The game changes

Have you lost the entrepreneurial drive?

Three years ago, when I was still doing co-op at my University, I got to know a really good friend at EY. At the time, I was a junior staff accountant and was working for a really cool intermediate. He was a very bright, talented individual who had a huge appetite for entrepreneurship.

I don’t really make “real” friends at work. But this was probably one of the only "real" friends that I met. The type of senior where you don’t care to screw up in front, because you know he’ll understand. We actually even went out to eat together a few times outside work. That’s something I call, “friendship in auditing.”

He was writing business plans and had all sorts of crazy ideas about how to “make” it in the real world.

I asked him why he was doing his CA. He told me, “I don’t really want to be a CA.” In fact, I hate it here. I want to be an entrepreneur. The CA is just a plug solution. I’m going to put in my 3 years and get out. Don’t worry about it. It’s 3 years and I’m gone. You’ll understand soon enough. Put in your time and leave."

Flash forward 3 years.

I see him again, and start talking about the good old times….

The man is completed changed.

Gone is the entrepreneurship. Gone is the ambition, the passion. Our hatred for our work bonded us together. Our entrepreneurial spirit. Our bond is broken.

He’s still a good guy and about to get married, and I’m sure dropping close to 80K. But he looks so defeated and miserable.

I yell at him, “You have your CA.” Why don’t you go out and start your business now? Your entrepreneurial dreams?

He responds, “I think I was just being foolish as a kid. Lets face reality. I wasn’t going to make it. It’s better to just accept it. If I’m not at EY, I’m out in industry elsewhere. I’m getting married now. I have new priorities. It’s just not worth the risk. It’s not too bad here. You get paid nice salary and I’m comfortable. You don’t have to like your work. You just have to do it, and get paid for it.

You’ll understand soon enough.”

I’m sorry, but WTF? Does Big 4 change a person like this in 3 years time?

So it really bothers me when people tell me now. “Get your CA and then leave.” You’d be stupid to not get your CA. You already put in so much investment.” It’s only 3 years. Just get it and get out. That would be the smart thing to do”

Sorry, You’re wrong, and you’re stupid if you tell other people this. In fact, if my friend didn’t listen to all the “industry BS advice” about how he “Must Get his CA”, I’m sure he’d be a lot better now. He wanted to start a business 3 years ago. He listened to other people. He didn’t leave when the time was right, and now what? He has his CA.

How exactly is his life so magical now that he has his CA?

The game changes. 3 years is a lot of time.

When I was 8, all I cared about was Candy. When I was 11, Candy was bad for you. I wanted video games. When I was 14, video games were a waste of time and I was after girls. When I was 17, girls were…., well, I was still interested in girls. I won’t lie. =P

But today, I want my own business. I don’t want my entrepreneurial drive to die. I don’t want to be my friend.

It is important to go after what you want. Go after it today. Do not let some silly “You must get the CA” rule dictate your life.

Because, in 3 years…

The game changes

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Is it worth it to get your MBA?

One of my close friends in Waterloo’s Math/CA program who is still an undergraduate is pursuing his CA and CFA, and has now decided that he also needs an MBA to succeed in life.

Apparently, you need two professional designations, two master degrees, and a very prestigious Bachelor of Math from the University of Waterloo to have any chance of surviving in this world.

At what point is enough, enough?

I mean, in 10 years, his business card is going to look like this:

John Doe, CA, CFA, MBA, MAcc, BMath

Where is the stopping point?

I mean, why not get a PHD in Tax as well?

At some point, with so many things behind your name, your business card looks more like a laughing matter, as opposed to something impressive.

I have long considered getting an MBA.

But at the end of the day, I think I was more attracted to the fact of having an MBA behind my name as opposed to what an MBA would do for me. I think this is true for a lot of people.

I’m not anti – MBA. But as an accounting graduate, I don’t really see how an MBA helps me. Sorry, let me rephrase that. I think the opportunity cost is really high. If you are an engineering graduate or liberal arts degree, I can understand the value of an MBA. You learn a bit of everything. You learn how to read balance sheets; you learn some finance. It is quite a valuable asset.

With an accounting background, I already know all that.

“An MBA is not about the education; it’s about the experience and the contacts.”

This is true. But you can say the same about any other type of education. You can make contacts anywhere. How you make friends and contacts is the “struggle” you face together. I’ve made friends and contacts in my bachelor degree that will help me in a lifetime. Just by entering an MBA program, does that imply I will get superior friends and contacts?

“An MBA teaches you to manage. You can’t do that with an accounting degree”

That is like learning to drive a car without actually driving a car. Management and Business is learned by doing. You can’t learn from studying it.

To me, the MBA seems like a waste of time. I'm happy with my undergrad experience and would much rather do business as opposed to learn more about it.

I'm interested in other people's thoughts.

Even be skeptical of an Online MBA because you probably don't need it.

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CFA Level 1 posed no problem

33% Pass rate must be for Laurier students...
[just joking =) ]

I wrote the CFA Level I this past Saturday, and found it was a very simple straight forward exam. There were a lot of definition hammering that I didn't care to memorize. There were some tricky questions here and there, but overall I am confident in a pass.

Historically no one has ever failed the CFA Level I exam when they scored at least 70%. That means out of the 240 question -3 choice -Multiple Choice Test, you can get 72 questions wrong and pass.

I feel confident in my chances. The 33% pass rate absolutely shocks me, but I guess it is mostly due to different backgrounds. Some people attempt the CFA Level I without a prior accounting and finance background, which would be extremely tough.

If, however, you are a University student who has prepared for University type exams in an accounting or finance program, and have historically gotten good grades, this test should pose no problem given you put in the hours.

Something funny was the "completely dominant" male population at the exam. There was a huge line up to use the male washrooms before exam start. There was no line up for the female washroom. Some guys who couldn't wait actually went into the female washroom.

hey.. doors were closing for the exam. can't really blame them now can you. =)

There was a band playing during the afternoon session of the CFA exam which I'm sure pissed off a lot of candidates. A little unprofessional in my opinion, as we didn't get extra time. I wasn't affected by the band playing, but I'm sure a lot of people were.

So anyways, after going through the CFA Level 1 exam, I have some thoughts:

There is a lot of time dedication it takes to pass the CFA Level 1 exam. The material was easy, but it still takes a lot of time. They test you on ethics and accounting frameworks and are very specific and detailed. It's not something that you can write without studying. I recommend a minimum of 150 hours of studying even if you have an accounting or finance background. You should follow the CFA guidelines if you want to guarantee a pass.

With that said, I don't feel I learned anything new in the CFA Level 1 exam. I majored in accounting and have a minor in finance. There was nothing new that I learned other than CFA ethics. I'm not a better financial analyst or anything because of the exam.

If you have an accounting or finance background, you'll probably find yourself memorizing things, and reinforcing things you learned more than anything. For someone who has no accounting and finance background, I think this test was a tremendous learning opportunity.

With that said, is the CFA designation worth it?

One of my good friends who is a CA gave me some advice. Pass the CFA Level I exam. Don't go further in the program unless your employment requires you to.

What he means is that, passing the CFA Level 1 gives you a nice "oner upper" over other candidates. However, the time investment to fully attain your CFA designation especially when you're already pursuing your CA is not worth it.

I agree with his analysis. The CFA designation is a great designation to attain if you aren't pursing any other designation, but seems like overkill with a CA designation.

To get the CA, you're looking at 4 years undergrad + 3 years articling. That's already 7 years.

To get the CFA, you're looking at minimum 3 years to pass all three exams, and 3 years of job experience.

To do these things concurrently will be a hell of a task. You're going to have to quit your Big 4 job to get some finance experience and work your way up again from a lower salary in finance. I don't know too much people who would do that. Maybe that's why there is a lack of CFA + CA combos. The people sure as hell paid their stripes.

I can imagine the prestige of owning both the CFA and CA, however, the sacrifices you must make are astronomical.

For me, I am happy passing the CFA Level 1 for now and enjoying life a bit.

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Do or Die in 3 days

In 3 days time is the very stressful CFA examination coming up. I am writing the CFA Level I. I must say studying the material was semi-interesting at first, and now it has become increasingly painful to study.

It was fun to see the whole context. It is borrowing memorizing stupid facts like what accounting scandals sunbeam did. I don't know what a collaterilized CMO is.

A great resource that I have been using to study for the CFA is the CFA Analyst Forum. On one of the forum pages, I noticed a post called "How the F did I screw that up" originally posted by mcf.

It comes with amazing tips, and are so bloodingly relevant, it's not funny. Here are some of the tips from that post about what not to do to not screw up [double negative intended =)]:

- Forgetting to take the calculator out of BGN mode

- Computing a zero-coupon bond withouth semi-annual compounding

- Forgetting to double the yield after calculating a semi-annual coupon bond when they clearly ask for annual yield

- Getting number of discounting periods wrong! e.g. using 5 years instead of 4 because of question regarding beginning/end of period payments

- Answering the question based on variance and not standard deviation!!

- Being careless about questions that already give you the market premium... so you do not need to subtract the risk free rate.

- Automatically assuming a distribution is normally distributed when the questions doesn't say that at all!!

- Forgetting about certain synonymous terms. e.g. coupon rate = nominal rate. Market maker = specialist.

- Not being careful about whether the question provides a sample of data or a full population of data.

- Getting overvalued/undervalued confused. Over/under term refers to position of SML relative to expected return.

- Thinking that if one covariance is greater than another... that this automatically means there is a stronger relationship... when in fact you need to find the correlation to compare on standardized terms.

- Forgetting that you must pay tax on implicit interest on a zero-coupon bond. (bit more specific, but important).

- FAILING TO RECOGNIZE THAT SOME QUESTIONS THAT APPEAR TO REQUIRE COMPLEX MATH CAN BE SOLVED LOGICALLY IN 2 SECONDS. e.g... remember than the realized rate of return must fall between the YTM and the Reinvestment Rate.

- Forgetting that in an FRA, the long position wants interest rates to rise!

- Forgetting that swap payments are paid in arrears... i.e. you use the rate from the beginning of the period, not the end.

- Equity margin = borrowing. Future margin = posting cash.

- CFA considers anything related to real-estate to be real estate investing.. e.g. MBS/CMOs

- Market value of real estate does not equal investment value of real estate. Investment value with factor in user specific details such as plans for use and individual tax rates.

- The cost of failure of a venture capital project is not 0. You still have all those costs to date to deal with!

- Economic depreciation and accounting depreciation are VERY different. Economic deprecation is about value. Accounting depreciation is about allocation.

- Duties to employers go out the window if you are protecting clients/capital markets.

- Non-renewable resources have elastic supply (this still feels counter intuitive).

- Land is not depreciated.

- Do not confused the effects of capitalizing costs with capitalized leases!

- Working capital is higher under an operating lease. In a capital lease, current liability will increase by the current portion of the lease obligation without an increase in current assets.

- Market risk = systematic risk = non-diversifiable risk = risk you are compensated for.

- Sinking fund provision is an OBLIGATION not a right to pay-down debt.

- If OAS < dtl =" Tax" mccullum =" Monetarist" taylor =" Keynesian">

- Volatility always increases the value of an option. Whether or not it increase the value of a bond depends on whether the option benefits the issuer or the holder.

- Dollar duration is calculated off current market price, not PAR.

- When in doubt, use market prices and not book prices!

- Frictional and structural unemployment are part of life. It's cyclical unemployment that causes moves with the business cycle.

- Wealth effect is not the same as income effect. Wealth effect argues that inflation will cause increased savings so people regain their original level of true buying power. Income effect argues people work less the more $$ they have.

- In long run, increasing money supply will just increase prices all else equal.

- Unanticipated inflation causes inefficient/poor decisions regarding wage rate and borrowing/lending decisions. Anticipated inflation also leads to mkt inefficiency as people waste time focusing on how to circumvent inflation, make fewer investments, etc.

- Anticipated inflation simply looks like a movement up the LAS curve... real gdp stays in line with potential gdp. Unanticipated inflation mirrors the patters of demand pull inflation.

- Book value of debt reported based on market rate at time of issuance... which can be very different over the life of the debt.

- Receivables sales when a portion of risk is retained by seller is effectively a collateralized loan.

- An arbitrage opportunity with abnormal return may still not be a positive return.

- GIPS Standards: F.lawed I.nputs C.an C.ause D.oomed P.erformance
Fundamentals of Compliance
Input Data
Calculation
Composites
Disclosure
Performance
(... and then Real Estate and Private Equity)

- Industry Cycle: P.lease A.void M.y S.tupid D.eficiency
Pioneering Growth
Acceleration
Mature Growth
Stabalization
Deceleration


This post isn't terribly relevant for those who are not writing the CFA Level 1, but for those who are, take this post and read it with dedication and heart. This will be your bible. Those are definitely the trickiest concepts.

I have been scoring in the 60's range on Schewsser Mock Tests. I am a little concerned but still feel I can give a strong performance.

-start rant-
The one type of structured question that pisses me off is:

Which of the following is least likely to not affect my concentration on the exam?

A) Not blogging
B) Listening to music
C) Not Not watching the stock markets.

-end rant-

Some of the questions are structured terribly with so many double negatives it makes me go crazy. There are times when I understand the concept but due to the wording I get it wrong.

Anyways, back to studying. Let's get this CFA Level 1 exam over with boys.

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