Desperately Seeking Problems


They say the first CFA exam is a headache, the second – a heartache.
There are three golden rules to passing the three exams,
None of which anybody knows…

I hope all my fellow sufferers out there are making good progress reviewing for the exam. I’m following my same “golden” study scheme as last time, an infinite loop of re-working the problem sets at the ends of the chapters.

I’m actually surprised by how quickly I’m making my way back through it all. A big reason is that there seem to be just fewer problems in the study guides. Many chapters have no problems at all! So I just review the learning outcome statements at the beginnings of these chapters and make sure I’ve mostly gotten what I was supposed to get out of the reading.

Like last time I’m feeling very unprepared for the upcoming exam. My brain is having fun offering up Darwinian analogies, like the Level I exam was a mild antibiotic that killed off the weaker candidates. This leaves me in competition with the more resistant strains, my fellow Level II’s, making it harder than last time to beat the curve and survive the second round of antibiotics.

And to all you repeat Level I-ers, you look like decent lads. Sort yourselves out and pass or I shall taunt you a second time!

If you need a break from studying I’ve found a very entertaining new hobby! Think of some of the small asset management firms that you’ve been curious about. You know, the ones made up of only a handful of smart guys and gals offering the same services you plan to one day, like asset allocation enhanced with some sort of quantitative mojo. Wouldn’t it be nice to peer behind the veil of their classy website to find out the inside scoop? And dirt?!

1: What is their typical client like?
As one part of the SEC website offers extensive public records on registered investment advisors, it’s easy to search for a firm by name and find out its total assets under management and number of clients. Divide total assets by total clients to get an idea of the average client’s portfolio size. You can also see what types of clients they’re serving (corporations, charities, private high net worth individuals, etc.)

2: What are they making?
More interesting is gauging how much revenue they’re bringing in. I arbitrarily estimate this as about 1% of total assets under management. I’m assuming these 1- or 2-man shows have low operating costs since they’re doing most of the work themselves in tiny offices.

3: How large are they living?
While browsing the records you often come across the principal(s) home address. Cut and paste it into Google Maps street view. Get a nice look at their large house, expensive cars in the driveway, and even take a virtual stroll around their neighborhood. Paste the address also into Zillow to see how much their house is worth. Truffles and travel interest me personally more than Bi-levels and Bentleys, but it’s fun to gawk at the opulence (or lack thereof).

4: Skeletons in the closet?
The SEC also maintains records of prior violations and indiscretions. I found one neural network firm that got fined for doing one thing we’re taught NEVER to do in the CFA program. They back-tested the quant algorithm of one of their new funds and claimed the historical simulated returns were the historical actual fund returns. It cost them $25,000. Good stuff.

For a more improving diversion, I see that the CFA Institute is just starting to release some of the recorded talks from the 2009 CFA Annual Conference through their podcast. I thought long and hard about attending this year, especially with the candidate discount and it only happening a couple hours from where I live, but it still would have worked out to about $2000 which I couldn’t justify while still working as an engineer.

I definitely plan to start attending these in the future. Unlike some of the IEEE conference presentations on esoteric Ph. D. topics, you can actually follow and understand the CFA talks. Also unlike IEEE, they’re often sprinkled with humor and political jabs…

…regarding CAPM, let’s just say it’s a good thing for its authors that they don’t take back Nobel prizes…

…how is Mr. Bernanke going to throw the proverbial dollar bills out of helicopters to stop deflation? All the helicopters are in Iraq…


The CFA’s previous audio podcasts, even the ones with seemingly boring titles, almost always end up being fascinating (their video podcasts, not so much). The dog and I take the ipod for a walk one day and learn all about Islamic finance. We walk the next day and discover that there are even sub-categories to the timber asset class!

Soft wood timber is mostly used in construction, so returns are therefore closely linked to how the housing market is doing. Hard woods are used for other things like furniture, and so are less correlated.

Well it’s back to the books for me. The time spent tally continues below. 4 weeks till test day!

Read/Work Problems of Volume 1: 26 hours
Read/Work Problems of Volume 2: 15 hours
Read/Work Problems of Volume 3: 13 hours
Read/Work Problems of Volume 4: 32 hours
Read/Work Problems of Volume 5: 19 hours
Read/Work Problems of Volume 6: 29 hours
Re-work Problem Sets a 2nd Time: 66 hours
Total Preparation Time So Far: 202 hours

Currently re-working problems from chapters: 58 33 2 45 47 66 7 15 51 25 9 42 21 63 14 68 18 34 62 4 49 1 17 31 6 41 60 65 40 37 11 69 27 44 16 48 46 28 5 70 13 43 57 12 19 26 61 32 39 29 67 53 10 24 54 22 30 56 3 8 35 52 20 59 23 50 38 64 36 71 55

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

2 thoughts on “Desperately Seeking Problems”

  1. Hey LuminousLogic,

    I’ve been enjoying the posts thanks for your thoughts. I just wanted to ask you if you have any new thoughts about dealing with the whole 4 years work experience requirement? Have you seen any other helpful posts on the subject or thought about alternatives? I think I’m more of an entrepreneur then office type and wanted something to boost my credibility but couldn’t justify the cash for an MBA. Any thoughts would be appreciated.


  2. thanks for the comments ben. you and i are kindred spirits vis-a-vis entrepreneurship. i do have some updated ideas on the subject but want to do them as a blog post so give me a few days to collect my thoughts.

    thanks! lumi

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