One Small Step

A couple weeks back, I signed up to take the first (of three) exams to earn my Chartered Financial Analyst (CFA) certification. I’ll take that first test in June 2008.

And I thought it might be interesting to others if I blog about my experiences along the way, since earning a CFA is known to be somewhat difficult.

I became interested in investing about 4 years ago when the thought hit me that the same skills I was using as an EE to develop digital communications algorithms could be put to use developing stock market algorithms too. Once I learned how to download historical stock data into Matlab I started devoting all lunch hours to stock data mining and backtesting, and shortly began trading with real money.

My initial results were good but eventually I ended up with a series of losses that put me deep in the red about halfway through one particular year. I lost faith in technical indicators (mostly), switched to value investing, and ended up recovering all of my losses and finishing the year, barely, back in the black.

I have continued to have good results using a value methodology and continue to read and refine my investing style. What started as a lunch time experiment has grown into an all-consuming passion. I sulk all day whenever I log in to catch the opening bell, only to learn it’s a market holiday. 🙁

But I’ve had the feeling for quite some time that my investing education has huge holes in it. Often I come across an informative passage in an investing book and think “Of course! Great! I will use this principle from now on!” This eureka moment is followed shortly thereafter by a sinking feeling that what I’ve just learned is so basic, it’s probably taught in Finance 101, and is a principle I should have learned a loooong time ago.

So I’m hoping that the concepts I’ll learn to pass the three CFA exams will fill those gaps. To get the actual CFA designation you also need a few years of work experience specifically managing assets. I’ll cross that bridge when I come to it.

Update: I finally passed all the CFA exams and wrote an eBook about the program. If you’re interested, click here.

11 thoughts on “One Small Step”

  1. hey man I was wondering if you would kindly help me with something in the first volume. In Reading 11: Hypothesis testing. In Example Three, the book computed the Z-test like this: Z = (Mean Value – Hypothesized mean value) / sample standard deviation.
    shouldn’t it be Z = (Mean Value – Hypothesized mean Value)/ (sample standard deviation/ the root of n ).
    thanx man please reply

  2. Excellent post, reminds me of my recent past and why I’m looking into being a CFA. I’m also an engineer by trade, investor by addiction.

  3. This is really wonderfull, i am a graduate surveyor but have always been addicted to stocks and investmentsi. I just started trading currencies but i just thought that being a CFA would increase my winning potentials and fill the lil holes. I wish you luck man!

  4. Hi Mostafa,

    They are in fact using the equation that you think they should be. Note that the 3 numbers .1336, .197, and .38 they define as standard error, not standard deviation. 🙂

    Thanks for the comments V and Jay. Wow – currencies – haven’t dared to dabble there yet!

    – Lumilog

  5. Mostafa,
    Well if im not mistaken the formula in which you divide by the root of n means youre dealing with a sample of the population. If you know the population then you dont have to divide by the root of n.

    On another note I am very pleased this blog is being written. I am currently an industrial engineer student, I want to be an investment banker.

  6. Hi All,

    For information of those who didn’t have time to check Errata. There are number of errors in all the volumes which would puzzle and waste time. So please download the errata for 2008 and modify your text accordingly.

    Thanks and all the best

  7. hey did u find a job in the investment industry after clearing CFA.i am an engineer but i am confused and dunt knw if CFA can actually help me to find a route into this industry.

  8. Hi Amir – I got the job after passing Level 1. It’s hard to say anything definitive on how much the CFA may help your job prospects. All I knew is that it couldn’t hurt, and I was spending so much free time reading about investing anyway that it made sense to do it in the CFA program framework where I’d have something to put on my resume for all my efforts.

    Best of luck! – lumi

  9. Hey Lumilog,

    I think i find myself in exactly the position that you described yourself. I have a lot of intereset in stocks, I have been trading from past 2-3 yrs with whatever experience i have gained over the time with my own investment style ( I can call it neither technical or fundamental ).

    I keep reading stuff related to investment and trading, so i too sometimes think as you wrote ” it couldn’t hurt, and I was spending so much free time reading about investing anyway that it made sense to do it in the CFA program framework where I’d have something to put on my resume for all my efforts.”

    I have some queries which are bugging me from a long time, I hope you can provide some insight into it.

    1) How much sense does it make for me to use my time by reading CFA stuff than by using the same time on my stock research.

    2) Will all the effort in clearing the CFA exam actually makes you a better investor / trader. Or Am I better of doin my own research in the same time. ( I mean, i can devote the same time to other studies of stocks, read about their businesses or study the historical data etc etc )

    3) I am an engineer, And I plan to leave my current job and earn my income wholly on stocks.. Finally, want to be a money manager. So, Will a CFA help me in getting into any investment related job ( am an engineer).

    4) I belive, CFA must have been quite easy for you since you would be aware of some investment related stuff even before preparing for CFA. Am i right?

    5) I am an engineer and i dont plan to do any MBA but still want to be in IB field. In this case, will CFA help me?

    Thanking you in advance.

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