My Thoughts on the CFA
- I like the concept of the CFA; I think it's on the right track. I think that in the future most people will get job-specific qualifications in the way that the CFA has set things up.
- I also like the textbooks; so far I've found them easy to understand.
- There's so much material that people may forget a lot of the stuff that they've learned. It might be a good idea to require that people get retested to make sure people remember this stuff.
- A lot of the material may not be as important for many people (eg the more advanced math). It might a good idea to take out the math and have that as a separate designation, and just test people on their knowledge on the more broad-knowledge (how the markets function, how to handle ethical issues). On the other hand, it does seem to be pretty important to understand how these firms are using formulas to price commonly-used things like derivatives.
- I haven't really run into stuff in the Level 1 textbooks that was hard; it's all been pretty easy to take in. The only "hard" thing about the exam is the huge quantity of material that needs to be learned.
Buffett and Soros on certifications, taken from "Becoming Rich", page 234-235:
...
:
Neither [Buffett nor Soros] has passed any of the many securities industry exams that employees of Wall Street firms are routinely required to take. When Buffett became CEO of Salomon Brothers in 1991, "there was also a rule that because I was an officer of a securities firm I had to take the Series 7 exam [for stockbrokers]," he recalls. "I kept delaying it until I left because I wasn't sure I could pass it." Earlier in his career, Soros actually took such an exam--and failed it miserably.
"There came a point when they introduced a certificate for security analysts, a sort of professional qualification. After avoiding it for a while I sat for the exam and I failed in every conceivable topic. At that point I told my assistant that he had to take it and pass it. As I understood it, the importance of the certificate would not start to matter for another six or seven years and by that time I would either be so far ahead that I wouldn't need it, or I would be a failure, in which case, I also wouldn't need it."
When the world's two greatest investors fail or are afraid they'd fail such professional exams, one wonders what the true value of these qualifications is. If neither Buffett nor Soros has them, you certainly don't need them to achieve investment success. What you do need is to follow the same mental habits and strategies as Warren Buffett and George Soros.
CFA Level 1 Textbooks
Total page length: 3315pp
@ 30pp/day it'll be 110 days (~4 months)
@ 20pp/day it'll be 165 days (~5.5 months)
@ 10pp/day it'll be 331 days (~11 months)
Exam date: 2–3 June 2012
Ethical and Professional Standards ~250pp
1 - Code of Ethics and Standards of Professional Conduct
2 - Guidance for Standards I-VII
3 - Introduction to the Global Investment Performance Standards (GIPS)
4 - Global Investment Performance Standards (GIPS)
Quantitative Methods ~450pp
Basic Concepts:
5 - The Time Value of Money
6 - Discounted Cash Flow Applications
7 - Statistical Concepts and Market Returns
8 - Probability Concepts
Application:
9 - Common Probability Distributions
10 - Sampling and Estimation
11 - Hypothesis Testing
12 - Technical Analysis
Economics ~560pp
Microeconomics:
13 - Demand and Supply Analysis: Introduction
14 - Demand and Supply Analysis: Consumer Demand
15 - Demand and Supply Analysis: The Firm
16 - The Firm and Market Structures
Macroeconomics:
17 - Aggregate Output, Prices, and Economic Growth
18 - Understanding Business Cycles
19 - Monetary and Fiscal Policy
20 - Economics in a Global Context
21 - Currency Exchange Rates
Financial Reporting & Analysis ~660pp
An Introduction:
22 - Financial Statement Analysis: An Introduction
23 - Financial Reporting Mechanics
24 - Financial Reporting Standards
Income Statements, Balance Sheets, and Cash Flow Statements:
25 - Understanding Income Statements
26 - Understanding Balance Sheets
27 - Understanding Cash Flow Statements
28 - Financial Analysis Techniques
Inventories, Long-Lived Assets, Income Taxes, and Non-Current Liabilities:
29 - Inventories
30 - Long-Lived Assets
31 - Income Taxes
32 - Non-Current (Long-Term) Liabilities
Evaluating Financial Reporting Quality and Other Applications:
33 - Financial Reporting Quality: Red Flags and Accounting Warning Signs
34 - Accounting Shenanigans on the Cash Flow Statement
35 - Financial Statement Analysis: Applications
Corporate Finance ~270pp
36 - Capital Budgeting
37 - Cost of Capital
38 - Measures of Leverage
39 - Dividends and Share Repurchases: Basics
40 - Working Capital Management
41 - Financial Statement Analysis
42 - The Corporate Governance of Listed Companies: A Manual for Investors
Portfolio Management ~220pp
43 - Portfolio Management: An Overview
44 - Portfolio Risk and Return: Part I
45 - Portfolio Risk and Return: Part II
46 - Basics of Portfolio Planning and Construction
Equity ~300pp
Market Organization, Market Indices, and Market Efficiency:
47 - Market Organization and Structure
48 - Security Market Indices
49 - Market Efficiency
Equity Analysis and Valuation:
50 - Overview of Equity Securities
51 - Introduction to Industry and Company Analysis
52 - Equity Valuation: Concepts and Basic Tools
Fixed Income ~340pp
Basic Concepts:
53 - Features of Debt Securities
54 - Risks Associated with Investing in Bonds
55 - Overview of Bond Sectors and Instruments
56 - Understanding Yield Spreads
Analysis and Valuation:
57 - Introduction to the Valuation of Debt Securities
58 - Yield Measures, Spot Rates, and Forward Rates
59 - Introduction to the Measurement of Interest Rate Risk
Derivatives ~175pp
60 - Derivative Markets and Instruments
61 - Forward Markets and Contracts
62 - Futures Markets and Contracts
63 - Option Markets and Contracts
64 - Swap Markets and Contracts
65 - Risk Management Applications of Option Strategies
Alternative Investments ~90pp
66 - Alternative Investments
67 - Investing in Commodities