden popularity of cryptos can be viewed as this kind of social phenomenon.
When building your own investment strategy it’s good to analyse your own goals as well as your risk tolerance. When your goals are clear, it can be easier to make rational decisions that back up your strategy. In addition to this, it’s important to stay informed about the general market situation and the changes around your investments. Following the trends is vital, but you should also feel encouraged to try to work on your independent analysis.
Eventually, it’s good to recognise our mental shortages and biases, because with them in mind we can learn to control our investing behaviour better. Aiming for objectiveness and quality information most likely leads to better solutions and more sustainable investment strategies.
As my sources I used these books, and I can definitely recommend reading them!
Daniel Kahneman - Thinking Fast and Slow (2011)
David Orrell - Behavioral Economics (2021)
Picture: Discover Magazine
WHAT IS IT LIKE TO BE PART OF AIC?
You can now apply to Aalto Investment Club’s board of 2023! In this post, this year’s board members tell about their roles, share their favourite AIC memories, and send their greetings to new applicants. If you are considering applying to the board of 2023, this is definitely worth a read!
Lauriina - Chair of the board
Name: Lauriina Lindström
Role: Chair of the Board
Lauriina’s favourite AIC memory: A lot of great AIC memories have accumulated over the past two years, but one from this spring came to my mind. During Vappu, Lauri organized a Vappu party for our board and alumni. We ordered food, played some boardgames, made some drinks and enjoyed the evening with the AIC family.
In addition, all cabin trips have also been so much fun and relaxing!
Board members describe Lauriina: Lauriina is probably the most efficient person in the world - she does about a million things simultaneously and doesn’t stress at all. The drink master of our board and a pro chef. Very smart in many things but also things that cosplay is a band and that harem is a part of New York City. I admire Lauriina’s persistency which you can see daily.
What responsibilities do you have in AIC?: As Chair of the Board my main responsibility is to guide and communicate the organization's vision, mission and long term direction. I am responsible for the day-to-day coordination of operations by preparing meetings, communicating with board members and stakeholders and coming up with ideas for future events and their development. I have an important task of always supporting all board members and helping them shine in their own roles.
As Chair I also got to be in charge of the biggest event of the year - the Student Investment Summit with Peik.
What is the best thing about your role?: The most rewarding thing about my role is to see development and create great events, which the participants enjoy. It is also great to hear good feedback afterwards. It is awesome to see when board members succeed in their roles or get to challenge themselves and develop. In my own role I couldn’t be more glad of a team I’ve gotten to lead and get to know to. I’ve also myself learnt a lot about myself and leadership.
What has surprised you in AIC?:
AIC:ssä yllätti myös se miten paljon tilaa toiminta jättää ideoilla ja ajatustyölle. AIC:ssä ei ole vahvoja vakiintuneita perinteitä, joten innovaatioille löytyy paljon tilaa ja toimintaa voi kehittää uuteen suuntaan, jos hallitus näin kokee.
When I started in AIC’s board of 2021, I wouldn’t have thought that I would find friends this close through this association. In these two years I’ve gotten to know wonderful people and I believe this close friend group will last long in the future. I meet AIC’s members almost on a daily basis, because we have a lot of similar interests and hobbies.
It also took me by surprise how much space there is for ideas. We don’t have established traditions, so there’s a lot of space for innovations and opportunity to develop our association into a different direction, if the board chooses so.
Why did you decide to apply to AIC?: I heard about AIC for the first time at Mursumessut in 2020, where alumni’s Silja and Marko were presenting their activities. The atmosphere was warm and friendly and I noticed how tight a group AIC was. The people at AIC seemed very driven and had a "can-do attitude". The community seemed diverse, inspiring and interesting. AIC combined my interests in investing, making some impact and a group that I really wanted to join.
To whom would you recommend applying to AIC?: A board year at AIC is suitable for a person who wants an unique opportunity to drive change in preconceptions related to investing and create meaningful and high-quality events for the Aalto community. The year offers an opportunity to challenge yourself, learn and gain responsibility for yourself. There is no need to be afraid of applying to the board if you don't yet know everything. The most important thing is the desire to learn and an interest in investing and other current things that are happening in the world.
I recommend applying to the AIC board to anyone who wants to get new amazing friendships, has an open minded way of thinking and wants to be involved in driving change.
Lauriina’s greetings to applicants: Applying to AIC was definitely one of the best decisions I've made in the last few years, So if you're interested at all, you should definetly apply! AIC is a club where you can be yourself, meet the best people and learn a lot about yourself. You can also send a message to the board members if you have any questions <3
Peik - Vice-chair of the board
Name: Peik Berg
Role: Vice-chair of the Board
Peik’s favourite AIC memory: There has been many warm memories during the year but to mention two: Board’s summer cottage trip and the hottest summit this year, Student Investment Summit.
Board members describe Peik: The wine expert of our board. Rumour says, gold isn’t nowadays the only thing he invests in. An embodiment of #onlymiddleclassstuff and Lord of the Toes. Peik’s responsibility is all “important stuff” and he handles everything with grace. The support and shelter on our board and always ready to help. “The f***ing ray of sunshine”. Always manages to do everything.
What responsibilities do you have in AIC?: Olen AIC:n hallituksen yleishenkilö eli teen hieman kaikkea. Vastuullani on hallituksen toiminnan organisointi Lauriinan tukena, mihin kuuluu niin toimintamme sisällön strategista suunnittelua kuin I am the “general person” of our board so I do a little bit of everything. My responsibilities include supporting Lauriina in organizing our activities as well as preparing for our meetings. I was also responsible for this year’s Student Investment Summit, which I would describe as the hottest event of the year!
What is the best thing about your role?: The best thing about being the Vice-Chair is the versatility of tasks. I’ve gotten to work with other Board members and learn a wide range of new things. Another point I want to highlight is the ability to be creative as a part of AIC’s development.
What has surprised you in AIC?: I was surprised by AIC’s warmth as a community. Even though, we’re a diverse group of people, I’ve gotten good friends from our Board and Alumnis.
Why did you decide to apply to AIC?: I decided to apply to AIC because I’m interested in investing as a subject and I was impressed by the pleasant atmosphere at Mursumessut. AIC seemed to be a community I’d want to be part of.
To whom would you recommend applying to AIC?: If you are person that is interested in investing and you’re ready to work as a part of a close team in order to create meaningful events, is AIC definitely for you. You can apply to the board from different backgrounds and with different skills, as long as you are ready to take responsibility and do your tasks with detail, but never too seriously 😉
Peik’s greetings to applicants: One year ago, I was in the same situation as you are. Reading the same blogs and hesitating whether I should apply or not. One year later, I can say that applying to AIC was one of the best decisions I’ve made during my studies. Every individual can be totally theirselves and that might be the reason I’ve enjoyed AIC that much.
You can shoot me or the other Board members a message if you have any questions regarding AIC or just want to talk to someone. Feel free to apply!
Jessika - Treasurer & Head of Community
Name: Jessika Sjöholm
Role: Treasurer & Head of Community
Jessika’s favourite AIC memory: Cottege trips with our board and the alumni, and doing sports with our AIC Sportsklubben, such as iceskating, beach volley and trib3.
Board members describe Jessika: During our summer cottage trip Jessika went on a morning run and bought celery for our shared evening snack. Luckily she also likes pizza, so she is best of both worlds guaranteed :-) Enjoys every moment. Jessika’s calm and logical thinking keeps the cursor of our actions in the right direction. Jessika comes across as open and authentic which is probably thanks to the numerous trips she has been on.
What responsibilities do you have in AIC?: I have two roles in AIC which are very different and complement each other. As the treasurer I am responsible for the financial side of the organization, which includes i.e. budgeting, invoicing and accounting. My other role as the Head of Community means that I get to organize internal events and hangouts for our board of 2022 as well as to our AIC alumni. These events include i.e. cottage trips, AIC vappu-picnic and Christmas party.
What is the best thing about your role?: The best part of the role of treasurer is that it gives you a very good understanding of the overall situation of the organization and its events, because all purchases and cash flows pass through the hands of the treasurer. In this role you get to take responsibility. I also enjoy the fact that treasury tasks are mostly independent and therefore easy to fit into your own schedule.
My second role as the Head of Community brings a lovely social aspect to my AIC responsibilities. The best thing about this role is that I get to contribute to the strong sense of community that we have and spend time with our amazing board members and the alumni.
What has surprised you in AIC?: What has surprised me the most is how amazing events we have managed to organize in such a short time with a team that didn’t know each other beforehand. Last year I admired the events organized by the previous board, and suddenly I am doing similar stuff myself!
Why did you decide to apply to AIC?: There are many reasons for why I decided to apply. Firstly, I admired the professional brand and way of organizing events that AIC had. Secondly, I wanted to be involved in something that wasn’t only about partying and drinking. And lastly (and most importantly), I had a strong feeling that the members of the previous board were amazing personalities and I felt that it was the right community for me.
To whom would you recommend applying to AIC?: AIC is suitable for someone who has genuine interest in learning more about investing and everything else, and willingness and time to organize events for other students.
Jessika’s greetings to applicants: If you feel like this could be the right thing for you – dare to apply! We are very excited to read through your applications and we hope that we get applications from different kinds of personalities with different kinds of backgrounds <3
Anna - Head of Events
Name: Anna Krivokolysko
Role: Head of Events
Anna’s favourite AIC memory: The trip to Nuuksio in the beginning of spring and Student Investment Summit 2022.
I also have great memories from all our cottage trips and from Trib3 where we all were sweting at the same time.
Board members describe Anna: You can take Anna to the woods and she would survive there independently. Likes her sauna hot. Anna manages to go to the gym, work, study and every party - all with the strength gained from convenience food and with 5 hours of sleep per night. There isn’t a person Anna couldn’t cold call. Anna K is our efficient executor, you could combine the three Powerpuffs and you still wouldn’t be as productive as Anna.
What responsibilities do you have in AIC?: My responsibilities were planning the event and making sure that everything goes smoothly. During the planning we made sure that every team knows what to do and made a budged for different necessities. I also contacted our speakers for the event, prepared them for their speeches and worked us their buddy during the event. Quite often I also got to host the event by myself or together with somebody.
Creativity was needed when planning and ordering food and drinks for the event. It was extremely fun to come up with new ideas and surprise the guests with delicious food.
What is the best thing about your role?: The best think in my role were diverse tasks which differed in every event. None of our event were fulfilled in the same style and that was very exciting as well as educating.
What has surprised you in AIC?: It was surprising to notice that in AIC we are not only colleagues but a big family. Before joining AIC I thought that our alumni were close only because the pandemic years. We have gotten extremely close with our board member and with alumni because we have a lot of things in common that bring us together.
Why did you decide to apply to AIC?: I decided to apply to AIC because I got a warm introduction to this concept from Lauriina and Janne at Mursumessut. All the previous board members seemed like genuine and smart people who wanted to help other to get into the world of investing.
Before AIC barely any of my close friends were into investing. Therefore, I thought that AIC would be a perfect opportunity to get to learn more about the topic and get to know people with same interest.
To whom would you recommend applying to AIC?: I would recommend AIC to everybody who is interested in investing and wants to help other students to learn more.
Applicants can have different hobbies or strengths; investing doesn’t have to be your passion. You can be a photographer or a DJ and still send in your application. We appreciate uniqueness!
Anna’s greetings to applicants: Don’t underestimate your knowledge and ability to learn!
If you are reading this text right now, you are probably interested in AIC.
I genuinely recommend sending in an application!
Lauri - Head of Corporate Relations & Operations
Name: Lauri Ylimäki
Role: Head of Corporate Relations & Operations
Lauri’s favourite AIC memory: Our board’s summer cottage trip to Saimaa and Student Investment Summit 2022! In addition, I remember all of the deep conversations about purpose of life and other light topics <3
Board members describe Lauri: You would think Lauri is Espoo born and raised. Still reminisces military days even though mentally, he is middle-aged. Has a hate-love relationship to twitter drama. Lauri is thorough and diligent in everything he does and would never leave a friend in trouble. Always ready to stand behind his values and opinions and shows how things get done. Not a single Jodel about AIC passes Lauri’s radar. He always remembers every conversation he has had about AIC.
What responsibilities do you have in AIC?: In a nuthshell, head of corporate relations, together with the chair, is AIC’s face to the co-operation companies. I’m responsible both for maintaining all of the current co-operations but also negotiations of possible new ones. As an concrete example, I acquired delicious drinks to AIC’s checkpoints on the orientation week! In addition, as a head of operations, I plan the wonderful foods and drinks of our events together with Anna K.
What is the best thing about your role?: Definitely, the best thing in my role is its versatility and that I’ll get to work with other people, both from our board and also from partner companies. I’ve learned a lot about organizing of larger events and how to build partnerships.
What has surprised you in AIC?: What has surprised me, Is how big part of my life AIC has become. Both our own board and alumni society are super tight. Almost everyday I find myself with some current or previous AIC board member, most often from Abloc or BIZ-Hub :D in a year, AIC has become like a family for me.
Why did you decide to apply to AIC?: I applied to AIC because I liked its vision to make investing more approachable to everyone. AIC also felt like a good opportunity to get to know new like-minded people, and that's what it really has been. Even though I had already invested some time during the time when I applied, I didn't feel myself any near to professional, which caused me doubts at first when I thought about applying to AIC. However, at Mursu expo, I found out at AIC’s checkpoint that you don’t have to know anything about investing to apply to the board, as long as you have a genuine interest, and after that the decision was easy.
To whom would you recommend applying to AIC?: If you are a team player by nature and you want to get to know new amazing people, then AIC is definitely the place for you! We are looking for warm-hearted people to join our board, who want to promote our vision of making investing more approachable and grow the club's operations even more throughout Aalto. At AIC, you get to promote an important cause and, learn new about yourself, but it never becomes too serious, and we always have a smile in the corner of our eyes!
Lauri’s greetings to applicants: Remember that anyone studying at Aalto can apply regardless of the phase of their studies or discipline! When applying, be yourself and tell us who you are! We really want to get to know the applicants. If something is on your mind or you want to talk to someone from us, come and say hello on campus or send a dm, we'll be happy to answer all your questions!
Anna - Head of Brand & Visuals
Name: Anna Rantala
Role: Head of Brand & Visuals
Anna’s favourite AIC memory: Conversations at our cottage trips and overall meeting new people at our events!
Board members describe Anna: Such a creative and artistic person, who shares the most disturbing cards in Cards against humanity. Looks very kind and innocent but probably has figured out everyone’s deepest darkest secrets with horoscopes. A creative genius. Anna R is such a lovely person who radiates warmth when you’re in her company. Anna always has everything done even if we haven’t even yet started planning them.
What responsibilities do you have in AIC?: I create most of the visuals for our social media channels and take care of our brand. Additionally, I photograph our events and edit the pictures afterward. Also while preparing the events I am responsible for the decorations and visual look.
What is the best thing about your role?: The best parts of my role are being able to use my creativity and being able to learn new skills which I probably wouldn’t have otherwise learned.
What has surprised you in AIC?: What has most surprised me is how motivated and encouraging the atmosphere we have is. Everybody seems to exceed themselves in every event and all give positive feedback each time somebody succeeds.
Why did you decide to apply to AIC?: During my first year of studies, I attended a few of AIC’s events. The concept of the events stood out for me from other student events and I got interested in the club more. The previous year's board seemed to have a good attitude when organizing the events and just overall good vibes, which is what inspired me the most to apply to be part of AIC's team.
To whom would you recommend applying to AIC?: You should apply to AIC if you are motivated to develop your skills as an investor (regardless of your level) and also are interested to discuss current topics with different kinds of people. When being a part of AIC you get to take responsibility and challenge yourself, so if this gets you excited you should definitely apply.
Anna’s greetings to applicants: You’ll do best when you’ll just be yourself! We want to get to know each applicant as themselves, so come to talk to us openly and ask if there is something on your mind.
Tuukka - Head of IT & Media
Name: Tuukka Pöri
Role: Head of IT & Media
Tuukka’s favourite AIC memory: There are a lot of them. One was after the first event of the year. Everything went well and it gave me such a great feeling and motivation to create more.
Board members describe Tuukka: A good combination of 5am grinding and having fun. Tuukka was driving to our cottage and halfway remembered to put on his glasses as he wasn’t seeing properly :-) Tuukka is an inspiring person, he has a new idea every week he wants to develop or build. I’ve learnt a lot about “go-do” attitude and persistency from Tuukka. A compassionate person from Kuopio, who wouldn’t like him? A fitness model, influencer, pro coder, photographer. Name a thing this guy couldn’t do.
What responsibilities do you have in AIC?: The technical side of AIC such as websites, IT-services, technology in our event settings and social media platforms. I’ve gotten to make videos and other content from out events. I also wrote a blog post. Besides that, we’ve been tightly working together with the marketing and comms team, and I’ve learnt a lot about marketing events and our organization.
What is the best thing about your role?: I’ve learnt a lot of valuable skills. Designing and making websites, the technologies in our events, IT services’ automation, making videos, graphical design, writing. These will be useful going forward from here.
What has surprised you in AIC?: Creative freedom. AIC is still a young club and we don’t do things because “it’s how we’ve always done it”. On the contrary, we can research and execute new concepts and aim to offer interesting events and content.
Why did you decide to apply to AIC?: I wanted to get part of a community which works among interesting topics, learn more about investing and find new friends.
To whom would you recommend applying to AIC?: I recommend applying to AIC to a person who likes to do stuff with a close and motivated team. To a person who’s interested in investing and things happening in our society, who is willing to learn more and create events and content which help other students to learn more about these subjects.
Tuukka’s greetings to applicants: Applying to AIC was the most important decision I made last year. All the friends I’ve made, all the people I’ve met, and the things I’ve learnt. Irreplaceable experiences. So, if you consider applying to AIC, do it. It can be the most important decision for you this year.
Juulia - Head of Communications
Name: Juulia Rintala
Role: Head of Communications
Juulia’s favourite AIC memory: Summer cottage trip with our alumni and our first event of the year, build your investment portfolio brunch!
Board members describe Juulia: Fellow boomer with whom to have a wild Vappu on a couch sipping on tea. Juulia is the communications master of our board and knows exactly how to communicate about AIC externally in the best way possible. Juulia finds every single spelling mistake in a fraction of a second. She is very precise and a determined person. Motivated in everything expect studying and crawling to Otaniemi.
What responsibilities do you have in AIC?: I communicate about our events and other stuff to the whole Aalto community with a purpose of reaching as many students as possible from different fields. We are working closely together with Anna R and Tuukka regarding all social media stuff and we are for example launching our events coordinately, and additionally, we try to come up with engaging social media content together. I’m also in charge of our website’s blog this year. On event days everyone is involved in arranging the event space and other operative tasks during the day.
What is the best thing about your role?: Cooperation with our SoMe team! In this role I’ve really gotten the chance to use my creativity e.g. when writing event descriptions and other social media materials. The whole board trusts my communication skills and provide me constructive feedback and comments on my texts which helps me grow!
What has surprised you in AIC?: How close the alumni community is! We do a lot of fun stuff with our alumni and the previous board members are still truly part of AIC-community.
Why did you decide to apply to AIC?: It seemed like in AIC I could actually develop my skills related to my role, as well as learn more about investing. Both stood true!
To whom would you recommend applying to AIC?: If you are motivated to develop the old and create something new, you should definitely apply. AIC is not something you want to ‘phone in’, so if you are actually motivated and interested in doing cool stuff with great people – apply! AIC takes time of your calendar, because we do things with passion, and most importantly, together.
Juulia’s greetings to applicants: I’m so glad you decided to apply! Don’t hesitate to contact us if you have any questions about applying. I want to stress that any Aalto student can apply no matter what you study or at what stage of your studies are.
BUILD YOUR INVESTMENT PORTFOLIO -BRUNCH EVENT
Click here for the post in Finnish.
Aalto Investment Club’s first event of 2022 “Build your investment portfolio” -brunch was on Tuesday 1st of March. Our guest speakers Verneri Pulkkinen and Martin Paasi both delivered keynote speeches and participated in an interactive panel discussion. In this blog post, we have gathered the main takeaways from our speakers’ presentations, so, in case you missed the event or would like to refresh your memory, you’re in the right place! You can also watch the presentations, as well as the panel discussion from the videos in this post. Note that the videos are in Finnish.
According to Verneri Pulkkinen, there are as many kinds of investment portfolios as there are investors and one can learn the best way only by trying. Everything starts from one’s interests – if sustainability is close to your heart, you can choose your assets accordingly, or you can just for example buy your favorite brand’s stocks. Value investor invests in undermined companies, whose value they think is going to be fixed upwards, and a growth investor invests in potentially growing companies. Whatever your style is, the goal is to buy something cheaper than its actual value is. However, you should look before you leap and start with small amounts of money. A plan helps you to build your investment portfolio, which should contain things such as;
-Why am I investing
-To which assets am I investing
-On a what timeframe
-How much money can I spare for stocks
“The benefits of investing in stocks can be seen in the long run, because stocks are one of the best profiting asset classes”
Verneri’s presentation focused mainly on investing in stocks, which he jokingly called “stonks”. The benefits of investing in stocks can be seen in the long run, because stocks are one of the best profiting asset classes. It is unlikely that a well-diversified portfolio doesn’t make a profit, and diversification is also a way to decrease the risk of investing. What this means is that you shouldn’t put all your money in one company’s stocks, on the contrary, you should find multiple companies of which stocks you buy. Another way to diversify is time diversification, which means that you shouldn’t empty your whole bank account at once, rather, you should make smaller buys over time.
One of the most important lessons from Verneri was that investing itself is not difficult – you just have to open an account in a bank or other investment platform and put money in to work for yourself. Investing, however, requires “curiosity, buttocks, good nerves, emotion control, self-knowledge, and capability of handling risks”. If stock-picking seems too time-consuming or challenging, you can also invest in ETFs, exchange-traded funds. Thanks to ETFs, you don’t have to use time in finding suitable companies, as the work has been done for you. So, there should be an appropriate way for everyone to invest in stocks! According to Verneri, the only risk regarding investing is not investing in stocks!
In Martin Paasi’s speech the focus was on the three most important things related to investing; starting investing and compound interest, minimizing expenses, and long-term investing.
It is always worth it to start investing, and the sooner the better. When investing long-term, annual interests start profiting on top of the initial capital. So, if you invest 50 euros, and the annual interest is 7 %, next year you’ll have 53,5 euros on your account. The following year your initial capital of 50 euros and last years’ interest of 3,50 euros both make a profit! Naturally, the longer you save, the stronger the compound interest effect is. You can try and count from your current portfolio or plan how much profit you could make with compound interest in ten years.
“It is important to consider how big or small of a buy is reasonable.”
Minimizing expenses is all about checking all the costs related to investing. Banks’ book-entry accounts might have maintenance or storage costs that you should be aware of before opening an account – nobody wants their profits to end up to the bank instead of your own pockets. The same applies to different funds and their administration fees. Besides that, you should take all transaction costs into account, as it wouldn’t make sense to spend a major part of a 50-euro stock buy in transaction costs. Thus, it is important to consider how big or small of a buy is reasonable.
Divisions mentioned above are part of long-term investing, and being able to invest long-term, according to Martin, is the only thing in between you and becoming wealthy. Investing long-term might be challenging if you seek to see results quickly. Martin especially emphasized that investing in stocks long-term is worthwhile, as, in 200 years, stocks are the only ones that have made a clear linear rise. So, why wouldn’t you invest in stocks?
You can watch the interactive panel discussion from the video below.
WHAT IS IT LIKE TO BE PART OF AIC? - THE BOARD ANSWERS
Click here for the post in Finnish
Our board applications for 2022 are now open, and it is time to reveal what happens behind the scenes. In this post, board members share their feelings about AIC, its operations, the application process, and the other board members.
Matias - Chair of the Board
Name: Matias Salonen
Role: Chair of the Board
Favourite AIC-memory: '21 board’s first cottage trip in January
How other board members describe Matias:
“Matias is like an eight-ball—he knows everything. The puppet master! Under his leadership, our entire board has welded together, and we have built a great year together. And no wonder, because right from the first day, everybody has received a warm welcome. Matias always has a thousand irons in the fire, but he still manages to handle everything in an amazing way. Matias is the dream bachelor, a true gentleman and the perfect husband. Matias is always ready to listen to the concerns and sorrows of others. Matias is smart, logical, friendly, considerate, punctual and a great leader! A True grinder.”
What responsibilities do you have in AIC?:
"As the chair, I am responsible for facilitating and coordinating the activities of our association, and most importantly, I lead our amazing team. I am responsible for the long-term development of the association and for guiding our decision-making. More concretely, I do a lot of thought work, plan our activities, communicate with stakeholders, and prepare for our meetings. One of the big things about being a leader is supporting all board members and taking care of the well-being of everyone.”
What is the best thing about your role?:
“The best things about my role are the moments when I see our board members learn something new, develop and challenge themselves. It is rewarding to be able to help others succeed and enjoy what they do. Furthermore, I am grateful for the opportunity to learn new things about myself, leadership, and teamwork, every day. ”
How would you describe AIC in three words?:
“warm-hearted, genuine, passionate.”
What in AIC has surprised you?:
“I would never have believed how close each AIC board member has become to me and how big a part of my life AIC has become. We have spent a lot of time together with the current board, making us a close-knit group of friends that will last well into the future. ”
What kind of person would you recommend applying to AIC?:
“I recommend AIC for someone motivated to drive change and get things done, as well as an interest in building a unique student community for all Aalto University students. AIC is for people who are not only interested in investing but more broadly in global economic and societal issues. A perfect fit for AIC conveys authenticity, openness, motivation, and warmth. What you know about investing is irrelevant, all that matters is that you are a curious individual willing to learn.”
Matias’s greeting to applicants:
“A year at AIC is a one-of-kind opportunity to do meaningful things with absolutely wonderful people. The year offers an opportunity to challenge oneself, learn a great deal, and leave one's mark on the Aalto community. If you want to be involved in making a real difference, challenging your thinking, and forming unique friendships, AIC is the place to apply.”
Rilla - Vice-chair of the Board
Name: Rilla Saukkonen
Role: Vice-chair of the Board
Favourite AIC-memory: Making an oven-baked omelette with Juho at AIC cottage and extempore night swimming after the anniversary party.
How other board members describe Rilla:
Rilla is a wizard of internal events. She takes care of our community and makes sure everyone, both board members and alumni, are having a good time. According to rumours, Rilla has a great sense of humour and unparalleled organizational skills. Rilla is always ready to help others and provide support, no matter what. Rilla is benevolent and kind-hearted. The best peer support. Rilla is determined, and her willingness to stand behind her values and opinions is admirable. Rilla is also always ready to defend others and the AIC. Rilla is respectful, wise, competent, friendly, helpful, and funny. True alpha. ”
What responsibilities do you have in AIC?:
“The most important responsibility of the Vice-chair is the community. I am responsible for our bi-weekly hangouts, cottage trips, alumni events, and all other informal togetherness. In addition to this, I am Matias' main partner in crime, meaning that I help in everything miscellaneous related to AIC. As a bonus, I am also the grammar granny of our team, i.e. I proofread almost every email sent to a partner or participant!”
What is the best thing about your role?:
“Organizing mystery activities ;)”
How would you describe AIC in three words?:
“dear, rich in ideas, kind-hearted”
Why did you decide to apply to AIC?:
“AIC seemed like a happy group of friends who have fun together and organize quality events together. I was ooking to get involved in activities not revolving around alcohol or parties, and in addition to good spirits, AIC met my criteria. Luckily I applied because AIC is all of these and even better!”
What has been the best thing about AIC?:
“The best part is that there is always a swimming buddy or extempore lunch club in this group, as well as sparring help for everything from job applications to school stuff or life problems in general!”
What kind of person would you recommend applying to AIC?:
“AIC is made up of people united by openness, community, and a desire to create something new and high quality to the delight of other students. We are an active association, meaning that being on the board is time-consuming, so if your calendar is already full, you should consider whether you have enough resources for AIC. If this description fits you, you would definitely be a great AIC board member.”
Rilla’s greeting to applicants:
“It’s wonderful that you are considering applying to AIC! Hope to see you soon in interviews, events, on campus, or even at Täffä's spaghetti! ”
Lauriina - Head of Media & Marketing
Name: Lauriina Lindström
Role: Head of Media & Marketing
Favourite AIC-memory: “All the cottage trips”
This is how other board members describe Lauriina:
“Lauriina is a master of marketing, whose every post is like a touch of Midas. Kuopio's gift to the world. Because of Lauriina, I am convinced that all people from Kuopio are wonderful. Laurina has the most beautiful smile in the world, which disappears only in front of a giant burger… Simply the most endearing person in the world, who always gets a smile on the lips of others with 100% certainty. Lauriina also makes the best drinks and the best sheet pan nachos. A wonderful dialect. Lauriina is friendly, sunny, easy-going, witty, and most importantly, she is the most optimistic person you will meet. The pride of Jeda. ”
What responsibilities do you have in AIC?:
“At AIC, my main responsibilities are to design and publish all visual materials outside of AIC. So I am responsible for websites, emails and social media channels. My job is sometimes to be our own “influencer” if AIC has to be represented in Aalto University, for example.”
What is the best thing about your role?:
“The best thing about my role is being able to learn so much new about creating websites and emails—something I hadn’t been able to do before. After my years at AIC, I can say with confidence that I can create websites from scratch and manage social media channels and email marketing. I have also learned a great deal about organizing events and planning event marketing. The best thing about organizing events on interesting topics is that you meet and interact with many professionals in the field. I have also learned a lot about investing and the topics around it.”
How would you describe AIC in three words?:
“inspiring, friends, goal-oriented”
Why did you decide to apply to AIC?:
“I decided to apply for AIC because investing has interested me for a long time, and I wanted to learn more about it. AIC also caught my attention because I heard it was a new club, and I wanted to do cool and interesting stuff with great people. I also wanted to join a club where you could do something meaningful. ”
What has been the best thing about AIC?:
“AIC has exceeded all expectations. The best thing about AIC has been our amazing team.”
Lauriina’s greeting to applicants:
“If you are interested in investing, you should apply to AIC! You can do a lot with investing-related topics and at the same time enjoy the amazing company and spend your free time with wonderful people. AIC is a club where you can be yourself and meet great people.”
Rasmus - Treasurer & Head of IT
Name: Rasmus Räsänen
Role: Treasurer & Head of IT
Favourite AIC-memory: AIC-vappu (first of may)
How other board members describe Rasmus:
“Rasmus is the embodiment of multitasking, IT, budgeting, double degree, everything is taken care of. You can ask Rasmus how to sleep for eight hours in four hours. Despite everything, Rasmus is always positive and ready to help. I would trust my whole life in the hands of Rasmus. Rasmus is insanely considerate. Rasmus is also an excellent conversationalist and always ready to fight for others. Rasmus, the IT-Wizard, does things diligently from start to finish. Rasmus is hardworking, skilful, intelligent, caring, and thorough. Wizard."
What responsibilities do you have in AIC?:
Two of the 2019-20 roles were assigned to me, the Treasurer and the Head of IT, because they had had so little simultaneous work by then. While treasurer responsibilities are primarily focused on the turn of the year, such as budgeting and preparing financial statements, the IT responsibilities are continuous. As the treasurer, I also take care of cost control, receipts, and bank accounts. I also take part in bookkeeping purchases. In the IT role, I focus on building and developing our IT systems, because as a young club, we are constantly looking for better ways to work, communicate and grow. These tasks also include the upkeep of our email platform, services, websites, and other automation services. As Head of IT, it is possible to study, develop and implement changes together with the rest of the board.
Now, due to the challenges posed by COVID-19, every board member has had to stretch and learn something new. Thus, in IT, the execution of virtual events, such as various hybrid and webinar events, has been a new addition to the job description. Here, too, I was not facing the challenges alone, as many other board members provided help. And of course, supporting other board members in all issues related to AIC and more.”
What is the best thing about your role?:
“The best part of the treasurer’s role is its predictability and regularity. It also allows me to influence every purchase we make. The role of Head of IT is crowned by its freedom and demandingness, requiring you to find solutions to arising problems, and in coming up with solutions, the sky is the limit. The absolute best thing was to pull these two complementary roles simultaneously because it has allowed me to learn and challenge myself even more. ”
How would you describe AIC in three words?:
“openness, enthusiasm, together”
Why did you decide to apply to AIC?:
“I liked the idea of the association, and I saw how passionate and skilled the previous board was. I wanted to be involved in creating something new that I believe in.
” A world in which everyone knows how to make a difference by investing – both in their own lives and the world.”
– AIC Board ’21, vision ”
What kind of person would you recommend applying to AIC?:
“For a motivated Aalto University student. For real, if you are interested in investing and want to work towards making others know about it, then APPLY! (no prior investment knowledge required).”
Rasmus’s greeting to applicants:
“The board experience gives you as much as you are willing to give it, meaning that for such a young club, you have the freedom to develop and learn new stuff.
Be open, positive and most of all, yourself. Cheer and remember to respond to the application in peace! “
Juho - Head of Events & Corporate Relations
Name: Juho Tuuliainen
Role: Head of Events & Corporate Relations
Favourite AIC-memory: Board’s first cottage trib
This is how other board members describe Juho:
“Juho is 195 cm of pure gold! Juho will make you laugh and send the best memes as well as morning songs. Juho does not leave any room cold. Juho is a very skilled performer, and if Juho ever started a podcast, I would listen to all episodes 100%. Juho is a great salesman who would probably sell me, even my own socks. Juho is skilled, outgoing, and a great cheer for the day. Juho always manages to chat and advise others. If, at times, you don't believe in yourself, Juho will surely believe in you. Whenever Juho is near, people can not stop smiling. It is not possible to be in a bad mood with Juho. Above all, Juho is funny, funny, and funny. The tall leader."
What responsibilities do you have in AIC?:
"The Head of Corporate Relations & Events includes the following. I take care of our partner communication, negotiate the continuation of existing partnerships, and come up with new partnerships. I also always ensure the visibility of our partners wherever AIC goes. Similarly, for events, I am responsible for contacting the speakers and ensuring everything goes as planned. In addition to these, of course, I help everyone else in their tasks. "
What is the best thing about your role?:
"The best thing is definitely the new people. In my role, I get to know great people from different backgrounds. So while I get to find long-term partners as well as interesting speakers, I hear intriguing stories."
How would you describe AIC in three words?:
“such a great organization”
What kind of person would you recommend applying to AIC?:
“I recommend applying to AIC for anyone who has a feeling that they are ready to take on the challenge. You can learn everything (this is a good attitude to life anyway). The most important thing for the applicant is a genuine enthusiasm for what we do. However, I can list a few ideas that are good for the applicant to realize. First, it’s good to realize that AIC isn’t a traditional “party” club, but board members are genuinely doing things for our organization as well as the entire Aalto community. Therefore, if you want to apply to 3 other organizations in addition to AIC, your life can get very busy. Also, it’s good to realize that board members do a lot of things together. So if your passion is to do things alone, board work can be challenging.”
What would you tell someone who is whether to apply:
“Be yourself! AIC is NOT looking for people who have certain skills, interests, or career plans ready. The goal is to find different personalities with a twinkle in the corner of their eye and a good sense of doing. The worst thing you can do is think, "I can't apply because I don't know about investing." This is not an obstacle. ”
Juho’s greeting to applicants:
““If you’ve read this text so far, you’re definitely a potential applicant. So feel free to apply! If you want to know about something specific, about me or Aalto Investment Club, feel free to get in touch. You can find my contact information here, for example.
Janne - Head of Operations & Communications
Name: Janne Liu
Role: Head of Operations & Communications
Favourite AIC-memory: The first board cottage or the publication of a completely new kind of event concept, i.e. an investment game.
This is how other board members describe Janne:
”Janne is an operational engine for whom it is always important that everyone has fun. Janne is the most helpful guy in the world. Whether it's making a CV or helping you get the most out of appro, you always get the best tips from Janne. Janne knows everything about everything, but it still never shows it unnecessarily. No task or chore could not be taken care of by Janne. According to rumours, Janne can take power naps if necessary, even on the carpet or on the bus. Janne has a lot of good new thoughts and ideas, and of course, great communication skills! Janne is very knowledgeable, respectful, easy-going, funny, and wonderfully permissive. Our very own Masterchef and Style Guru. ”
What responsibilities do you have in AIC?:
“I actually have two responsibilities. My first responsibility is the operational responsibilities of our organization. I’m a bit of a “jack of all trades”, providing help to any of our members when necessary. More time-consuming has been my second responsibility: the shared responsibility for communication with me and the Head of Media, which is very important due to the event-oriented nature of our operations.”
What is the best thing about your role?:
“I have to admit, it’s hard to say. It’s best to be able to help other board members on various issues when needed, but I also really enjoy taking care of communication and information. Communicating about our events to outsiders is always inspiring, as it allows us to create new memories and moments for the participants of the event.”
How would you describe AIC in three words?:
”open, inspiring and friendly”
Why did you decide to apply to AIC?:
“I wanted to give back to the student community, from which I have received an awful lot myself. I knew that through AIC, I could take our student community forward the way I wanted. On top of that, the previous AIC board had a really good sprit and I wanted to experience something similar myself. ”
What has been the best thing about AIC?:
“Our board and alumni. Among our board, we have become a close-knit group of friends, and inspired each other to try new things. We have spent a lot of time outside of AIC.”
What kind of person would you recommend applying to AIC?:
“For a person who wants to take part in student activities, meet new people and thus build our school community.”
Janne’s greeting to applicants:
“APPLY! You won't lose anything by doing so. At the very least, you will learn more about yourself in the application process.”
Malla - Head of Brand & Publications
Name: Malla Messo
Role: Head of Brand & Publications
Favourite AIC-memory: AIC’s house appro (especially the plane game) and all the ice swims we have done together.
How other board members describe Malla:
“Malla is a visual communication kit equipped with a wheelbarrow full of empathy. If something goes wrong, Malla is there to listen and give great advice. Malla supports everyone and is always so good-hearted, wishing everyone all the best. The greatest thing that has ever come from Pori. Malla makes the best carrot cake. Young alpha. Malla is not afraid of anything, not even ice-cold water. Malla is wonderful in every way. Malla is thoughtful, friendly, efficient, hardworking, adaptable, easy-going, and fun. Seal among sea lions. A true gem. ”
What responsibilities do you have in AIC?:
“My job is to take care of AIC’s brand and visual look. This includes, among other things, the creation of visual content for AIC's various channels (for example, event visuals, such as Facebook banners) together with our marketing manager Lauriina. Also, the event's visual look and decorations are my responsibility.
Another important area of responsibility is maintaining the AIC blog. In practice, I have the freedom to design and implement what is posted on the AIC blog. ”
What is the best thing about your role?:
“Versatility and creativity. My studies are quite analytical and math-heavy, so it’s been awesome to get to use my creativity when working on AIC stuff. It’s also been amazing how much I’ve learned. "
How would you describe AIC in three words?:
“warm-hearted, supportive, communal”
Why did you decide to apply to AIC?:
“A year ago, during my own orientation week, I talked with an old board member of AIC. I was really impressed with how genuine and warm-hearted the AICs seemed and how good a spirit they seemed to share with each other. I remember thinking that I would like to be a friend of these guys.
Luckily I did, because now a year later I can say that the person I talked to is a good friend of mine. <3 ”
What has been the best thing about AIC?:
“People, people and people! The AIC community is awesome and I am insanely grateful that through AIC, I have made a huge amount of new friends. It has been awesome to be able to share both successes and adversities with the most wonderful team in the world.
One of my absolute favourite things about the AIC community is that I have gotten to meet people from every year of studies. In AIC chat, you are guaranteed to get help or mentoring for any school or life-related issue in general.“
What in AIC has surprised you?:
“Perhaps the biggest surprise has been how much freedom we have in developing our activities in the direction we want. AIC is a young organization, which means we don’t yet have deep-rooted traditions that limit what we can and cannot do. Because of this, there is always room for new ideas and ways of working, whether it is a new concept of events or a completely new kind of idea for internal activities. An excellent example of this is AIC’s very own sports club, which I co-founded with my predecessor Milja (this is not a paid ad;)).”
Malla’s greeting to applicants:
“I can’t help but recommend applying to AIC. I can honestly say that AIC is the best thing that has happened to me over the last year. In addition to learning quite a lot and getting to do cool stuff, I’ve got a whole new support network that I’m insanely grateful for! (AIC family best <3) ”
Board Application
AIC's board application is now open until Friday 1.10. If you have any questions about the AIC or the application process, feel free to contact a board member via Telegram, Facebook, LinkedIn or even Whatsapp. Contact information for all board members can be found here. We will be more than happy to answer all your questions! <3
(You may also want to read the thoughts from our alumni, Miikka, who was on AIC's last board, at the end of this blog post.)
STARTING INVESTING: WHY, WHERE AND HOW?
Written By: Malla Messo Click here for the post in Finnish.
NEW YEAR, NEW ME
The beginning of the year is a perfect time to start a new hobby. What if this year, instead of starting a gym membership, you would start investing? Investing is an excellent hobby because even if your motivation drops after few weeks and you only have time to check on your investments every once in a while, the starting phase didn’t go to waste – you can’t say the same about going to the gym.
CONTENT WARNING
If you are a expert in investing already, this post is most likely going to be useless for you, and I would recommend that you invest your time more wisely (see what I did there 😉). Then again, if you always feel like the language around you has switched to gibberish when people are talking about investing and the only thing standing between you and financial independence is the is the complex terminology and difficulty of getting started with investing, you have come to the right place.
WHY is it smart to invest?
Investing is a perfect hobby if you are left with some extra money at the end of each month and you are not sure what to do with it. Because of inflation, the cash you are keeping under your mattress is losing its value, as we are speaking. Then again, shares in the Helsinki stock market have had an average yearly return of 6,1% in the past 20 years. So, instead of the money you worked hard to save to be eaten up by inflation, you can put it to work for you. Makes sense, right? What makes this especially worthwhile is the compounding interest, sometimes described as the eighth wonder of the world, which motivates you to start investing as early on as possible. In short, the compound interest effect means that in addition to the interest on your principal amount, you also start to get interest on the accumulated interest over time. Therefore, it is said to be more important to start investing as early as possible rather than waiting for the perfect moment to start, because the longer your capital has time to accumulate interest, the more significant benefit the effect gives.
In the best-case scenario, you can also positively impact other people’s lives and the environment by investing. You can read more about this so-called impact investing from our blogpost IMPACT INVESTING & ACTIVE STOCK PICKING – WHAT, WHERE, WHEN AND HOW?.
WHERE does investing happen?
Next, it is time to think, where investing happens. The stock exchange is a public trading post where you can buy and sell shares of listed companies. To purchase securities in the stock exchange, you need to open a brokerage account, or an equity savings account in a bank of your choosing. When deciding on a service provider, pay close attention to the underlying fees. The brokerage account is an investment account that allows you to purchase stocks and other securities in the stock market. The equity savings account is much like a brokerage account, but it allows you to buy and sell shares inside the account without immediate tax sanctions. However, you cannot, for example, purchase mutual funds or exchange traded funds (ETFs) with an equity savings account. So before choosing what type of account you want to open, you should think about what features are best for you as an investor.
HOW to invest?
There is no ultimate correct answer to this question. I even dare to say that no one knows how to invest for real. However, there are some basic rules that are easy to follow to get started.
“ You should never invest more than you can afford to lose.”
Revise your current financial situation
Firstly, it is good to consider if you can afford to invest your money in your current life situation. Even though you can start investing with under 20 euros per month, it’s completely understandable that not everyone has that possibility. In this case, you should not feel pressured to start investing right now. Instead, you can put the idea of investing to the back of your head and return to it when the timing is more suitable. It is also good to remember that if you have some high-interest loans like consumer credit or credit card debt, you should pay them off before starting to invest.
Create an investment plan
When you have stated that investing is, in fact, possible for you, it’s time to make an investment plan. Before starting to invest, it is good to consider how much you can invest, what you will do if the value of your investments collapses and how long you will be keeping your money in your investments. A good rule of thumb for the amount of money to invest is that you should never invest more than you can afford to lose. Therefore, you should not invest money you might need in the near future. If you have a long investing timespan, the market swings won’t keep you awake at night.
Find an investment that’s right for you
After deciding your investment time horizon and the amount of money you want to invest, it is time to choose an investment that is right for you. There are a number of different types of investments from real estate to cryptocurrencies to choose from, but the most common objects for beginners are shares and investment funds. Shares are small parts of corporations. If a company is listed in the stock exchange, anyone can buy and sell its shares. Investment funds and Exchange Traded Funds are funds made out of shares or other bonds. If you want to learn more about investment funds, you can read our previous blog posts INDEX INVESTING AND ETF’S and FUND INVESTING.
Minimize costs
Just like when buying anything else, you should also pay attention to the prices when investing. For example, you should examine the transaction fees and management fees. When investing in funds, pay close attention to the management fees because while they may seem small – often less than one percent, even the smallest of difference can have a significant impact on your long-term returns.
Diversify your investments
Maybe you have heard of the saying that you should not put all your eggs in one basket, and the same thing goes with investing. There are many forms of diversifying, but you can for example, diversify your investments by timing, which means that you do not invest the whole sum at once but rather divide it into smaller amounts that you invest in a more extended period. If you do not do this, there is a risk that you buy when the stock market is at its high point, and then if the market drops it might take a long time for it to reach the same price level. You can read more about diversifying from our post DIVERSIFICATION.
DRUMROLL PLEASE – THE FIRST EVENT OF THE YEAR!
If you want to learn more about starting to invest you should stay tuned! AIC is organizing an online event fully devoted to this topic in February. There you have the possibility of asking all the questions you might have on your mind after this post. (NB Unfortunately, this event is held fully in Finnish.) Follow AIC on social media for more. You heard it here first! 😎
EDIT: You can now find the recording for our event Investing for Beginners with Jasmin Hamid & Antti Saari from our website.
USEFUL SOURCES FOR A BEGINNING INVESTOR:
aaltoinvestmentclub.com / INVESTOR RATIOS
investopedia.com / How to Start Investing in Stocks: A Beginner's Guide / Dictionary
nerdwallet.com / How to Start Investing: A Guide for Beginners
op.fi / How to start investing in stocks
investorjunkie.com / How to Invest Money Wisely / Investment Terms and Definitions You Should Know
Fund Investing
An index, fixed income or equity fund? There is an offer in the world of fund investing for every taste, but management fees and other expenses need to be kept in mind.
Written By: Milja Mieskolainen
If we start talking about fund investing, the first thoughts include at least the idea of high costs, the blurring of the final destination of the money, and perhaps a doubt about reliability. The world of funds, like the real world, is complex, so a researcher may quickly become confused. In this post, we discuss fund investing at a general level, and look at the most common fund types and their characteristics. ETFs, or exchange-traded index funds, are excluded from this post: You can read more about them here.
Let's start with the definition of an investment fund: At a general level, it refers to a fund maintained by a management company, which may consist of, for example, shares or other securities, in which the assets of several individuals are pooled. Fund investing can be seen as an intermediate form of equity investing and account saving, making it an easy way to start investing. The investor owns a share of the fund corresponding to his/her investment, while in an equity investment, the investor buys a certain number of shares for a certain amount of money, thus owning “whole” shares. There are tens of thousands of different investment funds worldwide, so at least there is no shortage of choice.
Fund categories
Typically, funds are divided into two or three groups. In active funds, the portfolio manager takes care of investment decisions. It is also possible that the portfolio manager will use the management company’s quantitative investment strategy as a basis for his/her decisions. In these funds, management costs are usually quite high (1.0-2.5%) and may also include performance-related fees. While management fees, such as 2%, may sound small at first, their impact, especially on long-term investment, increases significantly, as can be seen from the graph above. In addition to management and performance-related expenses, the fund may also charge the investor subscription and redemption fees. It must be remembered that the costs of the funds are not identical and can differ significantly.
The benefit of an active fund is usually considered to be the professionalism of the portfolio manager. Some investors are willing to pay more for a professional view that they hope will lead to a better returns. Another reason for accepting high costs may be that the investor feels that he or she does not know the scope of the mutual fund's objects: For example, the oil market may seem distant to someone, so he/she chooses a fund to invest in.
Passive funds follow their benchmark / target index without the active decision-making of the portfolio manager. These funds cannot therefore achieve higher returns than the market. In general, it can be said that passive funds are better for the investor because of the lower costs (0-0.6%): They are easy to manage and there are many different options available.
There is room for another, not so pleasant, fund type. About a couple of per cent of Finnish fund investments are in index funds (Cremers, Ferreira, Matos and Starks, 2013). According to the same study, about half of Finnish fund investments are in actively managed funds. Where does the remaining about 45% go? In free translation, the study referred to above calls these funds “cabinet index funds”: These are sold under active management, but in reality they mimic the index. These funds charge all the same costs as actively managed, but make investments entirely according to the market index.
Fund types
Below is a list of the most common fund types. We do not go into the contents of the funds in more detail in this post, but you can read them here, for example, if you wish. In addition to the ones below, the funds can also be divided within an asset class, for example, an equity fund can only target Finnish or European shares.
• Equity funds
• Fixed income funds
• Combined funds
• Index funds
• ETF, ie index unit fund
• Funds of funds
• Leverage funds
• Hedge fund
• Forest funds
• Real estate and housing funds
Income or growth fund?
Different shares may be available in the funds. In a income fund, the investor receives a regular return on the profit share directly in his or her bank account. These may be suitable for an investor who wants a steady cash flow from their investments. There is no redemption fee for income shares, but capital gains tax is paid on the income, which is why these are quite rare among small investors.
Growth funds thus avoid taxing income: they reinvest dividends, interest income and capital gains, thus taking advantage of the interest on interest phenomenon. The payment of taxes to the owner of the growth unit comes to the fore only when he decides to redeem his investment.
AIC x Elina Lepomäki / Info evening
Our first event of the academic year 2020-2021 was all about Elina Lepomäki’s thoughts on Finland’s economy and investing as well as information of AIC’s board application.
Written By: Milja Mieskolainen
Our first event of the new school year combined inspiring information about the Finnish economy and about AIC's Board and how to apply for it. This post reviews the ideas put forward by our speaker Elina Lepomäki, and at the end there are thoughts from a current board member Miikka who is a sixth year student at Aalto.
If I had invested in the Dow Jones Index in 1890, what would be the return I received today? The answer is 77,000%. No one’s investment horizon is likely to be 130 years, but the main point of the question lies in the fact that it’s never too late to start.
The Finnish economy is facing challenging times. Public spending is rising at an accelerating pace, the pain points of the occupational pension system are becoming more pronounced year by year, and the ultimate problem is that pensions have been paid more than the money needed for them comes in. However, the future is not a mere gloom, as, for example, after the next ten years, artificial intelligence and productivity growth are likely to offset other problems in the economy. As the examples described above show, the future of the Finnish economy is a fumbling balance, so personal preparation is more important than ever.
For every euro we pay into the pension scheme, we get about 70 cents back when we retire. And we can't influence it. If we want to compare this figure with something, today’s retirees get back about four euros for every one they paid. What do we learn from this? You should be prepared, and put aside everything you can. Sounds good and simple, but youth unemployment is also high in Finland, and young people suffer from poor job opportunities. Investing is the joke that every euro matters. This is all the more pronounced the younger you start investing, because the interest rate effect is really worth all the attention it gets.
Elina herself became interested in the market and investing through working life. He moved to work in a bank on the market side, where things had to be re-learned even though he had studied them up to a certain limit at school. Thus, practice teaches the most in almost all situations. This was further accentuated when Elina moved to work in London, where she had to retrain the younger ones. Still, it is not worth dropping out of studies.
In addition to the interest-to-interest effect, perseverance is one of the pillars of investing (or quote used too much). Elina gave a personal example of this: With the candy money saved with her brother, she bought Nokia shares, the value of which rose by about 70% in a couple of months. Enthusiastic about this, they took the money they won, and organized a party. However, the share price continued to rise, and six months later would have been able to organize much larger party. Thus, perseverance usually rewards, and the longest possible investment horizon makes retirement day dreams possible. In the case of Nokia, the rise in perseverance would have ended in the fall of 2001, but bubbles usually burst at some point.
It is advisable, of course, depending on the investor, to invest small amounts at least once a month. If a person wants to maintain his or her purchasing power as an investor, he or she should be involved in the stock market, as inflation has earned its reputation for a good reason. In practice, decentralization is worthwhile, because, for example, when investing in the real estate market alone, the investor is exposed to a large amount of risk. Along with other investments, it is usually worth keeping the world index, as it is a fairly good indicator of, for example, Finland's housing policy or technological development.
Finland is a rather poor country economically, as it is about the same level as Slovenia. Many control countries do not have an occupational pension system, and many citizens save for themselves. So this is a general perception. In reality, quite a number of countries have some form of occupational pension scheme, and in some the citizen can decide for himself the risk of investing his pension money. A Swedish household has 2.5 times more net worth than a Finnish one. This is partly explained by the number of “really” rich people and partly by immigration, but even without these differences, the average household in Finland has less wealth.
Feelings from our Board member Miikka (Head of Operations):
Why did you join AIC?
I first heard about AIC in the spring of 2019 when I spotted an ad on Facebook where the club was looking for an event coordinator. I was immediately interested, as organizing events had been close to my heart for a long time, and investing has been of interest since I was little - though I can’t say I was, or still is, particularly experienced or “good” at it. I considered sending an application for a long time, as I had already started my studies in 2015, and I was not honestly sure if there would be enough time and motivation for student activities anymore. However, the interest and enthusiasm eventually won and I decided to apply. When I got to talk to Marko and Silja in an interview, making the decision became really easy when Marko asked me to join in, and I haven’t regretted it in a moment since.
What has been the funniest / best thing in the last year at AIC?
Absolutely the best has been our amazing board. We have become a really close group of friends this year and we have spent a lot of time together not only in the activities of AIC, but also in our free time. We have made several cottage trips and spent countless evenings for cooking, sports or just hanging out in general. Going to volunteer is a great way to get to know people and make friends in a new city, especially for students from outside the Helsinki area.
Is there anything in the AIC that is not obvious?
Many may think that AIC is for business students only or that going to board would require deep experience / knowledge of investing. Neither of these prejudices is true. AIC has not been named Aalto Investment Club without a reason, members from Aalto's various fields are wanted for the board. Investing has nothing to do with business studies, but is a way to save money profitably for retirement, for example, and can be practiced by anyone, regardless of field of study. No one on our board is an investment guru either, and AIC’s idea is not to compare investment portfolios. The idea of the club is to encourage students to start investing at a young age, because the earlier you start, the longer you have time to enjoy the most powerful force in the world: the interest rate effect.
Is this an uptight community?
Being uptight is quite far from the normal operation of AIC, as time is spent mainly on meetings, brainstorming and event planning. You can see both the strategic and the operational side of the event process. Of course, you can also do a lot if you like it - a good example of this was the interdisciplinary Student Investment Summit, where students from different schools got to know each other and network with speakers from different fields.
General feelings, patted applicants, etc. free word
I joined AIC with a pretty strong “one more year” mentality - my goal was to gradually get my master’s thesis finished and leave student activities and AIC to new enthusiastic volunteers. It is amazing to think about all that we have already achieved during the first year of the AIC and I look forward to seeing how future boards can develop the club’s operations and take it to a new level. If you are interested in investing, organizing events or working in a close-knit team, then all I can say is that you should apply!
Board application is open till 30.9. If you have any questions regarding application etc., don’t hesitate to message us on LinkedIn, Facebook or WhatsApp!
Is Finland in Japan's footsteps?
Finland is following in Japan's footsteps towards economic problems. Why is this and what can Finland learn from Japan?
Written By: Milja Mieskolainen
1. A forecast of Finland’s population development (source: Statistics Finland)
Japan’s demographic changes over the past three decades have slowed economic growth, and increased pressure on the dependency ratio (The World Bank 2020). The age structure of the Finnish population is following almost the same path as a result of declining birth rates and aging. The problems faced by Japan can be used as a kind of projection of the future of the Finnish economy. Gross domestic product, which measures domestic production, is used as a measure of economic growth. The text also addresses other indicators that reflect the effects of population aging on different sections of society. The aim of the text is to form a sound whole of the intersections of the two economies, and to present perspectives for improving the situation.
2. Finland’s population’s age structure in 2019 (source: Statistics Finland)
The history of Japan and Finland from the beginning of the 20th century contains intersections that also contributed to shaping demographic trends in a similar direction. The First and Second World Wars, for their part, were major trendsetters for economic development, but also for the structure of the population. Of course, the population of Japan is about 23 times higher than in Finland, which causes huge differences, but the pictures presented here show the existence of similarities. A larger population also means that change happens more slowly, but small movements and decisions have a much greater impact.
3. Japan’s population’s age structure in 2018 (source: Statistics Finland)
Before we go into the reasons for this similar development, we will look at the current situation and try to predict Finland's future.
As the population ages, public expenditure and government indebtedness increase as the productive potential of the national economy decreases. Of the industrialized western countries, Japan is considered to be the longest in the cycle of aging, to which Finland is drifting at a rapid pace. Japan faced a debt crisis in the 1990s and has been plagued by several financial market problems for years, causing a budget deficit for more than 20 years.
4. Japan’s population’s age structure in 2010 (source: Exploring the World)
If we compare Figures 2 and 3, we can see that the population structure in Finland is currently considerably more favorable than in Japan. There are still relatively more people of working age and the share of the largest age groups is slightly lower. Reasons for this may be, for example, increased immigration to Finland and a shorter life expectancy of the Finnish population. This is the situation at the moment. If we compare Figures 3 and 4, we find that Japan was in the same situation as Finland is currently about 10 years ago. According to several forecasts, in 10-15 years Finland will be in the same situation as Japan is currently.
Next, we will discuss the causes and consequences of similar developments within the two countries.
The age groups born in Japan after the Second World War were relatively larger than in Finland, which is why the demographic development of Japan can be considered “above”. As living standards improved in developed countries since the 1950s, birth rates in both Finland and Japan began to decline significantly. Since this decline, Finland has seen a small recovery, which sadly has already dissipated. Another reason for Japan's economic growth to stagnate and its population to age is the lack of a recovery movement like Finland's.
5. GDP development in Finland and Japan (1960-2018)
It is clear that the aging of the population has left its mark on the Japanese economy, but figuring out what that mark is - is challenging. There have been a number of ongoing global trends that have shaped the economic development of each country. Examples of these are globally slow productivity growth and low corporate investment, both of which have highlighted the disadvantages of aging.
Japan is clearly lagging behind both Finland and other developed countries in comparing GDP growth. If we compare economic well-being with GDP per capita (Figure 5), we can see that the standard of living in Finland has risen by 40%, while in Japan it has risen by only 15%. However, it is important to remember that these comparisons are distorted by demographic differences: the development of Japanese production has not lagged behind the United States, for example. GDP is also not a perfect measure, so the differences it shows should be treated with some caution.
6. Population dependency ratio in Finland and Japan (1960-2018)
The population dependency ratio (Figure 6) describes the number of children and the elderly in relation to 100 working-age people. In Finland and Japan, the dependency ratio is burdened by a large number of elderly people, as the birth rate has been declining for decades. The population dependency ratio is an important indicator, especially when examining the financial situation of public finances. In this comparison, too, the differences between Japan and Finland must be kept in mind: in Japan, the defined benefit pension system is stricter than in Finland and in Japan, the personal responsibility of care services is higher. Despite these differences, age-related public spending in Japan has also been growing rapidly. The general government deficit in Japan has been negative until the late 1990s, as weak economic growth and a concomitant stimulative fiscal stance have led to economic imbalances. Until the recession that began in Finland in 2008, the situation was better, but today Finland's primary balance has also been negative.
7. Population over 65 in Finland and Japan (1960-2018)
Japan's debt development has been affected by the same factors that will be faced in Finland over the next decade. The working-age population is declining, productivity growth prospects are weak and public finances are suffering from a structural deficit. The latter refers to the actual government deficit adjusted by economic theoretical calculations provided by the European Commission. In both countries, future debt developments depend not only on policy measures but also on structural measures and inflation developments.
What can Finland learn from Japan?
As Finland is in the midst of similar problems that Japan has been struggling with for more than a decade, both pitfalls and opportunities can be found in the comparison. As mentioned earlier, slow post-recession economic growth is a global phenomenon, but for countries that are simultaneously facing their own structural changes, it can be fatal. Rapid aging is a drastic change in terms of cost and impact in general: companies do not increase production capacity, household confidence in the future is dissipated and low inflation keeps the real value of debt high. In Japan, under these conditions, a strong resuscitation has not worked.
In Finland, the effects of aging are likely to be smaller, as immigration has sustained the otherwise slowing population growth and offset the declining birth rate. Another factor that improves the situation in Finland is women's participation in work: in Japan, more than a third of women are in part-time employment, so the difference in workload measured in Finland is considerable. The importance of structural measures for Finland's economic policy is emphasized. Decisions on economic reform need to be taken quickly, otherwise growth and jobs may be lost. If anything, we can see from the situation in Japan, that these losses could become large.
Investor Ratios
Various ratios float around an investor and the stock market. What do they mean, and does everyone have to calculate for themselves?
Written By: Milja Mieskolainen
Financial ratios are a good support when making investment decisions. They can tell the investor a lot about the current situation of the company: its earnings development, financial position, and market valuation. Other companies in the same industry can be used as a reference to get a concrete basis for the financial ratios. The key figures can vary greatly between industries, so attention should be paid to the benchmark. The investor should not rely on just one number but try to see the whole picture behind the set of numbers. A single number does not tell you whether a share is cheap or expensive or whether the company is in a good position. It is important to remember that investing is basically about looking to the future, which is worth keeping in mind when looking at the ratios.
This post goes through some of the financial ratios that are essential when making an investment decision. Some tips are listed at the bottom of the page if you want to learn more about the topic. The purpose of this blog post is to help you understand how the numbers are formed and what they mean.
Profitability: Profitability has long been considered a prerequisite for the company's operations. If profitability is weak, the company is not in a good position to continue operating. Poor profitability refers to a situation where a company makes a loss and eats up its equity.
Revenue-to-turnover ratios:
• Earnings Before Interest and Taxes (EBIT) = Indicates the amount of actual operating income remaining before financial items and taxes; write-offs and depreciation have been taken into account. Revenue + other operating income - operating expenses – write-offs and depreciation. (/ turnover * 100%)
• Net income = Generally considered as a result of actual operations, serves as a basis for several profit distribution decisions. Operating profit +/- financial items +/- taxes. (/ turnover * 100%)
• Earnings Before Interest, Taxes and Amortization (EBITA) = Indicates how much of the company's net sales is left when operating expenses are deducted. Operating profit + write-offs and depreciation. (/ turnover * 100%)
• Total result = Describes the total result for the financial year, including extraordinary and non-recurring income and expense items. Net result +/- incidental items. (/ turnover * 100%)
Return on equity ratios:
• Return On Equity (ROE) = Indicates how much return the company generates on capital, i.e. describes the ability to take care of the capital invested in the company by the owners. Equity should be calculated as an average of, for example, the values at the end and beginning of the financial year. 100 * net profit (12 months) / Adjusted equity on average.
• Return On Investment (ROI) = Measures the relative profitability of a company. Invested capital is calculated as the sum of equity and interest-bearing liabilities. 100 * [net profit + financial expenses + taxes (12 months)] / average invested capital.
• Return On Assets (ROA) = Indicates how much capital committed to the company generates taking into account debt as well. The result before financial expenses and taxes is compared with the capital committed to business operations. 100 * [net result + financial expenses + taxes (12 months)] / Adjusted balance sheet total on average.
Solvency & liquidity: In addition to profitability, the company's financial structure must be on a solid footing so that the running costs of the business do not become a problem. Solvency measures a company's ability to meet its financial obligations in relation to profitability. Liquidity looks at ongoing expenditures, such as purchases of goods, and managing them.
Financing structure:
• Equity ratio = Measures a company's solvency, ability to meet its commitments in the long run and loss tolerance. Indicates how much of a company’s assets are financed with equity, a high figure indicates stability. Equity / balance sheet total (* 100%).
• Net gearing = Describes a company's indebtedness and measures the company's interest-bearing net debt to equity ratio. (Interest-bearing liabilities - liquid assets) / equity (* 100%).
• Relative indebtedness = Measures the ratio of a company's debt to the size of its operations. The company's total liabilities are related to turnover. Adjusted balance sheet liabilities / turnover (12 months) (* 100%).
Adequacy of financing:
• Net financing expense, financing burden = Indicates the share of current financial expenses in net sales. The higher the number, the higher the company's gross margin requirements. Net financing expenses / turnover (* 100%)
• Net financing expenses / gross margin = Measures the share of financial expenses in gross margin, i.e. the proportion of gross margin attributable to debt financiers as current financial expenses. Net financing expenses / gross margin (* 100%).
Balance sheet ratios (liquidity):
• Quick ratio (acid test) = Measures a company's ability to meet its short-term debts with its quick cash assets. The recommended value is 1, in which case the company's financial assets cover the amount of current liabilities. (Current receivables + cash and bank receivables + financial securities) / (current liabilities - current prepayments received)
• Current ratio = Measures the company's financial buffer at the balance sheet date. (inventories + current receivables + cash and bank receivables + financial assets) / current liabilities.
Valuation ratios (stock exchange):
Valuation ratios describe the ratio of the market value of listed companies to the financial statements. They allow the investor to view stock pricing on the stock exchange and compare it with, for example, future prospects.
Development of the P / E ratio of companies on the Helsinki Stock Exchange 2012-2016, median. Source: Alma Talent
• Market value = Describes the total market capitalization of a listed company. Total number of shares * share price.
• P/E = Indicates how many years a company would make a profit equal to its market value if the result remained the same, i.e. how many times the profit level corresponds to the market value. A low P/E ratio is generally considered to be one definition of a value stock. At company level: market value / (net profit - minority interest in profit or loss). At the share level: Share price / earnings per share.
• P/B = Describes the ratio of the share price to the equity per share, i.e. how many times the market value is in relation to the equity according to the balance sheet. At company level: market value / equity without minority interest. At the share level: share price / equity per share.
• P/S = Measures how much a company makes in relation to its market value, i.e. how many times the market value is in relation to its annual turnover. Market value / turnover.
• EV/EBITDA = Describes the ratio of the company's debt-free market value, i.e. also takes into account existing debt and liquid assets. Market value / gross margin.
• EV/EBIT = Describes the ratio of a company's debt-free market value to operating profit. Depreciation of assets is taken into account by excluding depreciation and write-offs. Market value / operating profit.
• Dividend yield -% = Describes the ratio of the dividend to the stock exchange price in percent, i.e. tells the investor the amount of the dividend in relation to the value of the investment. Dividend per share / share price * 100%.
More information on the topic: (Some are in Finnish)
Podcasts: Available on Apple Podcasts and Spotify
Basics: Key Metrics for Different Investing Styles / Equity Mates Investing Podcast
Mistä tunnistaa menestyvät ja menehtyvät yritykset? / Jargonmankeli
Other:
Inderes’ Blog: Mikä on P/B -luku? + Tunnusluvuista ja niiden laskennasta
The Start of Investing
Customs have changed, but the central idea of investing was already formed in ancient Mesopotamia.
Written By: Milja Mieskolainen
The history of investing is divided into three parts: This blog post covers the early stages, the second part focuses on the 20th century and the emergence of modern theories, and the third part reflects on the history of individual companies.
Located in what is now Iraq, Syria and Turkey, Mesopotamia is known as the cradle of civilization. It is no coincidence, then, that it is in this area that the first features of investment are also known. In the years 3000-500 BC, there were several different peoples and civilizations in the area, the most important property of which was the lands. For this reason, the investment targets were practically only areas and buildings suitable for agriculture, as these had the most value in the culture of that time. Although most of the land was owned by a temple or other administration, private ownership began to grow over the decades as several civilizations were destroyed and new ones emerged in their place. Thus, the social structure developed, and over time, farmers gained land in private ownership.
It is important to remember that in Mesopotamia as well as in other ancient societies, investing was only an opportunity for a very small upper class elite. Most of the people either did forced labor or worked on rented land, so their own property was very minimal.
Between 800 and 300 BC, Greek civilization in the Mediterranean was a concentration of civilization. In the territory of ancient Greece, land and buildings remained the main property, but alongside it, newer methods of trade developed. Cooperation with more distant trading partners became easier as, for example, a kind of banking system developed. Borrowing was common, although most of the loans were friend-based and interest-free. Interest-bearing loans also appeared, especially when granted for the duration of the voyage, as the sea voyage was often used to seek wealth and the lender wanted to take advantage of this opportunity. In Greece, investments were usually handled by elite slaves. Some investment managers were able to move up to the upper social classes with their success, although this was very rare.
The power of ancient Rome (500 BC-400 BC) in the Mediterranean and throughout southern Europe was so great that it was common for the elite to own land as well as buildings around the kingdom. As a result, investment activities also developed, as the properties had to be monitored in the absence of the owner. Interest-bearing loans, third-party investment management, and the higher position of investment managers were no longer rare. Still, investing was only a privilege of the highest class, but the direction began to change even before common era.
The Middle Ages were a time of stagnation in the economy and technology. Conservative values and the glorification of the past also halted a promising start to investing. In the 1000s and 1200s, the economy and the functioning of society were developed and modernized, with which the population and wealth grew. As cities formed, trade was concentrated in those centers where, for example, capital was readily available.
In the 1200s and 1500s, the Renaissance accelerated economic development and the formation of banking, accounting, and trading relations. These factors would later develop into a stock market base and bring about unprecedented economic growth. The foundations of the modern financial world were already laid during the Renaissance, and according to some historians, the first stock markets also emerged in Venice at this time. Borrowers filled in the gaps left by large banks and traded loans with each other. If a borrower wanted to get rid of a high-risk loan, he looked for another borrower and switched to the one he preferred. As the business developed, borrowers began selling for example government loans to private buyers.
In 1531, the first stock exchange was established in Antwerp, Belgium. Brokers and lenders met there to discuss loans from governments, businesses, and sometimes even individuals. In the 16th century, the focus was on bonds, and today’s most common stocks did not yet exist. However, this marked the beginning of the organization of investment activities, which soon became more common in other countries as well.
The business we know today and its characteristics of shared ownership, permanence, and the movement of property received the initial impetus as colonial rule became more widespread. Muscovy Company (1600), Dutch East India Company (1602) and London Company (1606) were some of the first companies to change the business world after their establishment and to generalize investment diversification. The purpose of these companies was to finance the voyages of colonial powers such as England and the Netherlands to the colonies and the rest of the world. Financiers usually invested their funds in several voyages so that in the event of an accident, all the assets would not sink with the ship.
What made investing difficult was that, in addition to the Belgian stock exchange, there was no single place in other countries where sellers and buyers could find each other. The public market thus emerged over several centuries, but eventually investors and opportunities were brought together. Thus, liquidity and lower trading costs finally entered the game in 1787, when the Amsterdam Stock Exchange was opened. Here, for the first time in history, it was also possible to sell and buy shares in one common place.
The first pension fund was established as early as 1759 in Philadelphia by the Presbyterian Church. Its purpose was to provide insurance-like pension security for the highest-paying ministers and their families. In the following decades, industrial revolutions increased the number of pension funds. Industrialization made access to capital available to a larger section of the population, and as savings accumulated, investing became more common. A modern banking institution evolved and large banks such as JP Morgan and Goldman Sachs were established in the 19th century.
The London Stock Exchange was founded in 1773 and the New York Stock Exchange 19 years later. At the same time, stock indices began to form for the first time. Initially, indices were invented to make it easier for investors and the entire nation to measure how they fared in the market. The Dow Jones was the world’s first index and measured the 12 most successful industrial companies. The roots of the Standard & Poor’s Index go back to the 1860s, when Henry Vanrum Poor published his book “History of the Railroads and Canals of the United States,” which described the historical economic success of companies operating in the railways and canals. The book was sold out and between 1913-141 three companies merged: Standard Statistics, Moody’s Manual Co. and the company affiliated with the book eventually produced an index of 90 shares, one of the most well-known indices in the world.
More information on the topic:
Book: Investment - A History / Jesse Downing and Norton Reamer
Megatrends
Megatrends are broad sets of changes and trends that affect the world. Which of these affects investment, or is it an inseparable chain of events?
Written By: Milja Mieskolainen
Megatrends are macro-level phenomena, ie they affect the whole economy. They can also be thought of as driving change in the world and setting the direction for global economic and societal development. Thus, the effects start at the global level, and a single company, for example, does not play a very big role. Understanding individual megatrends is not enough. It is essential to understand the complex system they build, and how much interdependence affects the whole.
It's a good idea to start by looking at it from the top down, and the way to do this can be, for example, taking into account the content of your everyday life. An individual can choose a topic of their choice, such as a change in family structure. Today, there are fewer children in the family, so apartments are smaller and households are concentrated in cities. This very simple example combines the megatrends of population development and social change as well as urbanization: If we move to a detailed level, e.g. technology and climate change can be seen as well. Special attention must be paid to the whole, as things that seem simple are not always simple.
Ecological reconstruction
How to meet the challenge of climate change? It is not entirely clear how exactly the climate will change. However, we do know that it will change dramatically. Increasing life expectancy and accelerating prosperity are increasing the demand for resources such as water, energy, and food. The average surface temperature of the Earth has risen since the 19th century and shows no signs of slowing down yet. The use of fossil fuels is the single biggest cause of global warming, and growth in atmospheric carbon dioxide has not slowed. Climate change is pushing for a change in our culture and the way we live.
Climate change is often thought to be at the heart of megatrends. There is an urgent need to correct the natural sustainability gap, and there is no time for the tensions that have built up around it. The change in perspective is an essential part of the development process, hopefully at the end of which is a future where climate goals are met. Confrontations between underestimation and climate activism, as well as awareness and action, are hampering a positive direction.
From an investment perspective, climate change and ecological reconstruction offer opportunities. As a result of the innovation, we will see e.g. solutions to food shortages and renewable energies to replace fossil fuels. By investing in these solutions, such as wind power or software that analyzes weather forecasts, an individual can also be a part of global development.
Population aging and social change
The aging of the population, especially in Finland, has been on the surface for several years now, and it has shaped the debate in various fields. In China, for example, there are currently about 29 million people over the age of 80, but by 2050 there will be 120 million of them. People will also live longer, and at the same time, the number of children born will decrease. The decline in the number of children is particularly acute in the affluent and well-educated sections of society, while at the same time the population in developing countries will increase. The 2017 UN study predicted that the world’s population will grow by a billion by 2030.
In discussions, other topics related to demographic change, are often overlooked. These include, for example, the growing diversity of the population and the empowerment of girls and women. In the case of Finland in particular, there is a certain kind of bubble emerging, as women and girls are, at least superficially, on an equal footing with men. The situation is not the same all over the world, and since we are talking about megatrends, it is important to keep in mind the global perspective, as the effects can be felt also in Finland.
As the population ages, pressures on health care and care for the elderly increase. Companies that develop solutions to global and age-related diseases such as Alzheimer’s and cancer can thrive in an aging market. Demographic change is driving change in consumption behavior from two different directions. Young people do not consume in the same way as their parents or grandparents, but eating habits and leisure consumption are formed as a combination of different influences. On the other hand, the growing structural share of older people is driving companies to meet their needs with ever-increasing capacity.
Economy & networking
The idea of a multipolar world is not new, but it may soon become obsolete. A multi-node world means a situation in the future where networking and relationships with others displace individual focal points. States alone do not dominate significant roles, as companies, international institutions, cities and lobbyists are closely involved in the scene with their influence. It may be that the position of the United States as the global leader will be diminished. U.S. companies and organizations are still closely involved in the development.
Will China take the place of the United States? Perhaps some other growing economy will enter the field as a new influencer? China’s rapid population growth and middle class have done a favor for companies operating in its market. For example, luxury goods, cars and smart devices have gained a significant place in the growing Chinese market. As China continues to grow, companies looking for low-cost labor will shift their gaze to India and other countries in Asia.
Networking brings challenges. Polarization, strong leaders, new movements and populism are raising issues around the world. People are increasingly looking for faster solutions to the world’s problems, from climate change to simple formula changes. Democracy is seen as slow, inefficient and incapable of meeting the challenges of our time. The amount of false information is growing at an alarming rate fueled by fake news spreading online, contributing to polarization and the emergence of radical movements. It is impossible to predict how future policy will be implemented. The Paris Agreement of 2019 was the beginning of a united response to climate change, but with the withdrawal of the United States, hope will shift to business.
From an investor’s perspective, this megatrend is particularly challenging. It is impossible to predict the direction of the future with complete certainty. The most valuable tool is risk-taking, ie the same rules apply to utilizing or preparing for megatrends as to other investment activities. For example, combating climate change requires innovation from many different industries, making it worthwhile for an investor to diversify across many industries. Learn, diversify and make an impact.
Technological developments
Digitalization, technology and artificial intelligence are seen both as a threat and an opportunity. Before you start forming your opinion and incite opinions, you should delve into the subject in more detail. Understanding the related terms, systems, and concepts goes a long way, and at the same time, your thoughts become clearer. Digitalization refers to the use of digital technology in services and human interaction. Technology is an umbrella term that is defined differently in different fields. In general, it refers to machines, equipment and production processes, as well as know-how and knowledge. There is also no unambiguous definition of the term artificial intelligence: Autonomy and adaptability are often used.
Programmed organisms will become more common in production as genetically modified and synthetic biology allow the creation of new types of organisms. Health technology is evolving and it will be available to everyone. Portable health monitoring devices in their various forms are already part of everyday life and their development continues. Renewable energy is becoming cheaper and energy production is decentralized when citizens produce their own energy, for example through solar panels. As a whole, artificial intelligence and digitalization will permeate society, and understanding them at both the state and individual levels will help with behavior and decision-making. Will everyone be in touch? Is there a definitive shift from “individuality” to everything connected? Does technology affect everything?
You should be careful with technology. Investors often don’t have all the information they need from the start, so caution is necessary. Innovativeness and long-term growth can be factors that are useful to follow. Diversification to different sectors should not be forgotten and you should actively monitor the contents of your portfolio, as investing in a megatrend does not necessarily cover different sectors per se. The change in companies and industries is rapid, and investing in a megatrend does not necessarily equate to adequate returns.
Urbanization
With urbanization, megacities and smaller metropolises will shape the near future. Housing costs are rising in the most sought-after cities, and the need for larger buildings is growing. The new buildings incorporate technology that makes them more efficient. The volume of food transport is increasing as it has to be moved from its place of production to the place of consumption. Another option is urban farming either in or near cities.
The advantages of urbanization are associated with good infrastructure, which enables, for example, energy-efficient solutions. Everyday life becomes easier, as all services are close by and thus the need for long trips is reduced. Interesting jobs attract a skilled workforce to cities, creating an ideal platform for new innovations and businesses. There are certainly as many disadvantages as there are good ones, and urbanization is not a black-and-white megatrend.
New cities need the technology required for infrastructure and other construction. Cities in developing countries, in particular, will need more infrastructure in the future. As cities develop, so do their needs: The growing middle class increases the need for cars, better housing and leisure activities, for example. In big cities, large-scale transport connections and electrification offer big opportunities. The investor should consider this urban development, and look for companies that will benefit from it. It is also worth going through the concentration of ideas offered by urbanization carefully because when know-how is concentrated, new innovations tend to be clustered around certain places.
Investing in megatrends
As mentioned earlier, investing in megatrends is subject to the same rules as other investment activities. Because megatrends are major structural changes, they affect societal structures as well as consumer behavior and corporate power relations. The world has taken great strides in the past as well, and the investor needs to notice the companies that have benefited from megatrends.
Many companies report benefiting from megatrends in their annual reports. When a megatrend is identified in the market, it also brings challenges. The future is made to look good and bright, but in reality, things are never black and white. If one benefits from one megatrend, such as urbanization, another can be detrimental to business. It is generally thought that climate change is a “safe” megatrend as regulation is expected to tighten. When picking shares, it is worth taking into account the improvement in the competitive position brought about by the megatrend and whether the position will improve at all due to the megatrend.
If stock picking and analyzing individual companies sounds cumbersome, different ETFs can provide an easier way to invest. They have often chosen a specific strategy for stock selection (Internet and technology, clean water, cybersecurity, artificial intelligence…), but as the valuation ratios of megatrend stocks increase, so do the valuation ratios of the ETFs that own them. A single investment can provide a good diversification advantage, and the costs of ETFs are often lower than those of traditional funds.
COVID19 & megatrends
Pandemics are not megatrends and are not mentioned in major megatrend surveys. The coronavirus is regarded as a “wild card” that challenges the current trend. At the same time, megatrends can help understand the effects of the coronavirus. The coronavirus, like wild cards in general, was not entirely unexpected. “Disease X” has been included in the WHO listings. "The question was not whether there will be a new viral epidemic, but when it will come," said Professor Olli Vapalahti in an interview with Helsingin Sanomat.
As a key theme, the effects of the corona are dominated by interdependence. We do not notice in everyday life how interconnected the economy, politics, well-being, technology and culture are. Major changes include tensions. An exceptional situation can open new doors or derail development costs. Does it change our thinking about the climate crisis, which is ultimately about human lives as well? The coronavirus pandemic also reveals the weaknesses of the current economic system. An intensified market economy has been looking for its direction for a long time, with wealth concentrated and environmental problems rocking its course.
The World Health Organization (WHO) has highlighted the information epidemic. There is a large amount of misinformation about the coronavirus, which incites confrontation and blame. For example, the news agency AFP publishes daily fact-finding stories (366 of which have appeared on 23 April 2020), as do the WHO and IFCN. You should also follow investment news with caution. The market situation is currently volatile and predictability is weak. If desired, a megatrend framework can be used in the analyzes, which can help to find companies that benefit from and survive the emergency.
List information on the topic:
Articles:
BlackRock - Megatrends: The forces shaping our future
MIT Sloan Management Review- column: The World in 2030: Nine Megatrends to Watch
Medium - Coronavirus: 9 Mega Trends Shaping The Post Corona Economy
Podcasts: Apple Podcasts and Spotify
ETF Prime - Back to the Future: iShares Megatrends
The Bid - Megatrends: 5 ways to think long term in the downturn & 14 questions answered about the coronavirus
Columbia Energy Exhange - Megatrends: What They Mean for Energy Markets
20th Century & Investing theories
The 20th century laid the foundations for modern finance. After the World Wars, the pace of development accelerated and the market expanded.
Written By: Milja Mieskolainen
The advancement of the banking institution, fueled by two industrial revolutions, paved the way for changes in the coming century. In the 19th century, for the first time, people were able to start saving creating a need for investment opportunities. As has been the case for centuries, people wanted to increase their wealth. Banks were a place to deposit savings but provided unreliable returns. The 20th century saw great leaps in the field of investment theories and important new concepts emerged. This post outlines some of the key developments in chronological order. The last part of the history series deals with company-specific history.
Louis Bachelier (1870-1946) was a French mathematician also known as the father of mathematical finance. He received this well-deserved acknowledgment only after his death like many others. In his dissertation, Bachelier had identified the mathematical relationship of the accumulation function to the diffusion equation ( Wiener process ), which is the basis of Einstein’s “ Brownian Motion ” article. In the field of investment, Bachelier's most important consideration was in determining the value of derivatives. He used the “Wiener process” to determine the value of the option, from which Bachelier derived its price, and which is now known as the so-called Barrier option. More than 70 years later, Black & Scholes described the share price as a statistical process (Geometric Brownian Motion, with drift ), based on the work of both Einstein and Bachelier.
Irving Fisher (1876-1947) is known for his work as an economist, and especially for capital theory. He was also involved in the development of the Modern Monetary Theory. In his book The Purchasing power of Money, Fisher developed a connection between money reserves and the general price level. According to him, the value of the dollar should be determined by the value of gold, and not just by its weight. The value of gold would be obtained from an index number. From an investment perspective, Fisher’s main theory relates to interest rates. He believed that interest was made up of two parts: people's time preference, according to which people like the result they get more now than in the future, and the principle of the opportunity to invest, which means the opportunity for an investment made now to generate a better return in the future. Fisher defined capital as generating income over time and showed its value based on the net income generated.
Nobel laureate Paul Samuelson (1915-2009) is known as one of the most significant economists of the 20th century. Samuelson was known for developing scientific analysis in economics based on his research and work in several different fields. Examples of Samuelson's achievements in economics include the adjustment of international trade to general economic equilibrium, the development of a mathematical form between coefficient effects and catalysts, and the theory of Revealed Preferences. In terms of financial theory, Samuelson was involved in developing the efficient market hypothesis. He sought to prove the existence of an efficient market as well as the fact that instrument prices follow a “random walk” with mathematical models.
Born in 1927, Harry Markowitz is another Nobel Prize winner. In 1952, he wrote an article on portfolio theory that appeared in the Journal of Finance. His theories highlighted the importance of portfolios, risks, correlations between instruments, and diversification. Markowitz didn’t consider investing in just one asset sensible: There are two criteria, risk and return, so it makes sense for an investor to choose a Pareto-efficient combination of the two. In his theory, he used a combination of the concepts of risk, return, variance, and covariance on the basis of diversification, and thus formed the concept known as the efficient frontier. Later, Markowitz’s ideas were refined into the Capital Asset Pricing Model (CAPM).
The history of investing has been full of notable individuals, and the four above are just a fraction of them. Theories evolved throughout the Great Recession in the 1930s and the world wars, but in the second half of the 20th century, modernization accelerated. Financiers took steps towards innovation, independence, and entrepreneurship. New instruments emerged, such as hedge funds (Alfred Winslow Jones 1949), private equity funds (American Research and Development Corporation 1946, Kohlberg Kravis Roberts 1978), venture capital (1956 from Silicon Valley), and REIT real estate investment funds (1960).
Index funds and ETFs were developed to be a simple and affordable investment opportunity. The first index fund was created by Jack Bogle Vanguard in 1976, and the first ETF, which reached great publicity, was developed in 1993. These funds simply seek to generate market returns without active portfolio management. Index funds and ETFs created a contrast to alternative investments, i.e. hedge and private equity funds, which emerged at the same time.
The 1980s and 1990s were influenced by the rise of the internet and modern methods of communication. In 1985, NASDAQ introduced its own index alongside Standard & Poor's. The index of 100 companies was the first to weight companies according to their market capitalizations. While it now seems strange that technology companies weren’t seen in traditional indexes, that was the reality before the introduction of the NASDAQ 100. As the popularity of this new index grew, the unexpected Dot-com bubble emerged. In the 1990s, this bubble burst, and the economy plunged into a global recession.
Today, most countries have their own stock market exchanges, which allows citizens to make easy investments. On the other hand, international players are only making it easier and easier to invest globally. New investment instruments and players are constantly entering the market, from which each investor can choose the most suitable for their preferences - some want to invest in real estate, others in shares, and some want to accumulate as diverse a portfolio as possible. Online, the stock market is accessed so quickly that investment history writes new numbers in seconds. The future is unpredictable, so it remains to be seen how lightning-fast innovations and the unprecedented growth in wealth will change the investment world.
More information on the topic:
Nb! Books can contain outdated knowledge but can help to understand the development of theories and provide new perspectives.
Irving Fisher: The Purchasing power of money + several other works
Harry Markowitz: Risk-Return Analysis: The Theory and Practice of Rational Investing and The Flaw of Averages: Why We Underestimate Risk in the Face of Uncertainty
Q&A: Mikael Rautanen, CEO Inderes
Answers to questions about the market colored by the corona situation, as well as views on the future.Written By: Milja Mieskolainen
This post addresses the impact that the corona virus has had on the investment world. The Q&A has been conducted with Mikael Rautanen, CEO and analyst at Inderes (which is a Finnish analysis service). In particular, we will be discussing the general market situation, future prospects and the technology sector.
Mikael Rautanen
· CEO & analyst at Inderes
· Following: Revenio Group, Nokia, Qt, Siili Solutions & Enedo
How has the corona situation affected Inderes? Does the situation make it difficult to carry out analyzes, as conventional indicators do not necessarily tell us anything about the future?
Just as the previous quarter was wrapped, the coronavirus epidemic took over the market situation. Recent times have been busy for analysts as the reports have been updated on a tight schedule. The situation is further complicated by the low visibility of the companies' business operations, but at the same time investors are demanding more information. Thus, even an uncertain prediction is better than a “hands up” reaction. During the current quarter, more visibility will be gained as to where the situation is evolving. For a fundamental analyst, central bank stimulus measures further increase the challenge, as share prices seem to be detaching from fundamentals in some places. The economy is going down, but at the same time, stock prices are on the rise. On the other hand, the uncertain makes the work more fun, as it would be boring if “analyzes could be done with a ruler”.
In general, stock markets have risen tens of percentage points from the bottom, but the situation with regard to the pandemic has not improved. How do you see the market right now?
I cannot get a read on the general market at the moment and I do not think I can predict it. We are living in interesting times because the combination of the recovery policy and an unpredictable disease makes any kind of predicting difficult. In a sense, economic theory is being rewritten, since such a situation has never been seen before.
Forecasting the future of individual companies vs. the economy as a whole: what to consider?
In the case of individual companies, the macroeconomic situation must also be considered since the general situation affects the company's situation. Macro numbers are blood red, but stock prices are rising, so the situation is insane. Analysts need to think about how to interpret the situation: in many cases, the valuation of companies has risen to a level for which there is no basis. When a stock price detaches from the fundamentals with a negative recommendation, it can be wrong for a long time until it corrects itself. The analyst should have a feel for the market situation and strive to discover factors that can trigger a fall or rise in the price.
Guesses and predictions are worthless on their own. Value lies in the rationale and analysis behind them. As a process, doing analyzes is a matter of continuous development: the longer and more it is done, the less there is self-confusing unnecessary confidence in one's own predictive abilities. The brutal fact is that uncertain predictions are constantly being made, and some of them will inevitably go wrong. If 60% of the predictions come true, it is really good work.
Can anything be learned from the events of history about what the future will look like? Are we going to see similar rapid price inflation as before?
Many crises have similar elements, but they are not identical. The corona situation has been compared to the Great Depression of the 1930s and the 2008 financial crisis, as they are easy benchmarks for experts and concrete benchmarks for the public. The danger in these comparisons is that there are few confluences that can help predict this situation. The good thing about this crisis is that it did not come from the failures of the economic system, but as a result of the virus. The concern is that the virus acts as a “trigger” that “breaks” the economy and superimposes structural problems lying beneath the surface. Central banks are “all in” at the moment, which has so far been enough for the market.
The new generation has grown up amid technology and expect information and communication from companies rapidly. Do you believe that this will affect both corporate communication during and after the corona crisis?
Investor communications has traditionally been a very conservative field, with little adoption of technology and digital channels in pursuit of efficiency. The corona situation is accelerating digitalization, so one could assume that it will also give investor communications the “boost” that it needs. In practice, conservatism is evident in general meetings, where votes are taken on paper, and the event does not offer much anyway.
Those companies that serve their owners’ information needs well will find it easier to gain the trust of their stakeholders. Consider companies A and B with identical businesses: company A only provides the information required by law, but company B handles investor communications well through a variety of different channels. Investors are willing to pay a small premium for company B because they have a concrete basis that investors can rely on and greater transparency in business development. The equation is simple, and companies are beginning to understand it. Trust can be gained which in turn means access to capital markets. If investor communications are handled poorly, and the stock market only bears the cost of the information required by law, screwing up can be costly.
Nokia, for example, made groundless promises and did not take care of the information needs of its owners, and now the company is paying a heavy price for it. The independence of the whole company is being threatened, as it may need a financing package, but it will not get one on favorable terms.
Until now, investment communication has developed slowly. Once a new company is listed on the stock exchange, CEOs have been amazed at the reality. "Let's run between cabinets and drink the stomach sore from coffee." Investment communication has thus been largely based on cabinet meetings and PowerPoint presentations with the same portfolio managers around the world. With digitalization, information can be easily scaled and thus achieve efficiency benefits. This is a big change that is slowly moving forward.
There are many reasons for stagnant attitudes: conservative practices, heavy regulation, and business models of many traditional banks are based on good networks, one-to-one relationships, and the transactions that result from them.
Inderes streams CEO interviews and investor events openly to everyone. The exchange of information on the ski trips of the “inner circle” are things of the past.
What kind of companies in the technology sector are survivors / winners amidst the corona situation?
Solely good stories do not get you through the crisis, the focus is on business. As an analyst, two things are important. First, will the company survive the crisis safely, how severe will the blow to profitability be, will the balance sheet withstand, and will the company have the necessary cash buffers? Secondly, the post-crisis era is important. Have the company's operations been permanently damaged, have there been structural changes in the market, and is the company itself becoming more/less attractive? As an example, airlines: will they survive the crisis and what kind of structural changes will happen in the industry?
Many technology companies will survive the crisis, and the prevailing megatrends make them even more attractive. Many companies will receive a blow to short-term earnings, but the longer-term earnings and cash flow outlook will only improve. It is good to remember that the value of a company consists of how much cash it generates for its owners over its life cycle. Thus, it can be justified that the level of appreciation rises as a result of the crisis. The effects can also be seen in companies other than Zoom. In a way, you must balance between the current crisis period and the future: are the products and strategies still valid in the post-crisis period?
Digitalization as a big megatrend: it has been prevalent for a long time, but will the impact continue in the future?
At some point, we will move on to the fact that digitalization as a word will go down in history. It becomes a normal everyday thing without the charm of novelty. Now the clock has been moved a year or two forward.
The trend will be accelerated by the fact that the “buzz” of the last decade will be left behind. Companies made their own application, experimented with it, and realized that, in fact, digitalization cannot be a separate app and project. The situation must be considered holistically with the whole business in mind. A comprehensive digital transformation is necessary for many organizations. This got off to a pretty good start, and corona has given it more momentum. Now, even the most conservative companies need to react and realize that digital channels are the primary trading channels in the current environment. The pandemic has provided a massive “boost” to this development, leading to the current situation where digitalization is not just a trend of the technology sector. More and more companies operating in traditional industries are starting to look at their industry through digitalization which is not a one-time project but a continuum that never ends.
Climate change as a disruptive force for technology companies: a threat or an opportunity? Will it act as a catalyst for more responsible business strategies?
Technology is one tool among others to solve the problems of the climate crisis: it does not solve it alone, but it is important. As an investment trend: attitudes are moving towards the direction where “shareholder value” alone is not enough. Companies must solve significant societal problems, otherwise they have no long-term justification for existence. The capital market mindset is slowly turning towards a healthier position. More and more investors are considering the impact of the company and beginning to realize that it is also a route to value-creation for owners.
A so-called “brain fart” has been enshrined in the Finnish Companies Act which states that a company’s sole purpose is to generate value for the shareholder. This is a mindset that should be left in the last millennium. The capital market is awakening to think about the overall benefits that the company provides the society. This is what creates value for shareholders.
The greed-driven industry is changing with younger generations and global change is provoking thinking in a broader context. Simply, the investor should consider the expected return and the risk that comes with it. Through responsible operations, a company can improve the owners’ expected returns and reduce risk over the long run. We are slowly getting rid of the black and white choice between profitability and charity. If a company does not act responsibly, it will not have a skilled workforce, it will be boycotted by customers, there will be no trust from stakeholders, and the company will not receive financing on favorable terms. Pressure is coming from so many directions that corporate responsibility must be considered alongside digitalization. Corporate social responsibility should be at the core of the business or a pile of competitive disadvantages will follow.
More information on the topic (in Finnish):
Inderes blog: https://www.inderes.fi/fi/blogit
Perspectives from the History of Companies
Combining the history and future of companies is about dancing on a string. The posting introduces perspectives on this balancing act.Written By: Milja Mieskolainen
This post takes on a thoughtful approach and discusses the connections between the history and future of companies. The purpose is to provide perspectives and arouse interest. So, this post will not be full of facts but rather takes a relaxed approach and gives food for thought.
The first thing to note is that before you start thinking about your own approach, you need to figure out what you are looking for. Endless fluttering in the middle ground between history and the future does not usually lead to good results. Of course, it is good to do an overall assessment of the situation, but this assessment often does not provide enough basis for an investment decision. Therefore, for example, a top-down approach may be best: After an initial review, you start to analyze the industry, look for comparison companies and slowly move towards more detailed information. If, on the other hand, you directly jump to last year’s balance sheet without any benchmarks or picture of the context, the conclusions you make are often inefficient.
The history (or track record) of companies plays a big role in investment decisions, as no one wants to invest in a company that has only made losses in recent years. However, it is not that simple, as there are as many histories as there are companies. For example, an investor may have a strong belief in a StartUp company and invest in it even if they have made losses. However, faith alone is not enough to guarantee a good investment. Hence, many investors rely on key figures calculated from historical data and use future prospects as well as their own preferences to support decision-making.
The most important thing for an investor is to use the parts of the company's history that are important to his or her own investment strategy. For example, one general strategy is to build a portfolio around growth companies and focus on researching them. In this case, the investor interprets the growth of historical net sales and earnings and estimates future growth potential. Another strategy is to invest invest in companies whose dividend yield is higher than average in their chosen investment horizon. A strong and growing dividend history and the dividend yield are essential figures for this strategy.
History is a broad concept. If you as an investor want to start researching an individual company, you should first choose a single starting point, and start expanding the analysis in small steps. For example, it can be said that a good starting point is to get acquainted with the company's past key figures. On the other hand, other investors find it easier to start from qualitative analysis by utilizing publications such as annual reports and other investor communication, and only then delve into key figures.
History really doesn’t tell everything. As we have seen during the corona crisis, the soaring growth of recent years has no effect on the current outlook for certain companies. It would be great if investors had a time machine or a crystal ball to look at the future with. This is not possible, at least with current knowledge, so we need to focus on concrete facts, even if the process may sometimes seem numb. As we may have learned from financial theory, the value of a stock is not based on history, but on the value of future cash flows discounted to the present.
According to current information, the law of supply and demand prevails in the stock market. In practice, this means that the value of a share is determined by the price at which investors are willing to sell and buy it. It is not possible to identify the emotional states behind the decisions of buyers and sellers, so the information that is hidden in the shares is almost impossible to guess completely correctly. It can even be said that the stock market operates largely on the predictions that buyers and sellers make of the future prospects of companies that day. Because forecasting is notoriously challenging, expectations for the future are constantly changing.
Analyzing the company’s history is like dancing on a string. It is not worth staring aggressively only at the past, but at the same time, you should not bet everything based on guesses about the future either. If investors kept the past and the future in balance when making their analyses, the world would be full of millionaires. Theory and “gut feeling” are tools, not absolute truths.
Tips and general suggestions about topics discussed
Podcasts (available in Spotify and Apple Podcasts)
The Tim Ferriss Show
Making Sense with Sam Harris
The Tony Robbins Podcast
Books:
The Euro, Joseph Stiglitz
Principles, Ray Dalio
Investments in Crises
The world is not following a steady path, but is facing unexpected slowdowns. As a result, the market also does not always meet expectations and deviates from forecasts.
Written By: Milja Mieskolainen
The world is not following a steady path, but arriving at unexpected slowdowns. If possible, the market is also always expected, or deviates from the planned path. For many investors, especially those just starting out, changes of direction can be frightening. In general, one evaluates the performance of companies and considers whether they will survive a difficult situation. All companies and indices might not recover from the crisis to their “former glory”. On the other hand, the economy has gone up in recent decades, and the journey has even had room for downturns.
S&P 500 Index Sector Weights 1995-2017
In this and the next post, we’ll address the key highlights of crises and investing from slightly different angles. This post focuses more on the Overview, and we look at the lessons and responses from history. Next week we will go through concrete tips and ideas for long-term investing.
You often hear it said that you learn from your mistakes. However, “crises” for the whole economy can be very difficult to predict, especially without much effort. Therefore, a situation in which the chosen company does not happen to survive the crisis in perfect condition cannot be said to be a mistake in all situations. Sure, analysis and accurate information retrieval are useful in avoiding risks at the level of one company, but some situations are impossible to predict.
When an investor considers their company choices, decisions are often influenced by several personal reasons. Only about one in five Finns over the age of 25 invests directly in shares (Norvestia Investment Barometer, 2016). Of this fifth, only very few are professional investors, so on average the choices for the Finnish investment portfolio have not been made on the basis of in-depth analysis. And it doesn't have to be that way. Successful private investors have been described as systematic. This can mean, for example, that you do not make hasty decisions, but get to know the company in a way that suits your level and also stay on the map of the company's horizon during the investment horizon.
We have only talked about equity investing above, but it is good to keep in mind other possibilities as well. ETFs and index investing are a good addition to your portfolio. If your own interest is enough, you can also explore other possibilities. However, there are differences between individual companies and indices when a crisis situation hits the market. The company's fate largely depends on the industry and the combination of the current situation. The indices, in turn, follow the movements of the whole market quite faithfully, for example, or the movements of a selected sector in the middle of a crisis.
The indexes are built in a certain way. As a result, they do not necessarily accurately reflect the economic situation. For example, 26% of the companies in the S&P 500 index represent the technology sector and 3% the raw materials sector. As a result, changes in the technology sector affect about eight times as much as raw materials. The S&P 500 does respond to changes in the general market, but the emphasis may seem surprisingly much. So don’t be surprised if the index you choose isn’t in line with the current economic situation.
S&P 500 sector performance in 2020 (31.12.2019-25.2.2020)
In practice, when an investor buys an S&P 500 index, for example, he receives 500 shares of the company at a time. This implements a diversification for the investor, depending on the index, and for many, the indices are an integral part of the portfolio alongside equities. If, on the other hand, you choose to buy individual shares, you may have to buy several, even dozens, shares, depending on the strategy and other content in your portfolio. By investing in the index, you get an average market return that has been around 10% in recent decades. At the same time, however, it loses the opportunity to make overpayments.
Indeed, the selection of individual stocks provides an opportunity to obtain a better return than the market average. If you want to “dictate your own destiny” as an investor, choosing stocks may be the right strategy. It also involves a lot of data collection and reflection, but is also interesting and instructive in its own way. For example, if you want to start stock picking, you can start with about 10% stock weight in your portfolio and learn along the way.
Sample stocks from different sectors
In crisis situations, competence is weighed, and the success of portfolio assembly is successful. A person who has invested in an index may survive with small surface scratches or, alternatively, there may be even greater damage if he has invested in only one sector. An equity investor could reap huge returns if he has invested in companies that are successful in the crisis or loses his investment altogether. A well-diversified portfolio helps keep you asleep at night, so it’s good to rely on the basics even in crises and look at history. Crises have been revived, so you should keep your head cold and make only considered decisions.
More information on topics:
USA Today article: “Index funds vs. individual stocks: What does the coronavirus market collapse teach us about both investing strategies?”
Forbes article: “One Key Reason Why The S&P 500 Doesn’t Fully Reflect The Economic Crisis”
Business Insider Australia article: “CHART OF THE DAY: Why This Stock Market Looks Like Tech Bubble 2000 All Over Again”
Stock Stories podcast: 6 Investing Lessons During Times of Crisis (Apple Podcasts and Spotify)
Investing Insights podcast: How Oil Prices Made History and Riding Out the Market Crisis (Apple Podcasts and Spotify)
Q&A: Sari Lounasmeri, CEO Finnish Foundation for Share Promotion
Sari Lounasmeri, CEO of the Stock Exchange Foundation, is answering questions in the post. Topics include long-term investment and diversification.
Written By: Milja Mieskolainen
For this post, we interviewed Sari Lounasmeri, CEO of the Finnish Foundation for Share Promotion. The text is written based on his answers. Our topics were, in particular, long-term investment and the various themes associated with it. During the text, links have been collected to the materials of the Foundation, which provide more information on the mentioned topics.
“The Finnish Foundation for Share Promotion is an impartial, independent, and non-profit organization established in 1985 with a statutory mission to promote securities saving and the securities market. The Finnish Foundation for Share Promotion owns the Stock Exchange and finances its operations with its rental income. Also, the Finnish Foundation for Share Promotion has an investment portfolio, the income of which is especially used for grants.”
Sari Lounasmeri
President of the Finnish Foundation for Share Promotion and Oy Pörssitalo - Börshuset Ab since 2010
Master of Business Administration
Previously as a researcher in universities and managerial positions in a multinational IT company
Positions of trust e.g. Member of the European Securities and Markets Authority's ESMA Stakeholder Group 2011-2016 and 2019-, Chairman of the Boards of the Finnish Mortgage Association and AsuntoHypoPank
The horizon of a long-term investor is decades away: Quick profits are not sought through rapid market changes, but a long-term investment plan is made that is adhered to. Even a long-term investor is looking for prosperity, but this is being pursued moderately, as historically the market trend has been upward, even though there have been downturns along the way. Risk and return go hand in hand, so thanks to their higher risk, equities have historically been the best-performing investment. In the long run, ups and downs in returns do not hurt the investor. (More information: Dollar-cost averaging).
“Preferably at a young age, for small sums”
The interest rate effect is familiar to many, but its effect can be forgotten. If you need motivation or nerve reassurance because of the crisis in the market, you might want to study the effects of this positive snowball effect on wealth. Looking at the average Finn, at the age of 40-50, the basic structures of life begin to be in order. This raises the idea that saving could be a topical theme. In this situation, the investment and savings amounts should be quite large to get a good return. If, on the other hand, you had already started investing at a much younger age, small sums would have accumulated a good amount by middle age.
Looking at the average Finn, at the age of 40-50, the basic structures of life begin to be in order. This raises the idea that saving could be a topical theme. In this situation, the investment and savings amounts should be quite large to get a good return. If, on the other hand, you had already started investing at a much younger age, small sums would have accumulated a good amount by middle age.
Life must be enjoyed. Despite this, many of our lives have small savings that accumulate in considerable amounts. The amount of wealth that awaits in the future may seem like an abstract goal, but in reality, it is not. If you start with small sums and early enough, you can expect self-created freedom in the future. Wealth brings security both mentally and financially. The buffer at your fingertips is the so-called “In case of a bad day” that ensures that, for example, work does not have to be dictated by others. Freedom doesn't have to mean retirement in your thirties, but the freedom to choose, even in difficult times, brings much-needed mental leeway and flexibility to life today.
Parents or other “adults” may have learned about the high cost of investing. It may have been thought that a really large amount of money is needed before it makes sense to go, for example, to buy stocks, because otherwise, the trading costs will eat up a large part of the money. Nowadays, however, it is possible to invest in small amounts as long as you choose a suitable investment service provider. Starting with small amounts is a really good way to practice investing. When there is room for maneuver, there is no stress in choosing investment targets, as going “nowhere” is not such a big deal.
“Stock savings account – a virtual piggy bank”
A stock savings account can be a big help for novice investors: For the first time, an instrument is available that can hold both cash and stocks. For example, even if the dividend amounts are small at first, the money arrives inside the account and can be reinvested to enhance the interest rate effect), but they remain in the account more easily and will not be taken away on a whim. A stock savings account can be called a virtual piggy bank, as the money automatically stays in the account and is not accidentally spilled for use. There is no extra administrative bureaucracy involved in the account, and it allows you to get started with small sums.
“Narrow your sources, and approach investing gradually”
There is as much information and opinions on the internet as you can research. A novice investor may be confused if he wants to find out the basics. A good starting point for finding and utilizing investment information is to choose a few easy-to-read sources for yourself. The amount of information is a problem, so the idea quickly arises that investing in an investment requires a lot of work before you can make a return. In reality, this is not the case, as you can go a long way by using a few hours a month, which means that an analysis of day periods is not necessary. Of course, if enthusiasm is found and investing is like a hobby, one can immerse oneself deeper into sources of information.
The easiest way is to select specific channels and decide which one to follow first. The criteria can be applied to the teachings of media literacy: Who speaks? Who produced the content? What motivation is behind it? The financial press talks about certain things and Facebook groups like that differently. Even when using information sources, it is worth “decentralizing”, ie interpreting slightly different perspectives on the same issues. Good analysis is done in the investment blogs, basic data can be found on the NASDAQ website, the companies' pages provide justifications to accompany the data, and independent parties, such as the Finnish Foundation for Share Promotion, guide the basics. Information related to the funds can be found, for example, in Investment Research or on Morningstar's website. If you want to study the responsibility of funds, you can look for different assessments and comparisons.
For a stock savings account, exclusive sources of information from your service provider can be helpful. It’s a good idea to first form an idea of what you’re going to compare, after which it’s easier to start analyzing a smaller set. It is worth building the portfolio little by little: First, you can start to diversify by sectors, and then think about what is missing from the portfolio. Indeed, step-by-step construction and delineation are less intimidating, as “chopping the elephant” makes the approach easier.
“Make geographical diversification easy for yourself”
Many wonder whether adequate geographical diversification requires investment in foreign listed companies. Geographical diversification makes sense, but according to the traditional company’s home country, there are other options. For geographical diversification, one can also calculate the country of location of the company's customers; Many companies on the Helsinki Stock Exchange are global companies with operations in several different countries. Finland is a relatively safe country with little political risk, which may be a good idea to invest in Finnish companies. It is worth looking at the companies' area of operation in addition to just the domicile. The Finnish focus of the portfolio is not necessarily a bad thing: Access to information is easier in Finland, and the investment environment is safe. As with other areas of investment, it is worth making geographical diversification easy. For some people, America may seem familiar, but investing there is a sense of decentralization is not necessary. In long-term investments, companies are evaluated globally. If we focus on Finland, for example, small companies will emerge more easily if compared to a global analysis
“Remember your goals”
The coronavirus, which has shaken the market, may have aroused an investor's instinct for self-defense. The stock markets came rumbling down, and the calm is far from thoughtful. If you want to succeed in long-term investment, you need to be prepared for stock market invoices, as they are part of the package. If you want to stick to your plan, you should be aware of your time horizon. Is it intended to be invested for one or two years or even decades? This can have a surprisingly large effect on your behavior.
Creating an investment plan may sound like a kilometer-long report, but it doesn’t have to be complicated. The average Finn examines his portfolio in more detail about once a month or twice a year, according to a survey by the Finnish Foundation for Share Promotion. If several changes are not part of your plan, it is easier to avoid the temptation to go and adjust stock options, for example. Besides, the downturn market is a pretty bad time to leave the market. If able to start the so-called. “In bad times,” it pays off. Pre-conceived limits, for example on purchase and sale prices, help to clarify one's activities. In the longer term, the crisis caused by the coronavirus is not unique.
You can sacrifice far too much focus on timing. All people are bad at predicting. He often sees an “all or nothing” mentality that quickly turns out to be a dramatic style. If you have created a systematic plan for yourself, you can focus on self-development, for example, by reading. When making long-term investments, it is not worth thinking too much about timing: according to a study conducted at Aalto University, on average, eight years after the investment, half of the shares had been sold, ie long-term equity investment is common.
“What thing will affect the future?”
Instead of crises, it is worth focusing on the factors that shape the future. Megatrends are a good tool for the long-term investor, as their effects will not be visible for years to come. In terms of digitalization, it is worth looking at how the company can serve its customers remotely. In the US, Amazon and several other companies have managed to adapt, meaning that the market created by digitalization has grown faster than others. Responsibility and especially climate change highlights those companies that succeed and operate smartly in their business. Studies have found more commitment from customers and stakeholders to companies that make their operations more responsible. In the Finnish market, Neste has succeeded in this category with the help of renewable fuels. During the coronavirus, urbanization has emerged as some people have been “forced” to stay put. On a global scale and in the long term, urbanization continues as a megatrend: Buildings are being made higher on average, ie elevators are needed, for example, as family sizes decrease, urban services are focused on the needs of one or two people and recycling is developed with responsibility.
If you can find a single fixed point in the future, no matter how small, and find a company that is firmly involved in it, you might want to consider joining. Aging is involved in the cities of the future and society as a whole. It emphasizes the development of health services, the transformation of banking services, and also the adaptation of other companies. If responding to the coronavirus and other crises is a “wonderful hobby,” there is nothing wrong with that. If it causes more gray hair than joy, there is no need to become a “day trainer” in one fell swoop. Making arbitrary changes to a long-term plan rarely produces the best outcome. Investing doesn’t have to be a complete number game: Megatrends are easy to touch and can be analyzed through their strengths. Many young people think that investing is just a rotation of numbers, ie analyzing financial statements. Today, however, there are masses of ready-made analyzes and comparisons, so you don’t have to bother with calculations on your own.
“Approach through your interests, and gather information from data points to support your decisions
”
You can choose one approach to investing, for example, numerical or megatrends, after which you start to delineate the companies that you think are suitable for you to dive into. A people-centered approach can also work. Has the CEO been successful in the past? Company Board: Often, the same people are on multiple boards, so you can choose those companies that have the same board member. On the other hand, the owners also play a big role. Who do you want to be in the same boat with? It is important to find your area of strength. In the first wave, you can look at it on a large scale, after which you start to think about the meaning of numbers. If you start investing purely based on other opinions, the losses will surely be annoying. When you have your own money in the game, you have done your kind of analysis and believe in the future success of the company, so mistakes made by intuition may be easier to accept as a learning experience. On the other hand, when the investments go well, it’s great to realize that you’ve utilized your expertise.
“If everyone owned a little”
A lot of corporate finance is being considered this spring. The social significance of investors is most evident for a long time. Owners are needed, because the more broad-based a group is owning, the better. If everyone owns little, the value of owners increases in companies in a responsible sense. So you don’t have to make investing difficult, with your interest and simple strategy you can make an impact on things that are important to you.
More information on topics:
Finnish Foundation for Share Promotion guides: Among other things, the stock and fund guide and the investment guide for the curious
Finnish Foundation for Share Promotion Investment School: “From the lessons of the Investment School, you will learn, among other things, how to start investing, how to choose investment targets, what the different concepts mean, how you can invest responsibly and how to buy the first shares. In addition to clear texts, the lessons include concise videos, illustrative images, and concrete examples.”
Learn, Invest, Influence
Information acquisition, active stock picking and value investing are tools that investors can use to influence and act in accordance with their own values.Written By: Milja Mieskolainen
Our first event of 2020 focused on impact investing and active stock picking from the perspective of the financial group Taaleri. Taaleri is a listed company with four business groups: Asset Management, Capital, Energy and Garantia.
There are many different approaches to impact investing, but Taaleri's key idea is to "be part of the solution." Impact investing is one of the fastest growing segments in the investment market, as investors demand positive impact in addition to returns, which changes the way companies operate under growing pressure (Economic Research Study on Positive Impact on Investment Objects). The value of impact investment has risen to $500 billion (2018) from almost zero, which can be partly explained by urbanization. It brings with it the need for sustainable and energy efficient solutions, for example in construction.
Taaleri's energy funds, which focus especially on solar and wind power, will reduce carbon emissions by up to 14 million tonnes. Taaleri's renewable energy investments are worth over a billion euros and have yielded over 10%. Cost is deducted from the return. So investing in impact is not charity, but it does achieve something meaningful in addition to returns.
Taaleri's financial management is divided into two parts; Etf, which invests in the US market, and active stock picking in Finland, the Nordic countries and German-speaking Europe. This division is due to the fact that the US market is the most efficient in the world and Taaleri's portfolio managers do not have a competitive advantage there. In active stock picking, they have the opportunity to get to know companies, visit on-site meetings with management and take advantage of cultural knowledge. Allocations, meaning distributions between different asset types, are always made through etfs at Taaleri.
Our second speaker, Mika Heikkilä, says he is a value investor now and in the future. He was one of the first investment professionals to bring value investment to light in Finland, along with Vesa Puttonen. Taaleri's Arvomarkka is Finland's only fund specializing in value investing and it is managed by Mika Heikkilä. Heikkilä himself has a significant amount of wealth in Arvomarkka and he describes his investments: "You can't even think of bringing an irresponsible company into a portfolio.”
What is value investing? It refers to value philosophy that emphasizes the difference between the price and the value of a share or company. A value investor seeks out companies whose true value is above the market value. This requires information and analysis from multiple sources, and therefore Taaleri has a total of 25 partners. Without honesty there is no portfolio manager, so independent analysis as well as qualitative indicator analysis are key components in value investing.
Q&A:
Could you both (speakers) tell some book recommendations regarding value investing or in general?
• Benjamin Graham, Intelligent Investor: nvesting is not just about understanding key figures.
• Mika Waltari, The Egyptian: Broadening one’s worldview and understanding consumer behavior.
• In general, understanding megatrends and outlining their main forces for change. A company that is able to understand and take advantage of megatrends will succeed in the future. No single particular book has all the information needed, and therefore extensive reading on various topics is one of the basic tools of an investor.
Even if a small investor is interested and knows a lot, he does not have all the professional tools. Does Taaleri have an answer to this problem?
• Taaleri provides a route to these instruments through their funds. If a person wants to invest a smaller amount, such as EUR 500,000 - EUR 1,000,000, they will not have access to BlackRock's (= large asset management service) services, but Taaleri can collect, for example, EUR 30,000,000 in funds and thus use those services.
• Taaleri is not a broker, such as for example Nordnet, so it does not hedge its portfolios with forward contracts. In these, the parties undertake to trade at a certain price in the future at a certain point in time.
• As a whole, Taaleri offers access to various instruments, so the investor can allocate his assets, for example, through funds managed by Mika, if he believes in them. Wanting to implement his own ideas, Taaleri does not offer tools to the investor. In this situation, the investor can use, for example, the analysis service Inderes, in which Taaleri is a shareholder, and Nordnet's services.
How do you see the future of value investing, as it strongly divides opinions?
• As a caricature example, a third of investors will see value investing as “full rubbish”, a third need concrete, i.e. success in the past, and a third are somewhere in between. Investors who need things to be concrete like value investing, because when interest rates rise, value investor can get better returns, because during the low interest rate, the so-called easy money has fueled the success of growth companies.
• Currently, the indices have a high technology weight, which means that which means that they select the largest and most successful companies, most of which are currently technology companies (for example, the largest and most solvent companies in the S&P 500 on February 26, 2020 were Microsoft Corporation, Apple Inc., Amazon.com, Inc. and Facebook, Inc.).
• Picking stocks will be an opportunity to operate differently from the index. It will allow you to select companies in the portfolio whose industry or, for example, values you are interested in. The index does not think, it is enough that the company in question is big.
Taaleri is a listed company, but its stock exchange history is inconsistent with financial management. What is causing this?
• Taaleri is opportunistic, which means that the strategy involves taking a lot of risk, which is different from other asset management companies. As a result, the standard deviation of Taaleri's return increases and the risk increases, i.e. its volatility as an investment increases.
• The main reason for this is the balance sheet investments, which have fluctuated Taaleri's result. This is recognized and the strategy is being driven towards continued returns. Taaleri is looking for good and continuous growth in returns that have a large impact on share prices, i.e. they want steady growth below returns, where there is not much volatility, and more decentralized risk for balance sheet investments.
• If you want to create new successes, you need to invest in them. In terms of wind power, it took eight to nine years before that investment began to pay back money for Taaleri.