Speed Bumped

For a chronological index of my path to the CFA, click here.

Haven’t written in a while because I haven’t wanted to whine. But I’ve been getting emails asking for another update so I’ll try to collect some thoughts. And thanks for asking! 🙂

Progress has been slow as of late. Part of the reason is work, part is the holidays. But probably the greatest reason is the subject matter I’m currently wading through. It just hasn’t been lighting me up like some of the ealier chapters.

Christmas Poodle

As the year draws to a close I’m only on page 194 of Volume II (Economics). After enjoying the first couple of readings in this volume, I lost steam…

The readings I’ve delighted in the most so far in the CFA program are those that give me ideas & theory as to how to improve my investing – especially the ones that seem immediately applicable – even if, in reality, I don’t have the time to give most of them a try right now.

But my recent readings just don’t seem to fit that bill. They’re perhaps of more use to people who run businesses, not buy and sell them. It’s not lost on me that understanding supply, demand, cost, revenue, and benefit curves could help one predict which way a business’s future earnings will go. But these topics along with others like consumer surplus and deadweight loss haven’t changed what I do when I log in to my Ameritrade account in the morning.

At first I started to go through this material quickly. That was, after all, my plan starting with Volume II – that time was running out so I’d better get on the stick and stop being so much the philosopher who ponders, savors, and bores the wife with each paragraph he finds fascinating.

But I quickly found myself in a similar situation that I’ve been in with late-night semi-comatose reading of spy novels. Is Park that good general from South Korea or the assassin from the north? Why again is profit maximized when marginal cost equals price…?

Basically I realized that despite having actually read many pages I was mostly lost and needed to start over. So I did, and have a more complete understanding of the topics now, even if I’m not really sure how to use them…

The good thing is that I see upcoming chapters that I think I’m really going to enjoy! We’re talking business cycles, unemployment, CPI, GDP, inflation, and the Fed. All topics traditionally tied to predicting what’s in store for the market.

I’ve watched my portfolio do a massive step change when I’ve been logged in during a Fed interest rate cut announcement. I’d like to understand that more completely, especially since there seems to be so much conflicting opinion these days as to whether Bernanke knows what he’s doing or not.

And to Volume II’s credit, I must say that I really enjoyed the few paragraphs on rent seeking. It’s always insightful when someone points out glaring flaws in your logic (such as when my wife noted that I don’t like to pay taxes but like going to state parks).

The rent-seeking reading showed me that while many of us may think we’re “against” the Greedy Ones who try to capture our consumer surplus through the creation of monopolies, an integral part of many of our investing strategies actually consists of trying to find & purchase undervalued monopolies! But we spin it as investing in businesses with economic moats!

So OK, count me among the Greedy Ones… 😳

A couple final odds and ends. If you’re looking for some holiday reading you might want to try The Wisdom of Crowds by James Surowiecki (link below, but my library had it). If you think a market is only a tool for making (or losing!) money, then you’re not familiar with prediction markets.

I now understand why the Department of Defense wanted to create a terrorism futures market after 9/11. And would you believe that the stock market essentially “knew” which company was responsible for the Challenger accident only 20 minutes after it happened? See pg. 7.

Finally, did you enjoy Tommy Lee Jones‘s performance in the movie Men in Black? Wanna hear him break down subprime and Minsky cycles into simple language for you? If so check out The Liquidity Conundrum at this CFA podcast link. It’s actually not Tommy Lee Jones but his audio clone, Paul McCulley from Pimco. The lecture didn’t really capture my attention at first, but by the end I was on the edge of my seat. I’m not sure I would have figured out myself how stability creates instability.

Well, Happy New Year to everyone and to all of you planning on starting studying on January 1 – enjoy your last couple days of freedom! And for those of you already cramming, keep up the good fight…

For a chronological index of my path to the CFA, click here.