Stochastic Thoughts

No single theme today – just a collection of random topics…

(1) About the 18 lbs. (6 volumes) of study guides…
A good portion (28%) of the 1st study guide is not material you have to memorize (appendix, index, & answer key). Assuming this is also the case with the other volumes, when you look at your study guides and feel overwhelmed, think “it’s more like 4.3 volumes or 13 lbs.”

But if anyone says they’ve heard that the CFA program you’re studying for is rigorous, be sure to hand them all 6 volumes at once and say “Yes! I have to learn all this!” 😉

(2) About the pace of study…
I don’t know about you other candidates but my pace through this material has been quite slow.

Massage Chair

I’m currently on pg. 362 of Vol. 1 after 40 days of studying “whenever I have free time”. And this has included trips through material I thought I was somewhat already familiar with.

So if things continue at the current pace, I’d predict that I will end up making it through all 6 study guides once before the June 2008 exam, but once probably won’t be sufficient to retain enough to pass the exam. 🙁

Obviously I need to see what I can do to change this. For those of you who have written saying that you’ve received your prep materials and are planning to start studying on January 1st, let me strongly urge you to start today. The material isn’t necessarily hard, just voluminous.

(3) About memorization…
Like it or not, the study guides often do not include derivations of important mathematical formulae. I don’t have the best memory so in my engineering courses I usually relied on being able to re-derive formulae as needed. That’s not going to work for the CFA…

(4) About the purpose of a business…
Lest you think the purpose of a company is to make a little money while at the same time providing safe & secure jobs, health insurance, and pension plans for employees, and taking care of customers and the environment, the CFA study guide doesn’t mince words!

“…we take the maximization of shareholder wealth to be a basic financial objective of a company…”
– Vol. 1, pg. 220

OK… So they did say a basic objective, not the. And they also clarified that they’re talking about financial objectives, not raison d’être.

Sometimes I get carried away…

(5) About the definition of a business…
I love the idea presented in Vol. 1 that a business is essentially an investment portfolio. And instead of it being a portfolio of stocks & bonds, it is a portfolio of projects.

An investor may add a security to his portfolio if the expected returns are above the risk-free rate. Similarly, a business can use discount cash flow analysis to determine whether to add a certain project to its portfolio based on the project’s estimated net present value (NPV).

I really have to wonder if this sort of logical approach was used in some of the places I’ve worked. Some seemed to be a collection of science projects instead of a portfolio of investment vehicles…

(6) About the road ahead…
And what’s that I see starting on pg. 503 of Vol. 1? A section on Technical Analysis?!? I’d been led to believe that, like reincarnation, the efficacy of TA is something that no one has been able to ultimately either prove or refute.

Though I personally find the subject fascinating and continue to dabble in it, I must admit to being suprised to see a (thin) section devoted to it in the CFA program. Somewhere I’ve gotten the impression that 99% of “serious” investors thought this stuff was voodoo.

This is the last section in Vol. 1 and one that I’m really looking forward to, though it may just turn out to be a case of “know thine enemy”.