CFA Level 1 Review: Quant Methods, Building Blocks going Forward



This week we begin our review of some of the most important topic areas for the Level 1 exam. We may not cover every study session before the December exam but we will hit the most important areas and try to make sure you get all the points possible.

You’ll notice that we are skipping over one of the most important topic areas in the exam, Ethics and Professional Standards. If you’ve been following the blog, you know how important this topic is but also that it does not change much from year to year. We’ve covered the Ethics section several times and you can find the most recent post by clicking here. Remember, don’t just read through the material on Ethics and the Standards. You really need to be practicing those end-of-chapter and test bank problems to get a feel for how it will be tested on the exam.

Quantitative Methods: Lower points but absolutely essential

The Quant Methods topic area may represent one of the secondary topics by points on the first exam, only accounting for 12% of your total score, but the material is absolutely critical to your success across the exams and as a professional. You may be able to get through the exams and your career with just a basic understanding of other topics (i.e. derivatives) but try being an analyst without mastering discounted cash flows and statistical concepts and it will be a short career.

Unfortunately, the section is avoided by many candidates. As someone who never really liked math in school, I can relate to the desire to avoid quant methods. Realize as I did though, you are in an analytical field and you need to embrace mathematics. Trust me, math can actually be enjoyable and you can learn to love it. Spend a little time and you will be amazed at how quickly you start understanding more complex concepts. A little effort to break an old perspective will go a long way and will help you immensely.

Quant methods are covered in two study sessions in the Level 1 exam, Basic Concepts and Application, with four readings in each study session. The first study session will be repeat material for anyone with an educational background in finance and should be fairly easy to understand for just about anyone else. Study Session 3 is a little more difficult but still manageable. Of the readings, I would say all but technical analysis are equally important and testable. Ideas like time value of money, probability and quant testing are fundamental to the curriculum and you’ll need to be able to do the math in just about every other topic area.

Make sure you have a basic understanding of technical analysis but it is probably the least important. The Institute has never really put much faith in technical analysis so you will likely only see basic questions on the exam, if at all.

Time Value of Money

The most important thing here is be able to use your calculator to solve for any one of the missing variables. Note that the Institute usually keeps problems within the realm of possible reality so if you get an answer that seems extremely high or low then you need to go back through the calculation to make sure you did it correctly.

Make sure you divide the annual rate by the number of times it is compounded within your formula. (i.e. $100 at 8% compounded quarterly for two years = $100 (1.02)8 is different than simply $100 (1.08)2

Most calculators calculate cash flows as an ordinary annuity, where payments come at the end of the period. Make sure you set the “begin” key for any annuity due problems where payments come at the beginning of the period. Also, remember that the payment and present value inputs will have opposite signs (i.e. since the payment represents an outflow use a negative sign).

**Important** Get in the habit of clearing out your calculator before or after you work a problem. It is as easy as two quick keystrokes (2nd and Clr Wk) and can save you points on the test.

The future value of cash flows is
FVN=PV(1+r)N

i.e. if your savings account earns interest at a 5% rate and you have $100 deposited, how much will it be worth in 20 years?

FV20=$100(1+.05)20
=$265.33

This is a fairly basic calculation with no payments and you’re more likely to see something more difficult on the exam. It is relatively easy to work through but learn to do it on your time value buttons,

PV = 100
I/Y = 5
PMT = 0
N = 20
CPT –>FV

Whether you input the present value as a negative or not doesn’t matter much here since there are no payments. For other problems, just remember that outflows (deposits and payments into an investment or account) should be negative while inflows (money you receive or value) should be positive. One of the cash flows must be negative (outflow).

The future value of a series of cash flows is only slightly more difficult but easily understandable if you think of each payment as a single future value calculation. Don’t forget the note on changing your calculator for an annuity due.

Example: The same savings account as above has $100 deposited but you plan on depositing an additional $100 per year at the end of the year. What will the balance be at the end of 20 years?

PV= -100
PMT = -100
N = 20
I/Y = 5
CPT–>FV
FV = $3,333

Make sure you understand how to solve for each variable in the equation when given the other variables.

Note: I set my calculator to four decimal places which is usually more than you will need for the exam.

Discounted Cash Flow

This is arguably the most important reading in the study session and you will see the concepts across all three exams.The first section covers NPV and IRR which are really two sides of the same coin. NPV is the value today of the series of cash flows at a discount rate. IRR is the discount rate at which NPV is zero. Either one can be used in a budgeting decision. As with much of the material, understand the situations where each is more appropriate and the strengths/weaknesses of each concept.

Both NPV and IRR are found easily with the calculator. Remember that a key assumption of IRR is that cash flows are reinvested at the rate, which may not be realistic. Also, if there are multiple cash outflows, there will be multiple IRRs or none at all. There may be a conflict between NPV and IRR when projects are mutually exclusive or when there are multiple cash outflows. In this case, NPV is preferred.

Using the calculator is relatively easy,
The initial project cost or investment is a negative (outflow) as CF0
CO1 through x are the stream of cash flows and entered as a positive (inflow)
If cash flows are an equal amount, you can enter them as F (frequency)
Press the NPV button and enter the interest rate
Down arrow
CPT–> NPV
For IRR, just press the IRR button and CPT

Time-weighted returns measure the rate of growth over a defined period between cash flows. It should be used when the portfolio manager does not control cash in and out of the account (as is usually the case). Money-weighted returns can be done easily using the cash flow function on your calculator but may not be as applicable unless you have discretion on cash flows.

Know the difference and how to calculate the material in money market yields section (i.e. money market yield, bond equivalent yield, and HPY). These are good formulas for flash cards if you’re having problems.

Statistical Concepts and Market Returns

As with much of the quant methods material, you should start with an understanding of the basic concepts before worrying too much about the different variations. It is much more important to master the concept of standard deviation than to work through the material too quickly trying to get a vague idea of everything.

Geometric and Arithemetic averages are important. The arithmetic mean is simply the sum of observations divided by the number of observances while the geometric mean is the compound return by taking the nth root of the product.

The material on measures of dispersion is extremely important and will feed into the concept of risk. Even though you will be able to calculate variance and standard deviation on your calculator, spend the time to learn the formulas.

The Sharpe ratio is a key concept throughout the curriculum and you need to understand what it means as well as how to calculate it. It measures the excess return on an investment or portfolio and can be used to rank opportunities. You will use iterations of this formula in many other concepts (i.e. Roy’s Safety First). The drawback is that, since it uses standard deviation as a measure of risk, it is most applicable for symmetric distributions and may overstate risk-adjusted performance.

Understand that the mean, median and mode are the same in a normal distribution but different with skewness. Don’t worry too much about calculating kurtosis or skewness, just understand the their implication. (i.e. how it affects dispersion and returns)

Probability Concepts

The most important material here is covariance, correlation and being able to do the calculations for expected value, variance and standard deviation for a two-asset portfolio. The formulas can get kind of long but they are pretty basic. This is the material that will be used most through the other levels of the exams as well.

Remember, the expected return is just the weights of each asset times their respective expected returns.

Correlation between two assets is the covariance divided by the product of the two standard deviations.
Correlation = COV(X,Y) / STDev (x) STDev (y)

Correlation ranges from -1 (perfect negative relationship) and +1 (perfect positive relationship).

Common Probability Distributions

Most of the introductory material here is fairly unimportant as it isn’t used much in other parts of the curriculum. The binomial distribution is a little more important because it relates to some of the derivatives material. The normal distribution is really where you want to spend your time.

Remember that 90% of the distribution will be between 1.65 standard deviations, 95% within 1.96 deviations and 99% within 2.58 deviations. You will be given a z-table but need to know the formula and the applicable number of standard deviations. You need to pay attention to the question and look for which part of the curve you are being asked to measure. Do you need an interval around the mean or just one side? All the stuff around the z-score (the formula and finding probabilities) is fairly basic so spend some time and master it.

The information covering Monte Carlo simulations is important but just definitional and advantages/disadvantages against other analytical methods.

Sampling and Estimation

Again, fairly unimportant material but it is mostly conceptual so it should be easier to remember. You won’t need much in the way of formulas but will want to understand the ideas and differences between the different sampling plans. Remember that a good estimator is unbiased, efficient and consistent.

  • Understand the difference between simple random, systematic and stratified sampling as well as advantages/disadvantages around each.
  • A carryover from the previous reading, be able to calculate and interpret confidence intervals for the different distributions. Remember, if the sample size is larger than 30 then the z-score can be used as a proxy for the t-score.
  • Probably the most important material in the reading is that on data mining, sample selection, survivorship, look-ahead and time-period biases. Understand these and the different situations in which they might occur.

Hypothesis Testing

  • Understand the difference between the null and alternative hypothesis and be able to calculate the test statistic. The p-value is the lowest level of significance at which the null hypothesis is rejected.
  • Understand the difference between a Type I and Type II error
    • Type I is where you reject the true null hypothesis (i.e. saying that the statistic falls outside of the confidence interval in a normal distribution when it does not)
    • Type II is where you do not reject a false null hypothesis (i.e. saying that the statistic lies within the confidence interval when it does not)
    • Remember the rules for setting a low or high level of significance (1% or 10%) depending on the penalty for committing either error (i.e. 1% significance if you do not want to make Type I error, 10% significance if you do not want to make Type II error)

Technical Analysis

Again, not as important as the other readings but make sure you have a basic understanding in case you see something on the exam. Understand the assumptions, especially how they relate to the theory of efficient markets, and the comparison to fundamental analysis. It does look like the Institute is putting in more charting information in the curriculum so understand the basic definitional ideas around the vocabulary (i.e. head and shoulders, double tops, neckline, etc.)

Understand what volume says about technical analysis, i.e. intensity of confidence in an up or down move.

The technical indicators are of relatively more importance than the material on charting. Understand the concept behind the price-based indicators, momentum oscillators, sentiment and flow-of-funds indicators and whether an indicator is giving a bullish or bearish signal.

That is a lot to take in for one week so you will probably want to cover one study session per week. It is pretty basic stuff if you have at least an understanding of basic statistics and algebra. We’ll start on the Financial Reporting material next week.

‘til next time, happy studyin’
Joseph Hogue, CFA

December CFA Exam Must-Know Strategy



Following our discussion last week on taking the December and June exams, we thought it would be a good time to start a series of posts to prepare December candidates for the exam. This week we will cover the basic strategy and helpful tips for the first CFA exam. Over the next couple of months, we will cover specific topic-level information within the first exam.

Follow those topic weights

The CFA Institute does not disclose the minimum passing score on any exam but has said that no one with a score of 70% or greater has ever failed. The Institute does release a topic-level breakdown of the question weights you will see on the exam, shown in the graphic below. While you cannot afford to neglect any particular topic, one of the best things you can do while studying is focus on the high-point areas on each exam.

It will do you no good to spend half your time studying Corporate Finance, even if that is what it takes to master the information, if it means performing poorly in other areas.

cfa topic weights

Looking at the chart, it should be clear that you need to focus on three or four topic areas for the first exam.

You absolutely must master the material in Ethical and Professional Standards. Not only is it carry the second most questions on the exam but it will be 10% of your next two exams as well. You’ll see additional material in the other two exams but the Code and Standards do not change so learn them early. The most challenging aspect for most candidates is that they underestimate the difficulty of the exam questions. Candidates reason that they are more or less honest people and so will intuitively know the answers to the ethics questions.

WRONG! You only need to read through a few of the end-of-chapter questions in the curriculum to see how difficult and confusing the Institute can make these questions. My suggestion, make flashcards for each professional standard for quick review. Then spend most of your time practicing questions. The best resource will be your curriculum book or those from prior years. Try getting the book from last year or the year before for another set of questions. Test bank questions are also a good resource. By practicing as many questions as possible, you will start to get a feel for how they might appear on the actual exam.

Financial Reporting & Analysis is likely the most important topic area in the curriculum across all three exams. You are testing for the designation of Chartered Financial Analyst, so you better master the topic to pass the exams and succeed in your career. There are four study sessions covering FRA for the first exam. I would say SS8, the material on the financial statements, is probably the most important.

A few keys to passing the FRA material

  • Understand how items are recorded on the financial statements – Are they historical costs or market values, are they point-in-time values or for the entire period
  • Understand the relationships between the financial statements – These are absolutely critical to your success as an analyst. Building your first proforma model will mean linking the three financial statements to your projections flow through and tell you where the company is going.
  • Understand how to adjust and analyze the financial statements through ratios, earnings quality and backing out different items. This is really the Holy Grail of the analyst’s job and you won’t be expected to do it on your first CFA exam but you will be expected to understand the very basics.

We’ll cover FRA in more detail through our topic-level breakdowns. Just remember to leave yourself plenty of study time for the topic when you are planning your schedule.

The time you spend on Quantitative Methods will depend on your prior experience with statistics. While the points in the topic are not huge over the first two exams, understanding the Level 1 material can make the material on the second exam much easier. For this reason, I would suggest spending a little more time to get it down. Study Session 2 is relatively basic material but absolutely fundamental to our industry so you need to understand it.

While Equity Investments is only 10% of your first exam, I would recommend spending more time here as well because it will save you a lot of time on the next exam. Study Session 14 is the more important but SS13 is relatively basic and should be easy enough to get the general ideas. In particular, the material on Industry and Company Analysis (reading 50) and Equity Valuation (reading 51) are extremely important and very testable.

If you do not have a background in debt instruments, you’ll need to spend a little extra time in Fixed Income as well even if it is not a lot of points on the first exam. The basics on pricing and valuation that you learn on the first exam will be needed to understand the material in the other two exams.

Key Resources

While the curriculum is the last word for exam prep, it is simply too long to make it your only resource.

I would recommend you read through a study guide for each topic before you read through the curriculum. This is going to help you quickly get the basic ideas and will help speed your reading through the long curriculum readings. A lot of the curriculum is academic and a little dense so without a quick primer, you could find yourself re-reading passages just to understand what you’re looking at.

Flash cards are another key resource. These are a great resource to carry around with you and get a little extra studying in whenever you have down-time. Don’t buy your flashcards though. Half the benefit is from writing the problems out so you will want to make your own. I talk through how to make a set of quality flash cards in a prior post.

Practice problems, whether from the end-of-chapters or a study bank, are likely the number one reason candidates pass the exam or not. Sitting there reading the curriculum, and other passive learning techniques, will only help you retain about 20% of the material. Actively working through practice problems can help you retain at least 80% and get you well on your way to passing the exam.

As in the ethics material, a lot of candidates underestimate the difficulty of exam questions. You really need to study the practice problems to see what you will be up against for those six hours in December. I usually recommend doing at least 900 practice problems throughout your study plan.

A basic strategy

It is said that the human brain needs to see/experience something upwards of six or seven times to assimilate it into long-term memory. You’ve likely seen this in your daily life. Do you usually remember a phone number by just seeing it one time? No, you need to say it and see it a couple of times before you are able to remember it later.

The same can be said for preparing for the CFA exams. Plan on seeing or practicing the material at least 5-7 times before the exam. If you are breaking the study sessions into a weekly plan, it may look something like this:

Monday: Read study guide material
Tuesday: Practice problems and flash cards
Wednesday: Read curriculum and 30 minutes practice problems
Thursday: Finish curriculum and 30 minutes practice problems
Friday: Test over the material and flash cards
Saturday: Review study guide material and 30 minutes practice problems

By combining study guides, flash cards, practice problems and the curriculum you will be able to cover the material multiple times. By using multiple resources, you avoid getting bored looking at the exact same material every time. Notice, even on the reading days, I have added some practice problems. This is to reinforce the material you learned with active engagement.

I was quite surprised how general the questions were when I took the Level 1 exam. The first exam is an indoctrination into the industry and you are not expected to know all the details. Start by understanding the reasoning and basic ideas within each topic area and then move on to get the details. Understanding the basic reasoning in each Learning Outcome Statement (LOS) will usually help you eliminate at least one of the three answers provided.

Next week, we will start working through some of the topic areas on the Level 1 exam. We will spend most of our time focusing on core topics like Ethics, Financial Reporting, Quantitative Methods and Equity Investments but will try to touch on each topic over the next couple of months.

‘til next time, happy studyin’
Joseph Hogue, CFA

Preparing for the December Exam with a Jump on Next June



One of the most common questions I get from new CFA candidates is if it is possible to take the December Level 1 exam and then sit for the Level 2 CFA exam the following June.

To which I reply, “Possible, of course. Recommended, maybe.”

What’s the hurry?

Maybe the three years that have passed since I was a candidate have made me forget how anxious candidates are to be done with the exams. I understand that, like any academic credential, completion of the program is a big step in your career and you just want to get through it.

But are you taking the exams just to pass or are you taking them to learn how to be a better analyst? Trying to fit so much material in so little time may mean you will miss an important opportunity to really master the details. There is a ton of material in the CFA curriculum, written by some of the best minds in the industry, but a lot of it will go in one ear and out the other if you do not take your time.

Taking both the December and June exams makes for a tough schedule as well. Upwards of 600 hours studying over about nine months means a minimum of 15 hours per week devoted to the curriculum. Studying for 15 hours a week is achievable but you are going to risk some massive burnout trying to do it for such an extended period.

Even passing both the December and June exams will only get you the charter a year earlier, and that is if you will have the necessary work experience requirement.

Passing in the fast lane

For those of you intent on getting through the exams as quickly as possible, there is still time for a December and June exam schedule. You’ve got 18 weeks to the December exam which means you can accumulate the 300 hours of minimum study with a little over 15 hours per week. Some will be able to pass on less than 300 hours but many will not and it is much better to over-study than to fail an exam.

There is one advantage to the quickened strategy, that you will not need to review the Level 1 material while studying for the second exam. A lot of the material in the Level 2 exam is repeated or closely builds from the first exam. Many candidates find themselves having to review before going on to new information because of the six-month hiatus from studying.

Paying attention to the topic weights for each exam will help immensely. The first exam heavily weights Ethics and Financial Reporting. The second exam heavily weights Financial Reporting and Equity Investments. The material on Ethics and Professional Standards does not change much across each exam so spending extra time mastering it for the first exam could save you a lot of time studying for the Level 2 exam. I would also spend a lot of time studying Financial Reporting and Equity Investments within the Level 1 curriculum. You absolutely must master the material on financial statements in the first exam to be able to understand the Level 2 Financial Reporting and Equity Investments material.

You cannot afford to neglect any of the topic areas but spending the majority of your time during your Level 1 studying in these three topics will help give you a head start on the second exam.

After the Level 1 exam, taking at least a few weeks off is probably a good idea but you will want to start studying for the June exam as soon as possible. The Level 2 CFA exam is regarded as the most difficult by many candidates, especially for its huge amount of formulas.

I guess there is nothing wrong with a December-June exam schedule if you do not mind studying overtime for the better part of a year. Even if you are not successful on one of the exams, time spent studying is time well-spent and will help you in your career. Just remember not to neglect other aspects of professional development like networking or taking on more responsibility at work.

‘til next time, happy studyin’
Joseph Hogue, CFA

Professional Networking in the Virtual Age



I have a confession to make. I am one of the worst offenders of what I am about to post but I bet I’m not alone. I have 810 connections on LinkedIn and according to the site that puts more than 14.7 million other professionals in my network.

But would I be able to tell you anything about 90% of those first-level connections? Probably not.

And that is where many find themselves, with a huge virtual network but no real connections to help manage their professional career.

Maybe networking is not supposed to be this easy

While traditional networking should not be the painful process that many see it as, I’m not sure that it should be as easy as clicking ‘accept’ with no exchange between yourself and another. Sure, there are clear benefits to expanding your network through virtual platforms. We are able to build relationships with people that we would otherwise never meet. My ‘network’ spans nearly every country and just about every industry. Virtual networks help us keep in touch with our connections on a much more frequent basis than we probably could otherwise as well. A quick scan through profile changes lets me stay updated on what people in my network are doing.

But then there are the obvious disadvantages and traps we fall into as well. The ease of virtual networking has given us a false sense of connection and made it easy to neglect establishing stronger relationships. After all, why do I need to work to establish 10 strong connections when I can set up a network of 14.7 million with the click of the mouse?

Having too many ‘connections’ will make it impossible to really keep up with the connections you need to manage your career. Most of the social platforms are set up to run a news feed of things happening in your network. Are the important events and updates in your network getting buried under a pile of news from people you barely know?

Ultimately networking is about using those connections to help each other professionally, whether directly or indirectly through a second-level connection. Do you think you could do this with most of your connections? Would you feel comfortable recommending the people in your network based upon what you know about each of them? You are the only one that can answer the question, “How many connections are too many.”

Time to develop real connections

The benefits of virtual platforms for networking are too good to let them go to waste by superficially building your network so make a commitment to take advantage of them.

I know a lot of people will recommend going through your connections and deleting anyone that isn’t directly relevant to your professional sphere. It depends on how many connections you have but this might not be altogether necessary. If your list is still relatively manageable, you might just try categorizing people into spheres of importance. People with which you want to build a strong relationship would go in one folder and all others in another folder.

Once you’ve cleaned up your network, it is time to work on those relationships like you should have at the beginning. Browse through everyone’s profile and categorize connections within groups of experience, topic of expertise or anything else that might make it easier to organize. The idea is that when you have a question or want to talk to someone about a specific topic, you can quickly look through your network for the right person. This will not only help you answer your questions more quickly but will also help you get to know people in your network.

You probably do not need to talk to everyone in your network every week, maybe not even every month, but you should make it a point to interact with them. Before you go to a presentation or other professional event, send out a personal invite to the connections that might be interested. Regularly check up with your connections to get their opinion on the most important news and event for their sector.

Maybe it’s just that virtual networking is still so new for many of us that we have not learned to use it effectively. I know I’ve got a lot of cleaning up to do.

‘til next time, happy networkin’
Joseph Hogue, CFA

Life and the CFA Professional



We finished up our series on career management last week and candidates still have upwards of six months until the study season begins for next year’s exam. It is usually this time of year that I am urging candidates to stay active professionally and academically, but let’s get real here… you busted your butt to prepare for the CFA exam and many of you did it while juggling family and a job.

You deserve a break.

Give the numbers a break

A friend recently confessed to me that he has focused solely on his professional life for so long that he is having trouble disconnecting and just having fun. For the last ten years, he has been singularly driven to improve himself as a professional analyst.

He spends upwards of 50 or 60 hours a week working as an analyst in a Chicago commodities firm, usually spending a few hours at home each night to finish up on some reading. The books he reads during his free-time are usually somehow related to work, i.e. financial history, commodities and other concepts in investing. He goes out once or twice a week but much of the time it is to networking or other professional social events. His life has become so limited that, when he does go out with friends, the only thing they talk about is work.

I can sympathize with his plight and can see a lot of myself in the story. The industry is extremely demanding and sometimes being successful means sacrificing other parts of our lives but it should not become your life 24/7 and 365 days. Maybe the biggest challenge many of us face is limiting the time spent working or in professionally-related activities during those periods of the year where we can have some real free-time.

You need a hobby

There are a million-and-one hobbies and things you can do to take your mind off of the industry. If you’re having trouble thinking of an activity or hobby, try a web search for bucket lists. These lists of things people want to do before they die can be a great resource for one-time events or things you can do on a regular basis.

One of the most detailed bucket lists I’ve found is at:

http://bucketlistjourney.net/2012/01/543-bucket-list-ideas/

I like to exercise as one of the things to take my mind off of work. I know a lot of analysts that become extremely competitive in their sport or activity, almost taking it to the professional level. Even if you don’t push yourself to the limit, challenging yourself physically can really take your mind off of everything else.

Cooking is another hobby I’ve tried to pick up. In our hectic lives where time is money, it can be too easy to order out every night. It’s nice to relax and take the time to create a truly amazing dinner.

Your hobby doesn’t have to be something mainstream or recurring, just something that you might enjoy doing in any particular week. Make a point to spend some time with friends or family. Visit the local museum or a park every once in a while.

‘til next time, relax.
Joseph Hogue, CFA

Getting the Job: From Networking to Interviews and Beyond (part 5)



This is the last post of a series we have run over the prior few weeks highlighting some of the great resources available to candidates through the CFA Institute’s Career Resources. We covered networking, branding, job search techniques and interviews in previous posts. This week, we will wrap it all up with career management and what to do after you’ve got your dream job.

For resources from the Institute: Click through to CFA Institute – then to Career Resources – and then to Library. The first clickable link on the page will take you to, “Sessions on Career Management,” and 39 separate resources. You will need your candidate Id number to login to the site.

Did you forget how hard you worked to get the job?

The resources on career management are all podcasts, between 10 minutes and an hour, and take longer to browse through than the other topics we’ve reviewed. Don’t neglect the topic though, it is one of the most overlooked by employees.

The fact is that many people stop strategically thinking about their career after they land a job. Worse yet, many forget how grateful they were and how hard they worked to get the job and they soon fall into a daily routine that gets them nowhere. Constant career management is about two things, guiding your long-term career goals and guiding your career where you currently work.

Just because you love the company for which you work does not mean you want to or have to work their forever. It may be a great job and give you tons of experience but there are a number of reasons why your long-term plans may take you elsewhere.

  • Is the firm large enough for advancement opportunities?
  • Will the position/sector you want ever be available?
  • Does the firm deal in the asset class in which you want to work?
  • Does the culture fit with your long-term goals, i.e. family

Don’t forget that even the strongest, most long-lived firms may fall on hard times. Even if you see yourself at your current employer, you cannot afford to completely cut yourself off from the rest of the investment community.

Guiding your long-term plans just means being aware of how you want your career to progress, what rungs do you want in your career ladder, and devising a rough plan on how to climb your ladder. This includes knowing the limitations of your current firm and what other firms can offer. The four-part Career Conversations series with Khalid Ghayur lays out the topic very well and is definitely worth a look.

Guiding your career where you currently work may or may not be different from your long-term plan. I included it as a separate idea here because I see a lot of employees quickly fall into a rut after they get the job. The worked so hard to get the position, were so happy to get it but then lose their momentum. That desired position becomes just another job and they miss out on the opportunity to manage their career at the company.

Everyone’s job can get monotonous at times. The best advice I can offer is to formalize milestone career goals. These should be things you want to accomplish within six-months, one-, three- and five-years. The earlier periods (i.e. six-months and a year) should have multiple goals and may be more defined while the longer-term goals may be more strategic and vague. Regularly reevaluate your milestone goals to make sure you still want to get there and you are on track to achieve them.

Again, doing all this alone will not be half as effective as seeking the advice of someone else. With career management it is better to seek the advice of a supervisor or mentor rather than a peer. You don’t have to tell your supervisor that you see your long-term goals at another company but talk with them openly about how you can advance at the firm.

It strikes me, writing this series on getting a job and career management, that two very important ideas are prevalent across all the topics.

  • You need to be strategic to reach your goals. Know where you want to go and plan on how you can get there. Planning two steps ahead will put you at least one step ahead of the rest of the crowd that is reacting to their environment instead of guiding it.
  • You need to be active to reach your goals. Too many people passively go with the flow and wait for opportunities to come their way. Unless you have a guardian angel (i.e. someone that is pushing you to your goal and being active for you) then opportunities are not going to seek you out. You need to seek them out by knowing where you want to go and putting yourself in front of them. Attend conferences and professional events, be active in your local CFA society, do research into special topics and become an expert in things that may not be directly related to your current position.

We’ve still got at least four months before you need to start thinking about the next CFA exam. This is the perfect time to review the resources on the CFA Institute’s website, career resources or otherwise. Don’t just be a participant in your life’s story, actively guide it and you won’t regret where you end up.

‘til next time, happy job huntin’
Joseph Hogue, CFA

Getting the Job: From Networking to Interviews and Beyond (part 4)



This is the fourth post of a series we will run over the next few weeks highlighting some of the great resources available to candidates through the CFA Institute’s Career Resources. We covered networking, branding and job search techniques in previous posts. This week, we will look at one of the most intimidating and difficult stages for many candidates, interviewing.

For resources from the Institute: Click through to CFA Institute – then to Career Resources – and then to Library. There are five linked-documents for interviewing, most offering a list of tips. You will need your candidate Id number to login to the site.

From 1-in-100 to 1-in-10
Congratulations, you have made it through the mountain of submitted resumes for a position and actually landed an interview. Getting the call for an interview is a huge affirmation of your skills and experience, especially in today’s ultra-competitive environment.

As great as it is to make it to this stage, don’t forget that there are likely at least five or ten other candidates that want the job as badly as you. You’ve improved your chances but you can’t let up on the effort until you sign the employment contract.

Among the resources on the CFA Institute’s page, “Effective Interviewing and Negotiating Techniques” and “The 25 Most Difficult Questions…,” offer the best notes on preparation.

  • Understand the company and the type of person they usually hire. Are many from a specific school or field of study? Do they prefer newbies or people with strong experience? What is the workplace atmosphere, laid-back or hard-charging? Most candidates will give a cursory glance at the company’s website but this won’t tell you anything about how personalities fit in the office. Proving you are a good fit with the culture is just as important as proving your skills and experience.
  • As with your resume, it is important to be able to answer questions with definitive proof. Make sure you are able to support your skills with an anecdote and quantitative proof.
  • Be brief and listen to what they are saying. Avoid talking for more than a couple of minutes without some input or response from the interviewer. This will help avoid rambling or getting off topic. If you can turn the interview into a conversation, it becomes much more enjoyable for both and increases your chance of making a connection.
  • Don’t be afraid to ask for feedback on your answers and skills. If you can address the interviewer’s biggest problems/concerns during the interview then you’ll have a better chance when they are making the decision later.

The ‘Behavioral Interviewing Worksheet’ provides a nice template for answering experiential questions. These behavioral experience questions are popular with many employers because they cause you to ‘prove’ your abilities through actual experience. Make sure you keep each part of the question brief, the worksheet recommends 2-3 sentences, because it can be too easy to ramble and lose focus.

If you thought you were done with networking when you got the call for an interview, think again. One of the best suggestions I’ve ever heard was to find someone already working for the company to get the inside-scoop on the interview. They may not offer much, depending on how well you know each other but it is an opportunity you do not want to pass up. Does the company ask behavioral questions, will there be some kind of test, do they ask opinion or off-topic questions? Having an idea of the type of questions could save you a ton of time in preparation.

While it should go without saying, make sure you follow-up with everything you promised in the interview. Did you promise to provide contacts for references or to find some other information? At minimum, you need to send an email thanking the interviewer for their time.

As with most of the steps we’ve looked at in the series, you really need to be working with someone on your interviewing skills. It’s easy to sit there and read your pitch back to yourself but you’ll never get the feedback you need. Find someone else on the LinkedIn CFA group or around your city that is also job hunting and team up for feedback and support.

Next week, we’ll wrap up the series with career management and what to do after you get the job.

‘til next time, happy job huntin’
Joseph Hogue, CFA

Getting the Job: From Networking to Interviews and Beyond (part 3)



This is the third post of a series we will run over the next few weeks highlighting some of the great resources available to candidates through the CFA Institute’s Career Resources. We covered networking and branding in previous posts. This week, we will look at resume writing and strategic job searches.

For resources from the Institute: Click through to CFA Institute – then to Career Resources – and then to Library. The Personal Branding material is about halfway down the page. Resumes and Strategic Job Searches are the last two topics on the page. You will need your candidate Id number to login to the site.

Do people still use resumes?
There is only one resume link to, “Insider Tips for Resume Writing,” offering nine bulleted tips. In the age of ubiquitous internet profiles, resumes may seem outdated but are still universally used by employers.

HR and employer time is limited, especially with the hundreds of resumes they may be receiving, so it is imperative that you get there attention quick. Put a summary section above everything else that gives a one or two sentence pitch and offers a few bullet points of your top achievements or skills.

One of the hardest but most important things to do on a resume is to quantify your accomplishments. Anyone can say they helped improve the return on a portfolio but you need to be able to prove it. Spend some time to analyze your own contribution to your past employers. Did you suggest and/or lead a project or investment. If your split with the employer was friendly, they might be able to offer ways to quantify your accomplishments.

In keeping with the idea of a restricted time reading your resume, the tips suggest limiting it to two pages though I am still from the old school that tries for one page. This means limiting the amount of information and the number of employers you list. Focus on your most recent and most relevant experience.

Crafting a superb resume is still not going to get you out of networking. The author of the linked tips states that 75% of all new positions are won through networking. While I’m thinking this seems a little high, you absolutely must make those personal connections.

Strategic Job Searches
I couldn’t have told you what ‘strategic job searches’ were before I started this post but the Institute offers nine files for review so I figure there must be something to it. From reading through the resources, it appears that searching ‘strategically’ is just integrating all the topics (i.e. resume writing, branding, networking, interviewing) and formalizing a process for the search.

As a type-A person who likes to have everything planned out ahead of time, the need for a strategic search seems obvious but the resources are no less helpful. It strikes me that a lot of candidates think getting a job begins with a search on Monster or eFinancialCareers but have very little idea of what they actually want to do besides make money. If you do not fully understand what you want and what you can offer, then you won’t be able to relay that to a potential employer and will have nothing to separate yourself from the crowd.

I would highlight two resources available on the site. Effective Job Search Campaigns gives you a template, though you may want to add or delete some sections, to formalize a marketing plan and a few helpful tips on networking.

Job Search Strategies for Today is probably the most detailed resource with 44 slides that cover quite a few different topics including resumes, planning and social media. You will want to take some of the ideas within this resource to develop the template from the previous resource.

Next week, we’ll look at those all-important interviewing skills.

‘til next time, happy job huntin’
Joseph Hogue, CFA

Getting the Job: From Networking to Interviews and Beyond (part 2)



This is the second post of a series we will run over the next few weeks highlighting some of the great resources available to candidates through the CFA Institute’s Career Resources. We covered networking in last week’s post and, as much as I would like to move into resumes and interviewing, we need to cover something almost completely overlooked by job candidates…personal branding.

For resources from the Institute: Click through to CFA Institute – then to Career Resources – and then to Library. The Personal Branding material is about halfway down the page. I like the first link, “Building and Managing a Professional reputation,” for its straight-forward questions but it won’t take much time to browse through all the material on the site. You will need your candidate Id number to login to the site.

Personal branding? It’s not like I’m Coca Cola

You may not be a multi-billion dollar company with a product to push but you are still trying to sell something, yourself and your skills.

Sure, you hold the CFA designation or are working towards it but that puts you in the company of about 280,000 other charterholders and candidates. That is on top of the masses of new finance grads and the consolidation in equity analysis over the last few years that has left fewer positions for which job seekers must compete.

Personal branding WILL get you a job! I can say this so confidently because the process is so neglected by job seekers that working it into your job search will distinguish you from all the rest. As with networking, there are several slideshows and resources on the Institute’s webpage. Most are relatively brief, notes from a presentation, so you might want to check out something from the library. You don’t have to spend weeks developing a plan but give it the time it deserves and it will pay off.

Branding is actively creating a perception of yourself and your skills. This means sitting down to think through the idea and writing down a formal plan. Do not just spend 30 minutes and figure that you will remember your brand without writing it out. Actively creating your brand means seeking out ways to display it so it gets built into people’s perception. This includes public speaking, writing or blogging, as well as highlighting it on all your communications material like resumes and business cards.

The best advice I got from the resources on the website was to be focused and differentiated, understand your value proposition and the specialized solutions you can offer. Think creatively here. Experience is not the only value proposition. If you lack experience, you need to develop your brand around something else.

Potential brands

  • Cross-specialization : Are you someone that has strong experience in other areas? There are tons of analysts out there but many cannot put two sentences together intelligibly. I have built my brand around being able to produce persuasive and thoughtful writing around strong fundamental analysis.
  • Perseverence: Everyone says they are passionate and will, “do what it takes.” If you can prove it with a short anectdote then the brand might be yours. Have at least two stories of how you went above and beyond or overcame huge obstacles.
  • Be the First or the Leader: You don’t necessarily have to be the very first to do something as long as there are few that do it. Make sure to pick something that will be in demand by a large enough universe of employers.
  • Be the Expert: This doesn’t necessarily mean being the global expert but could be the Expert among the group of job candidates. If you do not work in the topic or have much experience, you’ll have to take the time to develop it. Read everything you can on the subject and seek ways to develop your expertise. Volunteer to speak on the topic or submit analysis to journals or to newsletters.

As with any communications strategy, branding works best if it is integrated across multiple channels. You need to focus on your brand across your LinkedIn profile, resume and cover letters, business cards and in your face-to-face interactions.

Whatever brand you choose, stop saying you are, “well-rounded!” Do you know what this tells me, that you do not know your strengths or are not an asset in any particular area. It is fine to have some good general knowledge but you need to be able to bring something extra to the team.

Next week, we’ll look at a few resume tips and some job search strategies.

‘til next time, happy branding.
Joseph Hogue, CFA

Getting the Job: From Networking to Interviews and Beyond



This is the first post of a series we will run over the next few weeks highlighting some of the great resources available to candidates through the CFA Institute’s Career Resources. We’ll start with some networking ideas, highlighting some of the best articles, handouts and presentations available on the site.

Through the next few weeks, we’ll move through the career search highlighting interviewing, resumes, personal brand development and communication skills. Don’t feel like you have to wait for the posts though, click through to the CFA Institute’s site and take a look at some of the resources available.

Click through to CFA Institute – then to Career Resources – and then to Library
You will need your candidate Id number to login to the site.

It’s not what you know
After 300+ hours studying for your exam and countless hours spent in your undergrad program, I’ve got bad news.  You may have neglected the most important skill for our industry.

Most people think of networking only when they get ready to find a job. Don’t let the fact that you’ll spend much of your day following portfolio returns and market analysis fool you, your success in the investment and asset management industry lives and dies on relationships. This is most obvious for the brokers and advisors but the dealmakers and analysts also need to know who is looking in the market for their advice and expertise.

Networking can be frustrating at first. It’s not really taught in school and the ease of social media platforms like LinkedIn has given people a false impression of how to really make connections. Networking is not adding someone as a “connection” on your profile and it is not simply “Liking” someone’s repost of the cat playing piano video.

Networking is about getting to know others, their job and their personality, and understanding how the two of you can work together to achieve both your goals.

Ok, so most of you are saying, “That’s fine but I NEED a job now and that’s the only thing I’m thinking about.” That’s understandable and your networking will eventually lead to job opportunities, but…

Try to approach networking first as the opportunity to meet others in the industry and learn. Too many job hunters rush through getting to know someone and jump right into asking for a job. When you do this at a social event or conference, you immediately stop being someone with which the other person is interested in building a relationship and become just another resume.

There are a few handouts and multimedia podcasts available on the CFA site, my favorite is, “Building Success through Strong Networking,” put out by Marshall Brown & Associates. Handouts like these will give you tips and some good starter advice for networking but the best way to learn is by getting out there and practicing.

Don’t just scan through the handouts. Actively read through and compare the advice with your experience in the last couple of times you’ve been to a social or networking event. Did you do anything particularly well? Chances are you will find some points that you either didn’t do well or actively avoided. Use the handout and your experience to write out a networking plan, not a long book on meeting people but a half page outline on what you are going to do at the next event you attend.

Better yet, write it on a small index card and take it to the event with you. Looking back on the outline during the event can be a great way of forcing yourself to do some of the things that you actively avoided in the past.

There are a ton of tips available in the handouts but my favorite is to network with a friend. Working with a peer will help you develop your ‘elevator speech’ ahead of time. At the event, you can use each other to help with introductions. Each of you plan on meeting at least 3-5 people then introduce each other to the people you met. After the event, talk about what you were able to do from your outline plan, what you might have missed and what you learned.

Your local CFA society is your best bet for networking events. From there check out the local business organizations and your connections through LinkedIn. After going to a few events, you will start to see familiar faces and your ‘real’ network will grow exponentially. Start talking about what you want to do through your career and what you think you be great at doing.

Next week, we’ll look at a few resume tips and some job search strategies.
‘til next time, happy networkin’
Joseph Hogue, CFA