Last week I signed up for the CFA level 1 exam next summer (2008). I decided to start this blog for several reasons. First, it might prove helpful to people in a similar situation to mine or at least serve as a bad example. Second, it would help me keep track and provide a record of my studies. Third, it might yield some networking contacts to the finance world, and .. Fourth, it will give me an outlet for discussing some perspectives on financial analysis from someone who was not originally schooled in business. This might be interesting to some people.
Let’s consider some of these points. I decided to sign up for the CFA after much soul searching. The CFA is a self-study that requires one to pass three exams that are considered “hard” and accumulate 48 months of relevant experience. I like the idea of self-study. After having gone all the way through the educational system and acquired a PhD in physics and after having seen it from the other non-student side while teaching and grading students I have a hard time seeing myself back in the class room. Much like Rocky (in Rocky IV) when said he didn’t need a coach anymore since he had done it before whence he could do it again without the need of a coach. The wisdom of Rocky movies!
The CFA is frequently considered very narrow compared to an MBA say, but on the other hand it does not strike me a quite as narrowly focused as an MFE and I have always been somewhat of an integrator/generalist. Another point in favor of the CFA is that I don’t have to give up my day job to study full time. That’s what mornings, evenings and weekends are for! Admittedly the QCF has the same self-study qualities, but that is a very expensive and I think not as widely recognized certification.
I come from a science background. In the scientific community there’s a widespread disdain for business related matters. It is generally assumed that if you don’t have the brains for science, you can always do business. Also, if you do have the brains for science but yet choose to do business, you’re somehow evil or greedy. Now, I’m not sure that spending one’s entire level studying a specific atomic transition level or a particular chemical reaction is a sign of intelligence, but businessmen are as interesting and intelligent as people in science. It’s just another language. Still, science has widespread prejudices in the sense that if you study science you either do so with the goal of eventually becoming a professor or you’re a failure. In that regard it’s implicitly assumed that you spend all your time thinking about science. Although lip-service is paid to being “well-rounded” this well-roundedness often takes time away from all important research and since scientists are generally not the users, we don’t really need to know more about the world than the average Joe although of course many scientist do (but many don’t). This could lead to a long discussion about the ivory tower, but I won’t go there today. Suffice to say thinking through the above was part of the soul searching process.
In deciding whether I could actually complete this or rather whether I thought I could actually do this, I read through the CFA Fundamentals book by Bruce Kuhlman. From the perspective of a physicist the math is quite simple, but there are a lot of rules and facts to learn and in many cases (accounting comes to mind) the rules don’t make immediate sense. However, all areas of study, ethics, quantitative methods, financial statements, capital markets, corporate finance and security analysis seem interesting and doable although there’s a lot of catching-up to do since I don’t have a business degree. Now, I have studied some economics before, especially Austrian economics, and I have also done some security/derivative analysis having worked my own roll for the past couple of years. Speaking of my own investments, this was also part of the motivation to “go for it”. Even if I could only eke out a few percent more in investment returns, especially in under-analyzed issues, the CFA program would certainly pay for itself at least in monetary terms. In terms of time costs, it mainly comes out of more unstructured reading of exactly the same things already + of course TV time :-P. In other words the opportunity costs of making it official are fairly small. More importantly studying for the CFA will hopefully put me above the wannabe level and increase my career opportunities whether I stay in science or not, e.g. the potential rewards are high.
So with some trepidation which can be described as a combination of the first time I wrote a covered call on a large position and/or moving to another country, I enrolled in the CFA program. It was fairly painless and involved very little bureaucracy – try registering anywhere else in less than 15 minutes – though I did experience some doubt when I saw the weight of the UPS package they sent me: 18 pounds! It arrives on Monday.