Is CFA worth it in Buy-side...

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#1

A little background. I am in my early thirties. I have a background in accounting but didn’t really like accounting all that much. A few years ago i got really interested in finance especially the business cycle. My curiosity of the business cycle led me to trade the market. I swing trade and read charts. Hold positions for weeks depending on what my stock is telling me. I like the buy-side because i like to know where the stock and economy are going. You always invest with the cycle and not against it. So knowing where we are in the economic cycle is very important in what we invest in. Since i don’t have much industry experience, only some trading experience, i like to know if passing Level I will help me get my foot in the door as a buy-side equity research associate? Or do i really have to get an MBA? I really don’t believe getting an MBA will help me understand the market at all.

Thanks.

#2

“swing trade and read charts” is officially called technical analysis, as opposed to fundamental analysis. There are few pure-technical trading shops, and most buy-side shops are fundamental basis driven with minor technical read. The technical trading shops operate like little businesses, and work on commission. It’s also highly risky as most people fail and drop out.

Passing L1 alone is highly unlikely to get you into a real buyside shop, a good MBA is your best bet for a career switch. Yes I would agree the MBA doesn’t help that much in understanding the market, but that’s how things are, and the real point is to get access to the on-campus recruiting.

#3

^Respect.

#4

itera, since our last interaction I have been observing your posts from a distance and I have to say I am really impressed. I can honestly say that I never thought I would have witnessed a series of thoughtful, constructive and value-adding contributions to multiple threads on the forum coming from you which is really a pleasant surprise.

Keep up the good work man.

#5

!

#6

this. I was able to secure interviews but not lock down an offer. Also, I would not go into a fundamental shop and talk about your swing trading. Folks w FA backgrounds do not believe in the witch craft called technical analysis.

#7

Thanks all. Swing trading is just a part of what i do. I have a long term perspective on chart work. And i understand macro/fundamentals pretty well. I am guessing your typical long-short equity hedge fund would like this sort of a candidate. Am i wrong on this? Question is, would passing Level 1 give me at least an interview with a small regional shop? Not really a big firm.

Itera, if you are talking about prop shops, no that’s not where i am going. What i do is very different.

#8

I don’t know precisely what technical analysis is. I deal with supply and demand of shares. I am guessing most FA guys understand supply and demand right?

#9

Technical analysis is the study of past price patterns to improve an estimate about likely future price/volume movements. Although technical analysis techniques differ by analyst, they generally involve looking for things like trend lines, support/resistance levels, momentum indicators, breadth indicators, oscillators, moving averages and MACD, bollinger bands, average true range, etc… Sometimes it also involves things like chart patterns (cup and handle/ head and shoulders, etc.)

By today’s standards of analysis it is not especially “technical” but historically these methods were considered technical before the advent of significant computing power, because computing many of these things by hand was considered highly technical work (which, without computers, it probably was). Today, quantitative analysis has taken the lead in the application of complex formulas, but tends not to do a lot of chart-type work, except in CTA strategies, which have also suffered a lot lately, and some limited use of momentum indicators.

Most mutual funds and long-short shops tend to be fundamental analysts, which means they tend to look at the fundamentals of the business, make projections of future profits, then discount them to the present to come up with a price or price multiple to determine whether things are overpriced or underpriced relative to the risks of those profits actually materializing. A large number of fundamental analysts consider charting and technical analysis just a step above Voodoo and Astrology. The remainder may look at technical indicators to time entries and exits of securities they have already identified. In those cases, technical analysis is used, but only as a secondary consideration.

People who do technical analysis tend to justify their analysis as understanding the supply and demand for shares, which is how you described it yourself. At some level, I think this is plausible as short term analysis (and the fundamental analysts who use TA for timing decisions would also agree) but long term analysis is harder to justify since both supply and demand can change dramatically over the long term. This can also happen to fundamental business prospects, but these risks are already incorporated through a discount rate reflecting risk, so it’s not as damaging a criticism.

I personally think some technical analysis is plausible, but as an investment shop, it is difficult to have a unique value proposition using technical analysis, whereas it is easier to argue that fundamental analysts have the right training and experience to determine intrinsic or relative value in some specific market niche, and this is one reason why there is more of that. In macro analysis, we do sometimes look at charts for things like support and resistance channels - the basic idea is not that these are magical lines in and of themselves, but that breaking out of these channels is a moment in which long-standing market psychology may change … i.e. a point in which people who are just lazily along for the ride might start to panic and leave, or (in a downtrend) might stop running away and take notice.

Prop shops really are the places where charting is big. To some extent, macro funds also use charting and technical analysis, but macro has been a very hard haul these last few years, and has almost died out (I expect it to revive one day, but for now, it’s suffering)

#10

sorry dude, try saying “long term perspective on chart work” and you’ll likely get laughed at. and I’m pretty sure your definition of macro/fundamentals isn’t what buyside shops understand it. and no I’m not talking about prop shops either.

I think you need to do more research on what buyside investing is, just a suggestion

#11

As per the above, there’s very little demand for equity research analaysts with technical/charist knowledge. It’s just too short-term an outlook, the trend is now to trade long-term as research has shown it’s very difficult to generate alpha after fees with a high turnover strategy.

If you really want to be a equity research analyst, level 1 and 2 will help, and your accounting knowledge will be useful. It’s a very difficult job to get though, you’’ probably have to compete for a fairly junior position due to your lack of direct experience. As mentioned before, a lot of people in buy-side believe technical analysis is pointless, so be careful mentioning this in your CV and at interviews.

If you want to use your technical knowledge, perhaps look at a trade execution role.

#12

Pass all three levels and you have an ok shot, complete a top 10 MBA and you have a better shot. With just level 1, and only an accounting background you have almost no shot. Passing level 1 is not really viewed by any employer as an accomplishment.

#13

Some of the buyside boys salivate over the cfa. Don’t believe the hype.

#14

The only way to get into a prop firm these days with a TA background is to prove to your future employer that you have been very profitable the last few years using whatever technique you have been using. It’s a bottom line industry. If you can show them, they will hire you and put you on a simulator. If you show positive consistency, you will trade for real and your size will increase with every positive month.

#15

Some people can say long term fundamentals in commodities, energy, or whatever is bullish and it is acceptable. But when other people say long term perspective in chart work, they get laughed at. Question is do long term fundamentals ever change? If yes, then fundamentals should also get laughed at. If fundamentals can change, why can’t technicals also change? Sometimes it does change. Therefore, the stock will not do what it supposed to do. A good trader should be able to spot these changes. Whether a trader can determine these changes to be temporary or permanent that’s another question.

I just don’t believe technicals is being frown upon. I really can’t buy or sell a stock without looking at a chart first. Then I back it up with fundamentals. And you would be an i.d.i.o.t to not look at a chart before buying or selling. Two of the most well-known hedge funders, Tudor Jones and Steve Cohen, though they study fundamentals, rely more on technicals.

I totally understand Level 1 is really not a big deal. It is pretty much a general review for me. Level 1 for me is to get an interview. I initially thought maybe it will show me how to structure my writing of the fundamentals to match the bullish trends that I see on the stocks that I am tracking so I can pitch these stocks to potential employers. But i don’t think i am going to learn it in Level 1. Yes, these are long term bullishness. And the fundamentals are there to support it. You see a lot of traders just see the branches and the trees. They totoally miss the forest… But like anything else, circumstances do change.

But i think most employers look for what you can bring to the table, the way you think, and how you can make a good case for an investment. And you don’t know if you don’t give it a shot!

#16

For TA, It depends on how you approach things.

You might say: After a hard fall on prices, more often than not a short run up is a false alarm followed by another big fall. That happens because many investors look at the fall and think that the price felt too much and hence it should go up. Of course, if the fundamentals suck or public perception tends to see the stock as a zero, the fall will almost always continue, and hit hard. I’ve been shorting based on that behavioral analysis with good results.

Or you might say: I short when the graphic resembles a dead cat bouncing.

Some employers may think you have an interesting aproach with your first explanation. Most employers and clients will have a problem with the second.

#17

Technical analysis is a good confirmation and drawing entry/exit startegies and outlining your Reward:Risk ratios for the medium term.

It becomes increasingly important as your time scale decreases, and less important as you invest for the long term.

But since almost no one actually invests in today’s fast paced market, then I believe TA does have a decent place in your analytic tools. It’s just that most people don’t bother with the effort you need to master TA, for the little benefit you might gain. But if you already have it, then that’s definetly a plus. I started learning with TA myself.

#18

I started out with TA as well. Even created a simple algorithm based on TA concepts. It can be helpful with investing, but I concur with everyone else that no one will take you serious in AM unless you know all the fundamental stuff. That’s been my experience so far with all the people I’ve known from the industry.

#19

I don’t think anyone is going to say a dead cat bouncing. If you can describe all the nuances of a dead cat bounce then it is something entirely different. And i don’t think anyone is going to explain all the nuances.

Technical is the best confirmation imo. And the only tool you need if you understand it properly. It provides tremendous benefit. Not just a little. Fundamentals and technicals go together. The difference is that plant and equipment have no emotion while the market is filled with emotion.

#20

TA gives you the state of mind of the market. Definitely a tool to use as a complement to what you are already using. If it’s your main tool, you’re in trouble.