June 27, 2007

CFA and its value - A personal view.

Nowadays, being in the investment and finance profession seems to be the hottest property in town. This is because there is so much publicity on the profession and everybody thinks that we guys are making big bucks. There is nothing further from the truth.

Anyway, I do receive some questions on my job and how to get into the line, especially if you are not finance or accounting graduate, and whether does a Chartered Financial Analyst (CFA) qualification helps.

As an investment manager, I take care of the company foreign exchange (FX) and FX option portfolio. On a day-to-day basis, I monitor the FX market, read the news and analyze the economic data released from US, Europe, and Japan. Technical analysis is something I used a lot in deciding whether to do a trade or not. I will also be looking into derivative instruments like options and futures enhancing the yield and risk management purpose.

Screening for stock investment ideas is also something that is part of the daily routine. There are thousands of ways to screen for stock ideas, and there is no correct way because of he difference in strategies. After having some stocks idea list, doing industry research, company financial analysis, valuation, and monitoring the news of the company soon follow. Sometimes the stocks are not covered by any analyst at all, and that makes it more difficult for us to do secondary research. Bloomberg machine is our best friend, and for that matter, is probably any research analyst’s best friend.

On rare occasion we will have company visit and have opportunity to speak to the management, however, since we are not a fund or brokerage house, primary research is not what we will focus on.

Questions I received from others are that if they are currently an engineer or IT specialist, is it easy or possible to switch line and get a job in the investment industry? Does a CFA qualification help at all? Is the CFA examination difficult, and should they self-study or take lesson.

While I cannot speak for others, I can only speak from my own experience.

Many times, I find that people in the engineering or IT line can be better investment professionals than those from the finance sector. The reasons are (1) they are better train in mathematics and analytical skill, and (2) they have industry knowledge in their respective field, and that helps in understanding the companies that they analyze. My ex-colleague used to be an engineer before joining my firm as an investment analyst, and I think he is quite good and fast in picking up financial concepts.

Having a CFA qualification has increasingly become an entry qualification for the investment industry, and in my view, it does help in getting your foot into the door for the job. Furthermore, the knowledge one gain from the program is something that is valuable – it helps one to understand financial statements and various valuation methodologies.

If one is totally new to finance, it will be difficult to self-study, in my view. In fact, CFA institute recommends that candidates without accounting background should take a course in accounting on their own before embarking of the CFA examinations. I myself gone through the program through self-study. It took me 4 years to pass all the 3 level of examination (I retook the level 3 paper).

The passing rate for the exam is about 50%, 55% and 60% for level 1,2, and 3 respectively as I remembers it. Why such a high failure rate in level 1? I think this is because many candidates registered for the examination with a “tic-kam tic-kam” attitude. They reason that if they can pass level 1 exam with a little bit of luck, than they will go on to do level 2 and 3, if not, they will just drop out and forget it. After passing level 1, the remaining candidates are people that are more serious. And if one goes to level 3, he will be very serious about it. Surely, he will not want to drop out in the last level. This explains why the failure rate is lower in level 3 than level one.

At the end of the day, attitude holds the key. There are many investment managers out there without a CFA quailification, yet they are very successful.


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Anonymous said...

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icecold1967 said...


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