93% Ethical, 93% Professional

I started this CFA thing in order to become a better private investor, and to open the doors to maybe one day becoming a professional investor too. So after signing up for the first CFA exam I was chomping at the bit to get my study guides and start learning things that would improve my trading.

However, Vol. I of the Level I study guides begins not with balance sheets, earnings projections, and discounted cash flows, but Ethics & Professional Standards.

For someone with strong quant leanings, this was – like – yawn… 🙄

Of course I understood the need for ethics and all that, but not being one who has problems with lying, cheating, and stealing, I found the prospects of studying pages & pages of good behaviour rules, shall we say, unmotivating. Preaching to the choir, if you will…

Here’s to lying, stealing, cheating, and drinking!
When I lie, I lie to save a friend…
When I cheat, I cheat death…
When I steal, I steal a maiden’s heart…
And when I drink, I drink with you my friend!

But on one level, just reading the various ethical case studies proved enjoyable because it provided glimpses into what the everyday “real world” experiences of being in the investing profession might be like. Insightful for a total outsider like me.

Now a lot of the material was somewhat common sense:

    • Don’t do things that could create – or appear to create – conflicts of interest.
    • Treat all clients equally & make their best interests your priority.
    • Don’t engage in behavior that causes the public to lose confidence in the integrity of capital markets.
    • No tipping off anyone when you’re privy to nonpublic material information (e.g. a coming change in an analyst recommendation).

And so on…

However there were many other sections that highlighted more subtle situations which, at first glance, could go one way or the other.

For example, what if you’re privy to inside information that could make a lot of money for your client? One of your prime directives is to act in his best interest & maximize his profits, right? On the other hand, there is that thing about preserving the integrity of the capital markets…

Poodle Study
Random Photo to Make You Go Awwww

After going a little over 100 pages into Volume I, you finish up ethics and come to a little practice test. There are only 27 questions covering this entire subject, but it provides at least some sort of barometer as to how well you know the material. Some of the questions even have a little graphic next to them that lets you know they came from previous CFA exams.

I got 25 of the 27 questions right, or about 93%. One of the misses was just careless – I read the question too fast (some of them are long). The other was a true miss…

The wonderful thing about these practice problems though is that in addition to giving you the correct answers, the CFA study guide also goes through each of the 4 possible answers to explicitly tell you why they do, or do not, make sense. Very helpful.

So after a short trip through the following section on Global Investment Performance Standards (much of which is optional) I’m finally breaking into my first taste of quantitative methods. 😛

25 thoughts on “93% Ethical, 93% Professional”

  1. Hi,

    This blog is such a good idea.

    I’m a french finance student, currently a one-semester student in Xavier University (Cincinnati, Ohio) and I have registered my self for the CFA session in June 2008.

    Your blog let me know how other people can perceive the exam…Very interesting.

    Go On.

    Thanks

    Louis

  2. Salut, Louis. I plan to keep writing as long as I feel I have something helpful to say and have the free time. 🙂

    Bonne Chance!
    -Lumilog

  3. Excellent blog !! I am a software engineer and I am at the crossroads in my career. Should i try to go on in IT or should i get an MBA and try to get into investment management ?

    I admire how you are able to work and also study for CFA at the same time. Whenever I think of part-time study, I dread the personal life sacrifices that have to be made.

    Good luck !!

    I will try to follow your blog !

  4. Namaste Krishna! Thanks!

    The only advice I can give is that if it’s really your passion it won’t feel like a sacrifice. I was in a Ph.D. program for a while and it was murder b/c I didn’t really want to be there.

    On the other hand I have spent all my free time the last 4 years reading about investing, coding up computer trading simulations, etc., and have enjoyed every moment.

    I don’t know if I can balance work & study well enough to pass the CFA exams on the first try. But I’m enjoying the process and will get there eventually!

    -Lumilog

  5. Hi…i m a student of Bachelor of Commerce,Karachi,Pakistan..i m very much interested in CFA Charter…this blog is very good and helpfull…thanks..Regards..:)

  6. I dont want to discourage you, by any means, but i was wondering what you think about my thoughts below :
    The natural path into investment management – A young college kid gets a business degree and then works for a investment management firm. He then acquires a CFA degree while working on the job. So, he is about 25-28years old and already has atleast 4-5 years of experience under his belt.

    So, where do we stand against this guy ? If you draw the career graphs like stock charts, i wonder what it will look like ?

    I know they say, if you love your job, you will do well, and it will show in your performance(that is what is great about investment management, right ?). Is that what motivates you ?

    my background : I have worked in developing applications for financial services companies. That is how i got a feel for different financial products. And then as i started looking into personal finance. i soon realized i was reading more financial news than tech articles. What is very attractive about the finance industry is the constant learning and re-application of what you learnt. since every day is like a new problem. you can use historical patterns and the wealth of knowledge there is, but every day is still a speculative problem which is fun to solve.

    Although, i can secure(as long as re-orgs are not in the works) a full-time job that pays decently well in IT, my gripe about the applications area, is that :
    You could master the system you are working on in a year or two at most, and from then on, it is not challenging.

    If you are a contractor, it is more challenging, but then you are learning and losing information/technology skills as you move from contract to contract. This is what i have been doing last few years.

    Sorry.. about the random thoughts… but hey… isnt that what blogs are for ?

  7. Hi krishna. Don’t know if your comments were directed to me or the other Krishna. Thanks for the long entry.

    As for me, I’m primarily doing the CFA to have, firstly, a formal curriculum to follow in order to really learn all about investing instead of just relying on what I pick up from the investment book best-sellers, which is a bit ad hoc.

    The second reason I like the CFA program is that I know if and when I pass all 3 exams that I will most likely have a solid financial background – no “gaping holes” in my knowledge.

    As to whether this will lead to investment employment – that remains to be seen and I’m not too attached here. I do know of other engineers who have made the jump to Wall Street, without even a CFA (just strong math and statistics skills).

    But if all this program does is make me a better private investor, I’m sure I will more than recover the cost over the years. And there’s nothing to stop me from breaking into the biz by doing money managing through my contracting business alongside the engineering.

    Thanks for the thoughts and honesty!
    -Lumilog

  8. Something interesting I ran across recently regarding corruption. 9 times of out 10 the motivation is not greed or want of money, it is simply opportunity. Witness Martha Stewart. Given her billions, was a few million dollars worth it?

    When “opportunity” comes knocking is when your ethics will truly be tested.

    -Toby

    P.S. Best of luck in your studies. I am also considering sitting for the CFA in June. I’m planning to follow your blog as I go through the process myself.

  9. Hello All,

    I am seriously considering undertaking this exam process – I read all about it on Wikipedia, and I’m kind of excited.

    My question is:

    How many hours of study do you think are required to confidently walk into the exam room thinking, “I’m going to pass, I’m going to pass…”?

    Please provide a range of hours in the 95% probablity range 🙂

    better yet, if you know a webpage/forum that talks about this, that would be even better.

    P.S. this blog countdown is a great idea

  10. Hi Kevin,

    Thanks for the comment. I’m still a newbie at this – the CFA institute says a minimum of 250 hours on this page.

    Of course the amount of time will depend on many factors – maybe most important is whether you’re coming from a business background or from a totally unrelated field like me (engineering).

    Good luck,
    Lumilog

  11. Krishna,

    I know, you’re concerna about age is one I share. I’m 33years old and a doctor. I know a 21year old medical student friend of mine who has taken a year off to do a masters in business and is being approached for work in investment banking.

    I think here is no point comparing yourself to other people. If you want to make a switch in career give it a go: you can always switch back, and I presume bring some useful skills back with you.

  12. BTW,

    is there any point buying a past edition of the curriculum off amazon while contemplating the idea of doing CFA? They seem to imply on the CFA website that the curriculum changes every year.

  13. I think it might be helpful if you work your way through the current curriculum and find yourself with time left over and would like additional problem sets to work.

    -Lumilog

  14. Congrats for the 93% results!

    I do believe you can make it!

    Hope I can too… As of now I am allocating 3 hours per day for review… Its a bit hard here in Bicol, Phillipines, since reading materials are very scarce and Im still not enrolled coz im still saving for it… Its a big amount here in our country since a dollar is equal to 45-50 pesos…

    Im having depression and panic attacks lately because of it… time managment is one of my problems having work and 3 little kids living with your whole clan in a compound (thats the way here in the province) I don’t know if i can have quality time reviewing…

    But im not losing hope! I have made my desicion! I will stick on it till it is achieved…

    God Bless!

  15. Hi Borj,

    3 hours a day – wow. I haven’t been able to achieve that so far and I don’t even have any children (though one puppy). Best of luck to you.

    -Lumilog

  16. hello Lumilog I just purchased the CFA curriculum. I am a Finance major in my last year of college. while waiting for my material i enjoy reading the blog thanks for the insight. Please post hours of study and approach. thanks

  17. Good luck Nick! I’ll try to do a post about study approach soon. As a senior Finance major hopefully most of the stuff will be second hat to you.

    -Lumilog

  18. I truly have stumbled on this blog and find it very helpful. I appreciate the literacy and grammatical precision (must be your background). I think it’s wonderful to see how others are fairing in the pursuit of the CFA.

    That said, I have a 2nd interview tomorrow as an investment research analyst with a local firm that has has a huge international presence. Wish me luck. One of their preferred qualifications was the CFA or CMT. I have neither. I come from a financial background…had my series 6, 63, 7, insurance licenses and they’ve all expired. The 7 was pretty tough, but I imagine the CFA to be much tougher. Maybe on the lines of the bar exams. The failure rates that I’ve researched paint a pretty gloom picture. 1 in 4 pass. I wish the process didn’t take so long, but I think we really need the time to read, study, take computer based practice tests over and over, and plain old get really prepared. Nothing about these exams can you take for granted.

    I’m still reading all your blogs and had to chuckle about the calculator and the additional time it takes to learn how to run that contraption! I started looking for my BA II Plus calculator and can vaguely remember having to throw it out with sadness because new batteries could not revive it. It was one of 3 calculators that I ended up with in the course of a college education. The remaining calculators in my possession are not allowed….sigh.

    I will catch up to date on your blog and all the replies. Maybe I’ll be the one and only female to pursue the CFA along with all of you. I’m well aware that the financial world is a man’s world. I like the insight provided by all and see the camaraderie forming already. It may take a village to help everyone pass this bad boy and collect the prestigious letters behind your names.

    Best of luck to everyone!

  19. Thanks for writing Susie. Glad you’re enjoying the blog (my mother was an English teacher, by the way…).

    There is at least 1 other female posting comments here. 🙂 Interestingly enough, the CFA crowd seems quite similar to the one I know well from engineering – overwhelmingly male, and Indian or Pakistani!

    I always got along with those guys well (they understand tea and can translate my favorite Bollywood & Nusrat songs) though I’m afraid it’s a bit of a one-way street (I don’t understand or enjoy cricket).

    Best of luck to you & hope the interview went well!
    -Lumilog

  20. My background here is closest to Krishna’s in coming from a pragmatic computer implementation background. Before I was in this small town (Pensacola), I had been working in the big cities (New York, Miami) and what I know about those cities, especially New York (for finance) is its all about the schools you’ve been to. The instructor I had for “Stock Valuation”(online course) had a finance degree from Minnesota and sadly couldly get his foot in the door – hence his teaching (he was a great teacher though). I still think this is a great designation though to pursue to formalize knowledge and life has a strange way of working so perhaps this is also the path to take – the pursuit of dreams (or perhaps passion – I’m not sure if its all avarice), perhaps freedom and also seemingly interesting topics. Its fascinating that so many people here come from tech backgrounds.

  21. After I posted and caught up on all the reading, I did notice another woman poster! In my experience, that’s the way it is…few and far between. I like to upset the apple cart when I can!

    The interview went well and now I’m sitting on the questions to the LPAT assessment test. This is supposed to test my aptitude for language programming or being able to learn that stuff. It’s a 2 hour test, 104 questions and the next step in teh interview process. I did peek at the questions to get an idea of what I’m up against. I think maybe I can get a passing score. Everyone as this company is either a CFA, CMT, or holding an MBA. What everyone has been alluding in your blog to with the extra education seems to be holding true, at least with this company. To think, I stumbled upon them and then realized even though they are small, they have a huge presence in 30 countries. I’m applying for an entry level position, but I bet the guy that will be my boss :)) is pulling in big bucks. It makes the CFA look more attractive to me. But then I’d likely have to move from the sunshine state to the northeast (brrrrr) or back to the west ($$$$). I will certainly be watching the progress of you and everyone you’ve attracted here.

    Susie

  22. Is that your puppie in the picture? What chapter is she reading? I still need to answer your question about the lagging inputs in supervised learning in the form of a post… I haven’t forgotten!

  23. For ethics part cfa level 1 what do you recommend me to study? The Schweser notes or do i have to go through CFA text books. I have just thirty days at my disposal for the exam…

    Help me out

    Ghoutham

  24. I didn’t use anything but the CFAI for Level 1, but in general I rely heavily on the Schweser Qbank to find out where I’m weak, and if I don’t understand what I miss, then I’ll go back and read the particular LOS it came from to try to make sure never to miss that sort of question again.

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