Opportunity Cost

Yes, I re-registered for CFA Level III, though unlike in prior years I waited until the very last day before the first price increase deadline to do so!

You saw me whip out the “fall down 10 times, get up 11” attitude the day I found out I failed Level 3, but what you haven’t been privy to was the faltering & wobbling I went through for several days afterwards, as with each passing day I had still not pulled the trigger on re-registering! My brain offered me the following points to ponder:

    (a) my whole purpose of originally enrolling in the program was to get a well-rounded crash-course in modern investment theory so as to not waste time re-creating the wheel through my own trial & error. Being thoroughly familiar with (but by no means a master of) all CFA material now, that goal had mostly been accomplished.

    (b) and to me back in 2008, passing the CFA exams seemed like a great way for a Total Engineer to improve his odds of breaking into the field of finance. Well, that break has already been brock’n since 2009, so I can check that one off the list too.

    (c) even if I pass all the exams, I have an addiction to freelancing that only seems to be getting worse. Will I ever actually log 4 years of full time work experience to get the blasted charter?

    (d) none of the investors I admire have CFAs!

And while all of those reasons seemed valid for why I didn’t really need to continue with the CFA, there was nothing in there that said it made sense to quit – so I eventually re-registered.

Later that day, I took the dog for a walk and was enjoying listening to a podcast tracking Roz Savage as she checked in by satellite phone in her bid to row across the Indian Ocean. She was closing in on passing Level III of her own journey as she’d already rowed the Atlantic and Pacific. But she had a shocking revelation: despite earlier announced plans for a 2012 row west to east across the North Atlantic, she’d changed her mind! She said she was hanging up her oars after this one.

The main problem, she said, was the opportunity cost of being out on the ocean for months – all the other projects & plans that must be put on hold while at sea. I felt the hair on my arms stand on end, but… it passed quickly. I wondered what my subconscious had picked up on, but in the end just decided that my regular conscious was impressed that she’d used a term from the CFA glossary.

Days later, a new (and highly respected) acquaintance suggested that I shelve the CFA readings on economics and read the classic Economics in One Lesson by Henry Hazlitt if I wanted to understand how the world really works. Don’t tell him, but I instead lazily opted for some free audio tracks of expert Misesnistas discussing the book’s chapters, in hopes of getting The Quick Download

…and almost from the beginning the talk turned to opportunity cost – that invisible expense – and how the layperson usually just isn’t wired for being able to see it. Should all young people serve a few years in the military or a national service? Doesn’t seem like a bad idea to most people (I included myself). But what businesses, for example, would never have been started due to that age group’s time & energy being diverted? Google? Dell? Apple? Microsoft? HP? Facebook? …?

Um… well I wasn’t totally convinced that the companies wouldn’t have eventually gotten off the ground, and the true societal value of Facebook is debatable, but the spirit of the argument wasn’t lost on me – especially with the Jobs 2005 commencement running ad infinitum on the news networks. “Your time is limited, don’t waste it…”

It finally hit me like the proverbial ton of bricks that the opportunity cost of the CFA program was what I had not factored in when considering whether to re-register. I’ve told every person who’s asked me that there’s nothing to lose but money by going ahead and signing up for Level I if they even think they even might be interested in the program. But what about all my iphone app ideas, for example, that I’ve never had the time to bang out the code for because I’m studying?

As I concluded that it was probably for the best that I re-registerd – just in the spirit of finishing something I started – my phone rang. It was the HR department of the engineering company I consult for, and the short story was that I could continue my work for them but would need to jump through a couple hoops and re-negotiate my hourly rate – a no-brainer in the old days but actually now a serious decision as I’d been re-born to consider opportunity cost. After a short living room summit with my wife, we decided I’d quit. A chink in the armor of diversity of income streams, but now space for other Great Things to emerge. (Pleeeease emerge, oh great things!)

Luckily, preparation for a CFA exam level is mostly cumulative. I logged about 240 hours for the June 2011 exam & this year I’m only seeing a couple chapters of Level III that isn’t word-by-word and problem-by-problem exactly the same. Therefore I’m going to take a radical approach to my CFA preparation this time around and not really study all that hard. I do want to finish what I’ve started, but at this point there is other material that is highly more applicable to my – now only – day job.

4 thoughts on “Opportunity Cost”

  1. Wow great post! I too am pondering the value, but, with a child on the way, i don’t want my son to think of me as a quitter. I have to say, however, the value of the cfa is greatly exhausted after level 2 with the exception of a couple of sections in level 3.

    Having said that, i had some questions pertaining to the new material that i would like to bounce off you… Would you mind emailing me?

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