While the CFA Program may not guarantee you earn higher returns, I believe it can make you a better investor.
One of the most common questions I get asked by friends and family is if the CFA curriculum or having the charter makes you a better investor. To this question, I think the answer is yes but it’s really not the question they are asking. Most people outside the profession really mean, “Does the CFA Program mean you will earn higher returns?” Of course the answer to this one is no.
It might seem like semantics and you might question whether the two questions are really different. They are different and I think it’s a difference that CFA Program candidates need to understand about themselves and how they answer the question.
How the CFA Program will Make you a Better Investor
There’s no doubt that many CFA charter holders have been able to provide amazing returns for their clients. Among the charter holders I follow are Bill Gross, Abby Joseph Cohen and the near-legendary Bill Miller who’s Legg Mason Value Trust Fund beat the S&P 500 for 15 consecutive years to 2005.
But all of these charter holders have had their off-years and have under-performed their index at some point. While the long-term return on the assets they manage may be higher or lower than a benchmark, it’s not really the most important advantage they bring to their clients.
Their advantage is in how the CFA Program curriculum and experience has shaped them as an investor.
First, as a CFA Program candidate, you see much more than the narrow view that most analysts and asset managers see through their career. Most will never expose their world to the breadth of topics and investments you’ll see in the CFA Program curriculum. You may not need to calculate the options-adjusted spread or use Treasury options in your client’s portfolios but you have the tools to do so.
Think of two repair technicians that come out for a service call. One has a small tool box with a hammer and a couple of screwdrivers. The other has a truck filled with just about every tool imaginable, some which you don’t even know the name. The second technician is the CFA charter holder and he’s prepared for anything.
Beyond this breadth of knowledge across the curriculum topic areas, the CFA Program gives you a holistic view of investing and how the pieces fit together. Over the three CFA Program exams, you progress from the stock market basics of each topic area to working through your own solutions using what you’ve learned.
Just the process of earning the CFA charter forces you to push yourself and understand the importance of study. I’ve seen too many analysts and managers fall into a routine of doing their job but never really studying the new topics in the industry or brushing up on their skills. This leaves them dangerously behind in a very competitive industry. CFA charter holders know the value of continuing education and the Research Institute helps keep you at the front of changes in the industry.
Focusing on how the CFA Program curriculum may or may not make you a better investor, it’s easy to overlook the advantage you’ll get in being among some of the most critical-thinking and professional people in the business. CFA charter holders have worked hard to develop their skills and their careers and they benefit from a community that shares that hard work with its members. Learn how to tap your fellow charter holders and candidates for more than just a work reference but to exchange ideas and insight.
My opinion that the CFA Program experience will make you a better investor doesn’t end the debate and there’s still room for argument around charter holder returns versus those earned by other managers. I have yet to meet a CFA charter holder that felt the experience wasn’t worth it or that it didn’t make them a smarter investor or money manager.
Just 11 weeks to the June exams. Stick with it and be better for it!
‘til next time, happy studyin’
Joseph Hogue, CFA