Half and Half

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

Ancient CFA Mariner
Priorities, Priorities…

Day after day, day after day,
We stuck, nor breath nor motion;
As idle as a painted ship
Upon a painted ocean.

Water, water, everywhere,
And all the boards did shrink;
Water, water, everywhere,
Nor any drop to drink.

Yes I felt like the ancient mariner whilst in the doldrums of the 700-page Volume III. As idle as a painted CFA candidate, enrolled in a painted program…

But things ended on a high note. Apologize for all the whining in my last post. Growing pains…

Shortly after writing that, I reached Volume III’s Reading #42, Financial Statement Analysis: Applications.

Now the first part of this chapter was quite enjoyable in that it delved into a key area of personal interest, evaluating past financial performance and projecting what will probably happen in the future.

Then the reading drifted into stock screening (with which I had become totally disillusioned, you’ll recall) and mentioned something that really lifted my spirits.

If you use multiple screening criteria, some criteria can serve as checks on the interpretation of other criteria.

They give a great example. If, in the attempt to find value stocks, you screen for low P/E alone, a screener may return a mix of indeed unfairly beaten-down healthy stocks, but also fairly beaten-down unhealthy stocks. However if you add some additional criteria, say requiring future projected EPS and dividend yields to be positive, along with some minimum requirements for one or two financial leverage ratios, the screener should then start to separate the value traps from the value plays.

At least in theory…

Shortly after that, Reading #42 concludes with a section called Analyst Adjustments to Reported Financials. This is a 16-page summary of the earlier 250 horrendous pages that made me cry for my blankie. But seeing it again at the 10,000-foot level, well, somehow it all just made sense and didn’t seem as complicated anymore. 🙂

Volume III concludes with a spread on how IFRS and GAAP are converging! So while we present candidates have to be familiar with two sets of accounting rules, future generations will only have to know one. A bit of a downer, but something we’ll no doubt wear as a badge of honor when talking to young CFA candidates decades from now.

And before I knew it, I had reached the halfway point in the study guides. It had taken me a little over 5 months.

Shortly after finishing Volume III, a friend handed me her copy of Disney’s annual report because she thought I might find it “interesting”. I open it, scan the financial highlights, and give a pro bono…


    “At first glance, EPS grew substantially over the prior year – from $1.64 to $2.25. Wait… (scan footnotes) …the earnings were biased by a handful of items, including a pile of cash they obtained by selling some of their business stakes. Removing the effects of these you get a better look at earnings growth from just normal day-to-day operations, which is still an impressive 24%. …And even though when you think of Disney you probably don’t think of Desperate Housewives, I see here that most of their revenue comes from their media networks, not their theme parks…”

“Wow, you’re really learning a lot,” she says. I decide to stop there, close the report, and hand it back. Premium content is for paying subscribers…

…and if I say much else, she might take an interest and start asking questions I can’t answer, blowing my cover.

So now I’m already 75 pages into the next study guide, Volume IV: Corporate Finance and Portfolio Management. Weighing in at 300 pages, it feels pamphlet-sized next to the previous volume’s 700 pages. IV starts with readings on how businesses plan which projects they’ll use their limited resources to pursue, which is mostly the same ol’ NPV and IRR “time value of money” stuff already covered in study guide Volume I.

I’m in the middle of “cost of capital” right now. Not terribly exciting but does begin to touch on some subjects I’ve been dying to learn, like the capital asset pricing model which, I understand, to also be of use in constructing portfolios. I think I can predict how…

Currently biding my time until page 195, where the true portfolio management topics begin. And unfortunately less than 100 pages are devoted to this – what I expect to be a favorite topic! 🙁 But at least it gets a healthier treatment than Volume I’s microscopic section on Technical Analysis.

Speaking of health, short & sweet might be just what the doctor ordered given that after finishing the remaining 200 pages of Volume IV, I still have the 500-page Volume V and the 250-page Volume VI to plow through in order to have worked each practice problem and read each page of the study guides once.

Then review begins to really burn to disk. Three months till test day…

10 thoughts on “Half and Half”

  1. Lumilog,

    Good to see you back in action…

    Nice quick analysis of Disney….

    Looking forward to reading your future blog. From what I’m reading you’ll be 1 of the elites who can pass the Exam (L1) in one try.

    Nice view from your balcony…

    Sail Away…Captain!

  2. Hey Mike – good to hear from you.

    Can’t imagine passing L1 in June. I can do all the hand-waving and describing of the big picture and general concepts, but give me a real problem with real numbers… not so much.

    I’ll smoke that (re)-test in December though. I forget, are you a candidate or charterholder?

    -Lumilog

  3. Hey all Lumilog followers, not that we have time for any thing but the CFA volumes but the the March 1st-7th Economist has a 14 page special report on the Asset Managent industry. Interesting read for anybody pursuing a career in the field.

  4. Thanks Mick.

    I found them online here. The link takes you to the Table of Contents for that issue, scroll down to the section heading A Special Report on Asset Management.

    Or start with the first article here. At the bottom of each article is a link to the next one.

    – Lumilog

  5. Hi Lumilog. Been following your blog since I started level 1 in December. I’m also an engineer, with no financial background. Taking the course to get more insight on investing, but not sure I want to move to the financial field.

    Based on what I’ve read here, I think you’ll enjoy portfolio management. I sure did. Very applicable. Would’ve liked a bit more though.

    Keep up the blog. It’s nice to hear how others are faring.

  6. I am also on my way on becoming a CFA… You can join my journey at rgborja-jorney.blogspot.com

  7. Haven’t given up. Just have been more focused on studying than blogging. Hope to get a new post up within a week. 🙂

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