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Daily LinksBookmarks for February 10th through February 12th

  • Why Sleep Is Needed To Form Memories – Sleep works for me – During the CFA I would study 15 minutes, then sleep 5, and repeat as many times as it took to get through the material.
  • Twitter Is What You Make It – Just another Internet time drain, or better than e-mail and phone calls combined?
  • China to stick with US bonds – “We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.”
  • This is why you’re fat. – “Where dreams become heart attacks” – I admit, half of the food here appeals to me.

Tweets 35% of CFA Candidates passed level I


Daily LinksBookmarks for February 1st through February 3rd

These are my links for February 1st through February 3rd:


ArticlesTerrible New CFA Ads

The CFA Institute has created some new ads, highlighting the difficulty of the achieving the designation. My favorite parts of the ads:
  • The Same cheesy pose is struck by both models
  • Writing encryption code for a global security network wouldn’t apply under the designation’s required work experience

CFA ad2 To a recruiter, nothing pops off the page like a CFA charter. One glance tells clients that your investment management skills are the gold standard of the industry. That you’ve mastered a three-level program whose coursework is unusually rigorous. And that your ethical standards are the highest possible. Isn’t it time you joined the thousands of CFA charterholders who are writing their own ticket?

CFA Ad1 It’s safe to say that the pursuit of a CFA charter is beyond challenging. The coursework involves a rigorous, three-level program that’s recognized as the gold standard in investment management. If you pass the exams, you’ll have the expertise to take real control of your professional career. That’s because CFA isn’t just something that follows your name. It’s something that builds a following.

See the original ads description and description (Both PDFs).

ArticlesCFA Interview for BCJobNetwork.com

599606659_fe8bb645a2_m1Although the post is long, it should appeal those considering the CFA designation (My current status is “CFA Charter Pending”, meaning that I have passed each of the three exams, but still have to submit my sponsorship application for the Charter) Below, you will find my response to a series of questions for an article at BCJobNetwork.com. My answers are in blue.
What made you pursue a career in the finance sector?
The focus during my initial time at university was to create as many options as possible; I saw that people with financial backgrounds move into many different industries, and often transition into leadership roles. Once I began studying finance, I enjoyed the material I was being taught, and I could easily see that the principles taught were applied practically by analysts mentioned everyday in the media.
Why did you choose to further that with a CFA?
Several factors led to the decision. Here they are in rank of priority:
  • Strong program reputation – Beyond the widely recognized financial rewards for earning the CFA charter, Charter holders are held in high esteem for their analytical abilities, and strong ethical backgrounds
  • Intrinsic educational value – To complete the required coursework, you’ve got to have discipline, and a desire to learn the material. Without a real interest in the material, it would be extremely onerous to stay motivated for 3+ grueling years.
  • Ability to work while earning the designation - Early in my career, I wasn’t ready to leave my job to go back to school. The CFA charter was a way to stay learning, and improve my financial credentials.
  • Low relative costs - Although textbooks and exam costs are not negligible, relative to most other alternatives (and relative to the rewards of the program), the costs are less than one would expect. Costs are ~3-10% of the costs of an MBA.
What do you like about it?
I like learning the material on my own – being able to set they pace for my own learning. I also appreciate the relevancy of the material. Updated the curriculum (aka Learning Outcome Statements) every year means that textbooks are more expensive, but material stays fresh. Also, the regional CFA societies offer many great resources – from providing selected conferences, to CFA job boards.
What are your day-to-day responsibilities at IBM?
My title is ‘Financial Management Consultant’. Our consulting organization is organized in a matrix, so my functional area is Financial management, while my industry is Healthcare. Day to day responsibilities vary depending on what kind of project I’m on, but there are some common themes – I have worked on many healthcare strategy engagements, where we usually have a team of 3-6 consultants, with each consultant specializing in a particular role. A team could include several of the following roles: a project manager, a financial analyst, a data analyst, an architect, a business analyst, and several SME’s (subject matter experts). I would typically serve as the financial or business analyst, and would be responsible for developing financial models, stakeholder engagement materials, risk assessments, current state assessments, and coordinating with other team members for their respective responsibilities. Our final deliverable is a report that outlines what recommended strategies the client should take – The recommendations are supported by a Current State, Future state, Gap, and Risk analysis. My projects have typically lasted up to 5 months, and I have worked in Ontario, Alberta, BC, and remotely with the US. The teams are composed of individuals from across Canada, and the world – So I often spend much of the day on the phone, or on IM talking with coworkers. The team will come together every couple of weeks to meet with the client, or coordinate deliverables.
What are your long-term career goals and how are you getting there?
Long Term goals include developing both my people management and technical skills. I’m aiming to create quality work, and build a strong reputation within the industry. Right now, I’m working towards my goals by continuing to work on challenging projects, progressively increasing my level of responsibility within the projects I take, taking leadership roles for internal initiatives, and, most importantly, associating with people that have similar outlooks and expectations from their professional and personal lives.
And then with your education: What major did you have at university?
I graduated with a BBA from SFU – Concentrating in Finance
Why did you pick SFU?
My final choice was between UBC and SFU – The choice to go to SFU was made based primarily on the flexibility of the program (you can switch majors/ concentrations with ease; Co-op program offered; strong business faculty) and the school’s academic reputation. I was also an athlete during my university days (Football), so the athletic situation also influenced my decision. I essentially considered SFU and UBC to be academic equals – personal preference was what determined my choice.
What were the major challenges you faced while going through the certification?
It can be very difficult to work heavy hours, spend up to week 12 hours traveling, and then have to study until 1AM every night in the hotel room. During the times where I was studying, social life took a back seat to studying. Eventually, I developed a comprehensive study plan that outlined what I would be studying for each hour of every day. There were several deviations from the plan however; two entire weekends were unexpectedly lost to the DVD collection of the TV series ’24′.
What is the regulatory body called for the certification?
It was formerly known as AIMR, but has now changed to the CFA Institute http://www.cfainstitute.org/
And… What kind of person/career seeker would you recommend to become a member of the finance sector?
The first requirement is that you must be an analytical person. Your personality type can determine what kinds of job you can have within finance (and should not be a precluding factor), but without and analytical background, you would be at a disadvantage.


For more on the CFA, click here.

ArticlesExcel Flashcard Quizzer

I’ve started studying spanish again, and to help in my studies, I devised an excel workbook to track vocabulary. Although it is currently populated with Spanish vocabulary, it can easily be adapted to quiz you on anything you would use flashcards to learn.
It’s quite simple:
  1. Select the “Quiz” sheet and add new terms to the orange table as you come accross them
  2. Use the buttons to randomly quiz you on terms within the orange table:
    • Next – This will randomly select a term from the orange table
    • Show – This will show the definition of the currently displayed term
    • Mastered – This will move the currently displayed term off of the orange table to the “Mastered Words” worksheet
  3. To review mastered terms, just click on the “Mastered Words” work sheet and review the blue table
If you’re interested in using this approach, you might want to read this webpage – It is full of great language resources. Hopefully you can find some use for this little tool. In addition to helping you in the language you’re learning, it would be great for those CFA LOS statements. Excel Quizzer (4363)

ArticlesPersonal Finance and Simulation Modeling

CFA studying can be tough, and sometimes you need to take a break; During one of my study breaks, I came up with a Monte Carlo model to estimate my (or your) future net worth. In this posting I explore that model, and take you on a journey of personal finance wonderment.

The Model

A Monte Carlo simulation (at least in my model) works by generating random numbers that act as inputs into a predefined model (with appropriate assumptions). Each time the model is taken through an iteration, a different result will occur, driven by these random inputs. When the model is run multiple times, you are able to determine the probabilities that certain outcomes will occur.

Below you can see the results of several of the iterations in my model[kml_flashembed movie="http://simran.crownpac.net/blog/wp-content/uploads/2006/08/iterationgraph1.swf" height="230" width="450" wmode="transparent" /]

As mentioned above, each iteration is driven by both inputs and assumptions. The inputs for my model were the return on equity for each of the 40+ years, while the assumptions used are listed below (and are fairly realistic):
  • a relatively aggressive but realistic savings level of ~20% of personal income (decreases as a proportion of personal income over time)
  • a real return on equity of ~7%
  • inflation of ~2%
  • borrowing rate at Prime plus 1.5%
  • annual return standard deviation of ~10% with returns normally distributed
  • implementation of a properly balanced portfolio (approximating “the market” with an overall beta of 1)


As you can see, the results from each iteration appear unique. Although you can anecdotally get a sense of what you might expect to be worth by watching each iteration, the real insight comes when you start to produce a histogram (all values are shown in today’s dollars):

Probability of Net Worth at Age Seventy distribution2 Interpreting this graph, you can see that you will have a 1% likelihood of being worth $0-$2M, and a 19% chance of being worth $5M-10M. Notice that despite our assumption of a normal distribution of annual returns, the expected value of the portfolio is positively skewed: There are a greater number of very high results, and the most expected result is lower than the average. What I find more useful than the histogram, however, are the cumulative probabilities as shown below. Interpreting the following graph, you can see that at age 70 (and with no debt in the portfolio), there is an 80% chance you’ll be worth at least $2M-5M, and a 12% chance of being worth at least $12M-15M. [kml_flashembed movie="http://simran.crownpac.net/blog/wp-content/uploads/2006/08/leverage1.swf" height="250" width="450" wmode="transparent" /] As with any model, the fun part comes when you play with the assumptions. I’ve included some buttons on the above graph to facilitate your play: you can choose the leverage scenario for the portfolio, and see the impact it has on the cumulative probabilities. Notice that as you increase the debt level, your likelihood of being very rich increases, while the likelihood of being worth less remains the same? Debt in your portfolio, over the long term, is a good thing.

Downside of Debt

The graph above shows only the upside of increased leverage. There are, of course, downsides that will ultimately determine the optimal balance of debt and equity for your portfolio. What are the constraints that should limit debt exposure and determine your optimal capital structure? read away:
  • Portfolio value variability - Your personal risk aversion level determines how much you can take. My personal feeling is that many investors are overly cautious when it comes to use of leverage, but not careful enough when it comes to individual stock selection vs asset allocation. Using a monte carlo model can help you quantify the risks, and determine what level you really should be at.
  • Probability of Bankruptcy (and associated costs) – Because the costs of personal bankruptcy are so high, any chance of total portfolio loss should be avoided. Fortunately, bankruptcy only becomes an issue at extremely high levels of leverage; well beyond the 65% leverage scenario I included above (I ran a test on the simulation, but have not included it in this posting)
  • Greater demands on cashflow management – The impact on the portfolio resulting from margin calls, and portfolio rebalancing adds extra cost and care to managing the portfolio
  • Greater Need to rebalance portfolio - Changes to asset class values will be magnified by the use of leverage. Depending on your rebalancing approach, this could add significant costs
  • Increased borrowing costs at higher debt levels – This depends on how big you shoot. If you are pushing 8 figures, you might want to read up on some Miller and Modigliani


There are many more variations we can build off of this model. For instance, if you where interested how soon you could expect to be worth $5,000,000, you could use the following graph:
Probability of $5MM Net Worth at Various Agescash by age
With a little bit of work, we could also examine:
  • How often periods of low cashflow would occur
  • How often Portfolio rebalancing would be necessary
  • Likelihood of bankruptcy
  • Optimal portfolio construction
Whatever you are interested in, the model can be built to examine your needs.


Despite the long post, this is a relatively brief look at what these kinds of models can do for you. Some takeaways:
  • Modeling brings Clarity – Despite the uncertainty around future market returns, you can develop rational expectations on where you will be in the future by using tools like simulation modeling. Combine a knowledgeable financial modeler with powerful computing, and a model can be adapted to address any issue that you might be concerned with.
  • Time is your Friend – When you no longer have the ability ski moguls because your knees are titanium, you can take comfort in the fact that you can cruise the Mediterranean, be a philanthropist, or buy a fancy Skoda. You already know that it is good to save, but it is nice to be able to quantify it.
  • Debt is your Friend – Assuming you’ve got time (measured in decades), it probably makes sense to bite off some debt. You’ve seen above the result of adding leverage to my model, and the resulting net worth values are large. Always remember however that there is a big difference between consumer debt, and leveraged investments; make sure your debt is working for, not against you.
I hope you found this long and flashy post interesting. Let me know if you have any comments or questions.


ArticlesCFA Exam Result Summary (Levels I, II, and III)

143186839_5c9fad13cd_m1Cross me off the list of Level III Candidates, my status is now CFA Candidate, Charter Pending. I got the results last night after waiting far too long for the CFA web servers to work. I’ll provide a more complete Level III review in the future, but in the meantime, here is the history of my CFA Experience:
  • Level I
    • June 2004 – Passed (Pass rate: 32%)
    • Quit my job at the time and studied for 4-5 weeks straight. Committed <200 hrs. to studying, but felt very confident after the exam, and passed easily. Felt much of the material was seen during undergraduate finance degree. See my Level I review here
  • Level II
    • June 2005 – Passed (Pass rate: 56%)
    • Studied while at my current job, often in hotel rooms until late in the night. Obviously started studying earlier, and was forced to adopt a strict study schedule that I followed well. Committed ~250 hrs. to studying. Exam material was new, and was more difficult than Level I. Actual exam was very tough, and I left the exam room with low confidence – Was pleasantly surprised to find that I passed fairly comfortably. See my Level II review here.
  • Level III
    • June 2006 – Passed (Pass rate: 76%)
    • Maintained study schedule developed during level II. Committed ~ 300hrs. to studying; more time than either previous levels due to the strong desire to be finished with the exams. Material was by far the most interesting. Exam was considered relatively easy, and I left the exam with high confidence. Ended up passing easily as well.
What’s left now? I just have to complete my work requirements, submit my paper work, and I’ll soon be a CFA charterholder. Congratulations to those who passed this year, and good luck to those still in the program. Feel free to browse around the site for more CFA material, or contact me below with any questions you have.

LegacyPost CFA-Season

Perfect timing: Just when CFA season ends, work loads it on heavy. I’m on a break in the middle of an 18hr day – It’s 6AM, and I’ve still got another 7 hours left before I can go home – sounds like fun, no?


This is the summer of love, and there are many weddings to prove it. Unfortunately, due to work, I won’t be able to attend all the weddings I would like to. I’ll post some pictures as soon as I get a chance.

ClippingsCFA Topics for Level 3

Here is a little bit of a breakdown for the big exam this coming weekend

cfa topics CFA Topics