Captain Windjammer Wrote: ------------------------------------------------------- > Maybe the CFA curriculum material on statistics is > relevant, for example for examining performance > records for statistical significance. I am not sure what you are suggesting here. Is the premise of your comment that someone cannot be consistently succesful over this period of time and that it must be luck? Please tell me you are not one of those people that buy into the notion that someone like Warren Buffett is a six sigma event representing pure luck because some model out of the University of Chicago said so.
I am certainly not suggesting that “someone cannot be consistently successful over [a] period of time” - that would be silly, someone either is successful over a period of time or they aren’t, and plenty of people have been successful over some period of time. I am also not suggesting that “it must be luck”. What I am suggesting is that apparent investment success (“apparent” because you also have to be measuring it properly) MIGHT be due to luck to some degree, and it’s worth considering whether it is. It is of course hard to argue with Buffet’s success, although in my opinion he’s the exception that proves the rule. On the other hand, how many investment managers have come and gone (or not gone, or not gone yet) since he started his career? I’m not sure it’s as unlikely as you think that there would be one guy with a track record like his purely by chance (although I’m not suggesting that’s the case with him). I just think some skepticism is in order, and statistics isn’t some academic model, it’s science.
Captain Windjammer Wrote: ------------------------------------------------------- > I am certainly not suggesting that “someone cannot > be consistently successful over period of time” - > that would be silly, someone either is successful > over a period of time or they aren’t, and plenty > of people have been successful over some period of > time. > > I am also not suggesting that “it must be luck”. > What I am suggesting is that apparent investment > success (“apparent” because you also have to be > measuring it properly) MIGHT be due to luck to > some degree, and it’s worth considering whether it > is. > > It is of course hard to argue with Buffet’s > success, although in my opinion he’s the exception > that proves the rule. On the other hand, how many > investment managers have come and gone (or not > gone, or not gone yet) since he started his > career? I’m not sure it’s as unlikely as you > think that there would be one guy with a track > record like his purely by chance (although I’m not > suggesting that’s the case with him). > > I just think some skepticism is in order, and > statistics isn’t some academic model, it’s > science. I actually agree with most of this. It seems like a lot of investment managers pursue a leveraged beta (or unleveraged as the case may be) approach to investing. I think there are very few true alpha shops out there. However, it’s definitely reasonable to think that someone with a multi-decade career of researching companies and producing alpha could consistently beat the market (that may sound circular but its not, it is a nod to the value of experience). Buffett’s approach makes logical sense, and he has the ability to execute a strategy that others could not; this strategy exploits opportunities in the market that are unavailable to others (via long-term capital, exclusive / proprietary deal flow, repuation, extensive contact network, etc.). Many people would never be able to achieve a similar track record over any period of time because their approach is flawed, and/or they have no legal investment edge. Anyway, to your point, there is always some level of luck. It’s technically “lucky” if one of your holdings gets bought out by a private equity firm, even if you specifically target companies that have attractive characteristics for buyout firms (i.e., a lot of rubbish investments got bailed out in 2005-2006 because PE firms were willing to pay high prices for medicore busiensses, a strategy predicated on cheap debt). It’s “lucky” if you happen to have operated during a long running bull market. There are lots of other, similar ways someone could be lucky. However, luck tends to normalize over long periods of time (both “positive” and “negative” luck), and the only way to put up consistent numbers like that is to have a system that captures value for clearly definable reasons, and then the ability and discipline to execute against that system, whatever it may be (there are probably multiple systems that would qualify under this broad definition).
i really dont get it, what are some people trying to prove by arguing how irrelevant the CFA material is. just cause you never touched DCF or used interest parity concept. perhaps a lot of the stuff you already knew before from experience. some people dont know jack $hit when they start the program, not everyone is undergrad finance major. it teaches you the relationship between risk and return, time value of money, how to calculate return on a portfolio. it teaches you what information is contained in an income statement vs balance sheet. it teaches you what information is contained in an average and standard deviation. yeah some of this is extremely basic stuff, but so what - it is relevant, very very relevant. i know i didnt know all of it when i started the program, and certainly didnt know how to think of these concepts in a finance context - it expanded my horizons in many directions. for someone to say the CFA material is worthless/irrelevant, to me it means “i dont need to know these concepts at all to be an investor”. thats a ridiculous statement. i dont care what your proprietary technology or selection process is, you need to know this. and if you knew it before you started the program - well thats not the program’s fault, maybe you were already qualified and didnt need the designation. but it is relevant
Mobius Striptease Wrote: ------------------------------------------------------- > for someone to say the CFA material is > worthless/irrelevant, to me it means “i dont need > to know these concepts at all to be an investor”. > thats a ridiculous statement. i dont care what > your proprietary technology or selection process > is, you need to know this. and if you knew it > before you started the program - well thats not > the program’s fault, maybe you were already > qualified and didnt need the designation. but it > is relevant I hadn’t taken any finance, accounting or econ classes when I started the CFA program. You couldn’t possibly have known less than me. The problem is that a lot of the material in the CFA program is wrong. I acklowedged the value of TVM earlier. The accounting is woefully inadequate in the program, and this is pretty much inexcusable as far as I’m concerned. The risk / return stuff assumes an efficient market and is wrong. To your point, I don’t need 95% of the concepts in the program to be a successful investor, though I did need to learn a lot of concepts not in the program. This is the major reason I don’t like the program, because I felt like I had to learn things “twice” when I should have only had to learn the correct stuff once and none of the incorrect or marginal value material. Anyway, I’m done explaining this. I’ve shared my view point, people don’t agree, that’s fine. But my view is based on real experience seeing what actually works, and I’m not sure most people supporting the CFA program here can make that claim. It’s not that easy to outright dismiss what I have said in this thread.
I agree with Bromion’s idea that DCF is not really relevant, although the concept can be useful. I think CFA is all about concepts, not how to outperform. Sports analogy: you learn the positions and the rules, not the strategy. For example, I used a balance sheet recap to value many investments in over the past couple of years. This worked to great effect. Is it directly in the CFA program as a valuation method? No, but the nuts and bolts are there to put the machine together.
Just to clarify with you all, since his name has been brought up, Rick Ross is a goof and a PC cheese eating rat.
bodhisattva Wrote: ------------------------------------------------------- > Just to clarify with you all, since his name has > been brought up, Rick Ross is a goof and a PC > cheese eating rat. Ima have to PO ya for that one.
“For example, I used a balance sheet recap to value many investments in over the past couple of years. This worked to great effect. Is it directly in the CFA program as a valuation method? No, but the nuts and bolts are there to put the machine together.” Never confuse a bull market for a genius. Sorry, couldn’t resist. What wasn’t a good buy the last couple of years? Not a lot. btw, this is one of the best threads I’ve read on the forum
Boss boss boss boss boss
“And push it to the limit like the belly on Rick Ross” Please see the following: http://thejasminebrand.com/wp-content/uploads/2010/07/rick-ross-bling-and-belly.jpg
bromion I have to say you are a piece of work. " I still maintain that the curriculum is just about useless if your goal is to become a multi-millionaire self made investor that continually beats the market (hedge fund manager or whatever), but I see now that it may have a lot of use for people with other goals. " —> implying that you know how to become a self made millionaire and choose not to and just go to work everyday like the rest of us. who is this guy, seriously? who do you know that does not want to become a multimillionaire? and you think because you are entry level at some HF that makes you so special? come on bro. what will happen if you lose your job? you will be singing a different tune altogether, I guarantee you that much. I have talked to guys like you more times than I care to admit, and let me tell you this - if shit goes downhill for you you will be no better than these people you talk down to on this board. " If there is one thing this thread clarified for me, it is how grateful I feel to have the opportunity to learn this kind of system. " FFS we get it - you have a job at a HF. congrats and wicked story bro. just to set the record straight by the way you talk I can tell you are very new to the buyside. I can read the literature some of the best fund managers in the world put out themselves - Berkowitz, Buffett, Klarman, Paulson - and while an investment strategy is important you are kidding yourself if you think that industry contacts (from sell siders, other institutional investors, etc) do not make a difference. start your own HF and make millions then you can come in here and talk to us like we do not know what the f we are talking about, and someone might actually care. for the time being, there is no evidence that what you are doing is ANY better than what any one of us is doing in terms of getting us where we want to go.
You need to reread. Perhaps I should have said “financial capitalist” instead of multimillionaire investor. Lots of people want to be a millionaire, few are willing to put the time and effort in. My comment was directed those who wants to be a big league investor (you know, like the legions of people posting here asking how to break into the industry). Many people take the CFA exams and are content to work in other, less demanding types of roles because they have other priorities in life. There’s nothing wrong with that. Don’t try to write my comment into something it wasn’t. I do not have an entry level job. I said contacts make a difference. I plan to start my own HF. I’ll keep you posted. If you don’t like my comments, what have you added that is constructive? Actually, for that matter, what has anyone really added to this thread other than bchadwick and CFABLACKBELT? I’ve been on a plane with internet access for most the day, but it’s landing soon and I’m not going to check this anymore – people can’t seem to understand the basic premise of this thread and it’s a waste of time. Last post from me. Hopefully some readers got something of value out of this and are smart enough not to bring their own biases to rest here through personal attacks. I know I have received many supportive emails over the last few days and made some good contacts, so it was worth it for me.
bromion Wrote: ------------------------------------------------------- > Mobius Striptease Wrote: > -------------------------------------------------- > ----- > > for someone to say the CFA material is > > worthless/irrelevant, to me it means “i dont > need > > to know these concepts at all to be an > investor”. > > thats a ridiculous statement. i dont care what > > your proprietary technology or selection > process > > is, you need to know this. and if you knew it > > before you started the program - well thats not > > the program’s fault, maybe you were already > > qualified and didnt need the designation. but > it > > is relevant > > I hadn’t taken any finance, accounting or econ > classes when I started the CFA program. You > couldn’t possibly have known less than me. The > problem is that a lot of the material in the CFA > program is wrong. I acklowedged the value of TVM > earlier. The accounting is woefully inadequate in > the program, and this is pretty much inexcusable > as far as I’m concerned. The risk / return stuff > assumes an efficient market and is wrong. To your > point, I don’t need 95% of the concepts in the > program to be a successful investor, though I did > need to learn a lot of concepts not in the > program. This is the major reason I don’t like the > program, because I felt like I had to learn things > “twice” when I should have only had to learn the > correct stuff once and none of the incorrect or > marginal value material. > > Anyway, I’m done explaining this. I’ve shared my > view point, people don’t agree, that’s fine. But > my view is based on real experience seeing what > actually works, and I’m not sure most people > supporting the CFA program here can make that > claim. It’s not that easy to outright dismiss what > I have said in this thread. Yes, you must be the authority. It’s a shame that highly qualified names have been debating the efficiency of markets for decades when all they needed was an analyst to sort it all out. Let’s disregard the fact that stifel nicolaus, the second largest ss er shop prides itself on a high percentage of cfa’s. Everyone of the md’s I interviewed with drilled that fact in. They’re dumb tho. And because emh isn’t strictly true, then it shouldn’t be taught even tho most would agree markets are at least highly efficient. I’ve never heard someone argue they weren’t highly efficient. If they weren’t, then our industry, not the cfa is a sham, because it would mean we couldn’t price worth crap. So yes, I think it’s pretty important to teach the basics of emh and what that means. But you’re right, that’s all cfa is. There’s not a huge chunk on statistics, or FSA, or world economics, or multiple vs DCF analysis, or FI and credit / spread analysis. And basic knowledge of these could never deepen someone’s understanding. I only want to hear from analysts with narrow skillsets for sure. And if the FSA falls short of ER standards, who is cfa to provide a primer at all? And only for a fraction of the price of a degree. It’s weird, cause one of my grad school friends is a 4th year ER analyst at stifel and he prefers to hire only CFA candidates while another buyside analyst I’m friends with does the same. What idiots. They need the deep wisdom of bromiom.
You know, I think it’s a myth that CFA requires or even strongly endorses EMH. All it really does is tell you about EMH forms and say that the burden of proof is on the investor to show that they can consistently outperform a passive index and that having done it for the last X years isn’t in itself sufficient proof or reason to be confident that they can do it for the next X years. The CFA doesn’t say EMH is true - it just says that “if it is true, this is how you would price certain derivatives and other things,” and you need to consider the possibility that a passive market investment would give you better risk-adjusted returns over the long run. It is a pity that CFAI can’t include proprietary trading and/or analysis that makes money consistently. But if they did, they would either be 1) sued by the people it was once proprietary to, or 2) it would become so widely practiced that it would be a useless part of the curriculum. So there is a logic to why they don’t teach how to invest at Bridgewater or Renaissance or GSAM or whatnot. CFAI does actually lean toward advocating a value approach in their equity material (and probably FI, though I don’t remember exactly). This is actually which is inconsistent with a strong or even semi-strong EMH position. So again, CFAI doesn’t force you to swallow the EMH pill - only to be aware of it. Finally, the whole Treynor Black model at L2 and the Black Litterman model at L3 are all about how to incorporate security selection and alpha generating assets into investment portfolios. It would be pretty senseless to teach those parts of the curriculum if CFAI was truly an EMH orthodox program. The frustration, I think, is that one does come out of the program unsure of how to invest in a way that consistently makes money. You feel that you’ve put in all this effort, but you don’t have such a great idea of what stocks to buy and put into your portfolio. At least I felt that way. The biggest benefit to CFA studies may be risk control more than alpha generation. I may not know exactly what stocks to buy, but I can try to avoid making some pretty dumb mistakes, and I can start to look at low yielding but uncorrelated assets as things that ought to be in my portfolio, whereas before I might have said “who wants something that yields only THAT.” I know better about concentration of assets and what the risks and benefits are. CFA really did help a lot with understanding portfolio construction. The curriculum does offer you insights and ideas at select moments. Things that I might not have thought about otherwise. Porter’s 5 forces makes you think about competitive strategy. DCF and the GGM make you think through a more sophisticated idea of how equities react to interest rates. The Franchise model allows you to categorize and rank non-dividend paying companies that are in growth stages. Maybe it’s because I do more macro work, and therefore have to think about bonds, and currencies, and stocks, and credit spreads, so my stuff is very broad, like much of the curriculum. Perhaps if I were just looking at balance sheets of a single sector or just looking for Low PEG ratios + momentum and putting them in equally weighted portfolios until they hit some technical level, I would wonder why I should care about most of this stuff. I just think that people are 1) expecting too much of the program early on, and 2) underestimating the value and perspective it offers of the industry. I think that the average age of the CFA candidate has dropped dramatically in the last decade, so the curriculum was originally designed for middle managers who want to get to upper management and need stronger skills. What’s happening now is that people are doing the CFA right out of college and then they’re upset that they only use about 10% of the topics in their first job. Anyway, I’m not writing because I feel the CFA needs to be defended or not. I just know that it’s been incredibly valuable for me in many ways and I don’t regret for one instant having put in the effort. I do wish that finding employment after getting the charter had been easier, but what can you do when the Dow crashes 777 points on the day you learn you’ve been granted the thing. That problem was not CFAI’s fault. That was just a problem that was bigger than me (or much of the country).
Lay off the bromion, he has a unique perspective which works for him & his shop. He certainly knows his onions and is entitled to an opinion. I’ve completed the CFA and I don’t feel greatly enabled to make better investment choices at the individual security level (I think the principles at the portfolio level are better delivered in the curriculum). I know how to calculate ratios etc and am grateful that the CFA has piqued my interest to learn more. However, I wouldnt be able to tell you what a good ratio for a particular company in a particular industry is, despite being able to calculate Dupont in 25 ways. So i’d like to sway this conversation slightly now. The CFA program was built up on the back of the teachings of Benjamin Graham (Buffett’s mentor) about becoming better analysts. We would probably all concur that there is a lot of fluff, (the CFA brand stuff in ethics could be less prominent…). So what should be included in the program that isn’t already there? That’s the real question this thread throws up. And it’s a great question to a highly qualified audience. For me, I’d personally like to see some real market knowledge in there. As an example we could have a case review of 2 real firms versus a given sector with historical averages over time provided etc. Or a comparative exercise on sector vs sector over time with appropriate ratios. I’d like to be able to go into an interview and say I would expect Telecoms to be trading on such and such and today they are at a historical high etc. Additionally, I’m sure there are concepts that could be included from any of Buffett’s readings and a host of others - Margin of Safety etc etc. He’s practically given the ingredients for one approach to successful investing. Why the heck not include it in the curriculum. How about real trading strategies, how to create entry & exit points using real life case studies. There are lots of real trading examples for all asset classes that would give you a sense of what really goes on other than the rather mechanical theory. Currencies? Commodities? Fixed Income? Does the the CFAI reach out to practitioners and put their curriculum side by side the professionals to see if it stands up? This after all is what I suspect many of us do the CFA for - to become self sufficient investors. It certainly goes some way to giving you the tools, but it also falls short of providing enough detail. I can see why people have viewpoints that span the spectrum of opinion here, because it reflects what the CFA does and does not do.
Bromion - having read what you do at your fund, I don’t understand how the CFA curriculum cannot have been helpful especially seeing as you did not have a finance undergrad. If I am following you correctly, your fund takes a fundamental approach to really understanding companies and trying to get an edge on the market through thorough analysis. Leaving aside technical stuff such as valuation models etc, the CFA has a lot of material on more qualitative assessments of firms. Think Porter’s five forces, quality of earnings analysis, importance of good corporate governance etc. Are you really saying you don’t factor these concepts into your investment decision making? The CFA curriculum also looks at examining what asset classes and sectors are best to invest in at different parts of the business cycle etc. Apart from techical analysis, I cannot think of an obvious area that the CFA curriculum does not cover at least superficially that would be important to equity investment. To put it another way, if the material in the CFA curriculum is not of much/any use, what topics would you like to see covered? What concepts or techniques are they missing out on? Genuine question.
bromion Wrote: ------------------------------------------------------- > Hopefully some readers > got something of value out of this and are smart > enough not to bring their own biases to rest here > through personal attacks. I know I have received > many supportive emails over the last few days and > made some good contacts, so it was worth it for > me. Dude, I can’t believe I used to think you were cool…have fun at Pirate Capital big guy… Supportive emails and good contacts? Way to blow your trivial life out of proportion and take the douchiness to the next level Philip Platt.
To broadly look at the approach of the CFA program, a key part of it is that the whole thing is self-study. I don’t believe that this is bad thing, in fact, it is the main element of the program that helps weed out people who are not seriously dedicated to learning more about finance and being an analyst. However, that being said, when you are learning just through a curriculum (especially one as broad as the CFAI’s) there is no way to learn the specifics or key knowledge that is required for a real world position. I believe that bchadwick brings up a valid point that the CFA can’t get into proprietary models that are the core of the industry for the reasons he points out. The simple fact about working in finance, or most other fields for that matter, is that the area that creates alpha, or the competitive edge for your firm is much more of an art than a science. And something like that can only be learned through experience and dealing with others that have that experience. That is one thing that the CFA can’t offer, and I don’t really know if it is the place to. I respect bromion’s point, and I believe him that there are likely more efficient ways to learn what you need to know to break into the field and learning more applicable tools. However, I believe that method takes a lot perseverance, and very little hand-holding while you try and figure things out on your own. The CFA program seems to be more of a structured approach that helps you feel comfortable with the basics, but may take you quite a bit longer to go through. Honestly, I’m still fairly young to the finance world, and I gearing up to take L2 this June. I don’t mind mucking through the CFA material because I still don’t feel like I have a strong grasp on the colossal amount of knowledge/information that’s out there. The opportunity cost may not be the best, and that most likely the things I will use 10 years from now that set me apart from the other thousands of people in the financial field won’t be found in the CFAI material. But this is still the point in my life where my time is the least costly, so I’m sticking with it for now.
Black Swan Wrote: ------------------------------------------------------- > bromion Wrote: > -------------------------------------------------- >> Dude, I can’t believe I used to think you were > cool…have fun at Pirate Capital big guy… surrender the booty!!!