CFA… becoming useless?…no more value?

I might be wrong on this… and I hope I am but I am starting to think that the CFA designation as lost a lot of its “value” in the past years. By that, I mean the CFA exam is becoming more and more like the GMAT in terms of studying for it. The CFA used to be a hard thing to study for but now, I see more and more students at university (which I have a lot of respect for) studying those CFA quick study guides made by Kaplan and others (and they passed!) and not even go through the 6 big books for each level exams that student has to go through. The CFA is just a pass or fail…how good you do don’t matter, as long as you pass! Now, because of the “academic inflation” where just a Bachelor or a Master degree isn’t enough, everyone studying finance seems to go for a CFA, and not only finance students but economics, international business, etc… Anyone! I don’t mind someone from a non-finance background who wants to work in the financial world. In fact, I think it’s superb because having people with different academic backgrounds can only be a big plus for the future.

But now, the number of people doing the CFA exams and hopefully getting the full accreditation (after 3-4 years of work) keeps on increasing, where the supply surpasses the demand. This is the case here in the city of Montreal. There are too many CFAs according to some portfolio managers I met. They told me that now that they want to hire candidates with a master degree plus CFA. And when all the students will have a Master and CFA, what else will they need? Ph.D? It has to stop! I seriously hate this stupid academic inflation!

This month, I have to make a decision to see if I want to do the CFA level 1 exam in June or not since I can apply for a bursary where the cost of doing the CFA drops to $220 instead of $800 or so. However, next year from September 2009, I will start my Master Degree in Finance. Should I do my CFA after my Master or should I give it a shot now and do level 2-3 after my master degree? Seriously, I wish I didn’t have to do the CFA. Level 1 exam is similar to what you do in your undergrad finance studies and Level 2 is well covered (not all) during the Master Degree. It sounds pointless to me. But I do hope that I am wrong.

So what do you guys think? Too many CFAs? Should they put tougher rules and restrictions for those who want to do the CFA? I just think that the CFA has lost a lot of its value… agree?

In the old days, when you met a CFA holder, you were mostly sure that this person was very professional and serious and skilled, but now with all this increase in CFA holders… don’t tell me that everyone is skilled and professional enough to work in the finance industry and I think this seriously hurts the financial industry.

Long-Term Capital Management and Lehman Brothers

The market today went down, down, and down. In the U.S., Canada, Europe, Asia…simply everywhere the market is in the negative. Are you surprised? Not me. Failing of a big institutions is not uncommon when you look at the past. However, the failing of 4 (Bear Stern, Lehman Bro., Freddie and Fannie) and half of another one (Merlyn Lynch), is new to me. I don’t remember reading somewhere where there were so many failing institutions at the same time. Am I skeptic about investing in stocks? NOPE! I am sure there are some great deals laying around as for value stocks. But again, I always suggest to people to index their portfolios and do a dollar cost average strategy and diversify!

Bill Bonner, writer of the Daily Reckoning sends (for free via email) a great newsletter about the world of finance, and of course today he talked about Lehman. I wanted to share with everyone is little comparaison of Long-Term Capital Management and Lehman Brothers:

“From the peak of 2000 ’til today, stock market investors have earned
nothing for their trouble. In nominal terms, stocks are about where they
were 10 years ago. Adjusted for inflation, they are down 25%-80%,
depending on how you measure it.

Wall Street made a fortune selling stocks to naïve investors. When the
stock marked topped out, the financial industry might have gone back to
sleep. Instead, it got a double dose of caffeine. The Greenspan Fed cut
rates in 2001-2002 while the Bush administration boosted spending and cut
taxes. All of a sudden, every hand on Wall Street turned to pumping out
credit – derivatives, SIVs, CDOs, MBS. They didn’t really have to invent
any new theories, they merely recycled the same numbskull ideas that sank
LTCM – basically, that you could eliminate risk by modeling historic price
movements. If Lehman Bros., for example, had never failed in more than a
century and a half – the odds that it would fail this year were so close
to zero as to be not worth discussing.

But…

“Lehman lurching closer to liquidation,” says the front page of today’s
International Herald Tribune.

Now, it’s Lehman that is failing. And no consortium of Wall Street banks
is willing, or able, to bail it out. Lehman has some $80 billion of
dubious credits. These were the products of its own – and many other –
whiz kid financial engineers. Lehman hired some of the best talent on Wall
Street. It has some of the world’s top financial mathematicians on its
payroll. It could compute the risk of loss down to 3…4…heck…as many
decimal places as you like. But it could do so only as LTCM did – based on
past history.

As we explained, once investors came to consider stocks as a riskless way
to get rich, they bid up prices to the point where they were all
risk…and no reward. And when their models told them that they could make
money by lending money to people who couldn’t pay it back, practically
every loan they made took them closer to bankruptcy.”

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I bolded the word PAST HISTORY. Remember, we can predict the future with the past. (A blow to Technical Analysis People)

I encourage everyone to sign to Bill Bonner free daily newsletter. Its a must!

The Credit Crisis… Not Easy to Understand but…

…but if you use stick figures (Yes, stick figures!) to explain the credit crisis, then the problem gets easier to graps. I can explain in general the credit cresis but let’s face it, it’s sure is a deep and complex problem that the world of finance got itself into in the last year. I found today from the telegraph.co.uk website, a great stick figures sketch that explains the credit crisis. Check it out here, you won’t regret it (and there’s a little touch of humour also).

3 Great Newsletters YOU Must Check Out (and its FREE)

Beside financial magazines such as Bloomberg or Business Week, I find that many (certainly students at universtiy) are unaware of finance newsletters. Finance newsletters, are mostly written by one author who has a lot of experience in the economic/financial world from previous or current jobs. These professionals would like to share their views of the economic financial world daily with as many readers as possible but since it demands a lot of work, reasearch analysis, many of those financial newsletters are not free. You can compare newsletters with blogs but you will find that overall, newsletters have a deeper insight in the world of finance than any regular financial blogs you can find due to the amount of reaserch and understanding of economics. When I say not free, they are costly (above $100, $200++ more for weekly letters) such as the great valueline.

The insight of knowledge you can gain from these letters are absolutely amazing. From more advanced asset allocation, to understanding the current economy, to individual stock analysis (for active investors), to new asset class, etc… Just anything you can imagine. I first heard about newsletters when I read “The Dick Davis Dividend” (2007). Dick Davis has a 40 years old and more experience in writting newsletters (the funniest thing is that he never recommended a stock). Dick Davis newsletters are not free but you MUST check is book to have an amazing overview of its understanding of investment from the past 40 years.

But are there any FREE and GOOD newsletters? YES THERE IS!

First one, my favorite is John Mauldin’s Thoughts from the Frontline. This is a great overall letter that covers multiple financial components on a weekly basis.

Second one, the American Association Individual Investor (AAII) is excellent too.

A third letter is not about finance, its about Geopolitics. George Friedman, founder of Stratfor has a weekly free newsletters (only the newsletters on his website is free but the rest is not) about anything that goes on in the political world in deep analysis, well written and easy to understand. For instance, I didn’t know much about why Russia and Georgia went to war but thanks to these letters (1) (2), I got a pretty good deep understanding of this war. But why am I talking about a newsletters that covers Geopolitics and not Finance. Easy! To be successful in the world of finance, you must understand what goes in the political world.

That’s it! Enjoy these newsletters! You won’t regret it and you’ll be hooked and addicted to them…that’s for sure!

Effective 80/20 Portfolio

So what’s a 80/20 portfolio? It is a portfolio composed of 80% passive strategies (index funds, etfs) and 20% active (mutual funds, stocks, etc…). I decided to do a virtual portfolio via marketocracy to see how a 80/20 portfolio will perform over time. When you start a new portfolio, you have $1,000,000. As for now, I only have spent around $720,000 of the money, and only about 2% of the money went to active (two stocks).

So what are the asset classes for the 80% passive?

Vanguard Bond Index Fund, Incorporated Shares Short Term Bond ETF

Vanguard Small-Cap Value ETF

Vanguard REIT ETF

PowerShares Global Water Portfolio

Vanguard Small-Cap Growth ETF

Vanguard Total Stock Market ETF

Vanguard Extended Market ETF

Vanguard Large-Cap ETF

Vanguard International Equity Index Shares FTSE All World ex US ETF

Vanguard Emerging Markets ETF

——————————

My 20% active part, I only focus (as for now) on value mostly conservative stocks. As for instance, I bought Wells Fargo (WFC) and Johnson and Johnson (JNJ) last month because I both thought that their price was undervalued (I certainly got that right for Wells Fargo — which gained 8% since I bought it 2 weeks ago). I don’t do anything fancy when I analyze stock to see if it is a good value to stock to buy. I mostly use PE versus historical PE, see what Value line has to say, other bloggers’ opinions, I keep an eye on all the stocks Warren Buffets carries, and with my guts…that’s about it! And when I buy a stock, its for the long-run.

This portfolio’s inception date is June 18 2008 (so yeah..just started), and its performance is in the negative: -4.01%. The reasons why I haven’t invested my cash all at once, is to do a “little” dollar-cost average strategy.

So, you might wonder how well it did versus the market…see below (CMF is my fund):

	Beating	Today	MTD	QTD	YTD
CMF		-0.00%	-0.30%	-1.08%	-4.12%
S&P 500		-0.56%	-0.56%	-1.39%	-13.14%
DOW		-0.45%	-0.45%	-0.21%	-14.61%
Nasdaq		-1.65%	-0.63%	0.78%	-12.87%

As you can see it did better than the market so far. I will keep this portfolio updated on this blog and hopefully start new passive portfolios (i.e. 100% all passive). You can see here a fully detailed performance for each assets and stocks since inception.

The best way to describe the market

From the great book Dick Davis’ Dividend by Dick Davis; here’s the best way to describe the market:

“Like a boxer, the investor’s first step toward winning is knowing what to expect from his adversary…. He should know that the market goes to extremes in both directions, that it can be both the supportive, caring, seductive lover and the cruel, cold, insidious antagonist; that it can cause euphoria and exhilaration or anger, fear and despair. He should know that the market can change its mood on a dime; that it can be capricious, enigmatic, and ornery; and that mostly it can be dull, listless, and boring.”

Just simply well said… I wanted to share it with more people.

What You Need Before Investing…

This Idea is taken from the great great book “Dick Davis Dividend” by Dick Davis“.

So Where Is The Stock Market Going This Year?

“So where is the stock market going this year Charles?”

- I don’t know.

“How come you don’t know? Aren’t you suppose to be one of the top finance student at your University?”

- What do you mean by top? I just have good grades but that doesn’t mean I know where the market will go this year or next year… actually no one can!

“How come no one can?’

- Do you know anyone who actually can predict where the market is going on a constant basis?

“Well I thought someone could because of all the news on TV, etc… I mean those stock specialist sounds so smart no?”

- Well they have to sound smart, otherwise no pay check! I could give you tons of reason why the market will go up or down by the end of the year.

“No but what do you think?”

- I still don’t know…

“I am confuse”

- PERFECT! Now you understand the market!

“What do you mean?”

- You are CONFUSE! That’s the hole point… the market is simply a weird non-sense confusing thing !

“I still don’t get it…”

- good.

——-

That famous conversation, I have it with my dad, family, and some school friends a couple of time. Everyone has to realize that no one can predict the market and where it will be by the end of year or next year or in 3-4 years. There are 2 types of Stock Market Specialist. There are some who don’t know where the market will go and those who haven’t realize yet that they don’t know where the market will go. Simple no? Not really because it goes against human nature for not knowing something. Humans seemed to be program to find trends where there are actually none.

But why is the market really confusing? I could go in deep details but I won’t. Simply ask yourself “What is the market? or Who is the market?” Us, the population of the world is forming the market and since humans often act in manners that are so unpredictable, how can we predict the market? Get it?

However, there’s something for sure I can say about “predicting” the market, if you actually can call this a market prediction. In the past, Bull markets are followed by Bears but Bull periods tend to last longer than Bears… there you go! Now everyone understands the stock market? Simple no?

Subprime crisis = Hard to understand?

The subprime crisis is sure is one important financial crisis, but we have to admit, unless you are an experience banker, security analysis, or economists, this subprime crisis is quite hard to explain or to understand. Watch this video below and you will understand a little more…let’s say you will gain an overall understanding of the big picture of this subprime crisis with a little comedy touch:

I want to people to also understand that being creative and using comedy is a great vehicle to make a hard topic to explain more easy… and simply more fun to learn about it.