Finschool By 5paisa

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Skin in the Game

Risk

The phrase “skin in the game” refers to owners, executives, or principals having a sizable investment in the firm stock they oversee.

Investors like skin in the game since it demonstrates that leaders have an interest in the company’s success. The expression “skin in the game” refers to a scenario in which high-ranking insiders spend their own money to purchase stock in the firm they are operating.

It was made popular by famed investor Warren Buffett. The statement is especially humorous.

The phrase “skin in the game” refers to owners or principals who have a large position in an investment vehicle, such as company shares, in which outside investors are encouraged to invest, in business and finance.

In this sentence, “skin” refers to a metaphor for the person or money at stake, and “game” is a simile for the acts taking place on the playing ground. An executive may receive stock as payment or may exercise stock options to purchase shares at a bargain.

It is less frequent for an executive to stake their personal money in the business where they are employed.  A sign of good faith or a demonstration of trust in the company’s future is when an executive puts money on the line. This is viewed favourably by outside investors.

To ensure that firms are governed by like-minded individuals who have a stake in the company, executives are encouraged to put money on the line.  Even if executives can talk all they want, the best sign of confidence is risking one’s own money alongside external investors.

 

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