Tag Archives: finance

Passing The CFA Level One Exam – Study Plan and Notes

My compilation of short articles has been a bit short of articles lately as a result of me beginning a new job and study for the CFA (Chartered Financial Anaylst) level one exam in December.

Firstly, I am working for a stock market research publication known as Intelligent Investor which applies value investing principles to analysis of Australian listed companies. For those out there that invest in Australian equities, either contact me or fill out the form below and I will organise a free trial of the service for you. It is regularly around $600 a year so there is some value here for the readers of my blog.

Now onto my plan for passing the CFA level one exam without a finance background. The following is a somewhat ordered plan of what I will do to pass the CFA level one exam (I found analyst forum very useful here and particularly thank saurya_s for his guidance):

  1. Overview - Watch the Schweser videos for each of the course modules with the course notes open on my second monitor at the same time. This will take approximately 48 hours by my estimation but will give me a solid introductory overview to what the whole course is about. I must ensure to cross reference the CFA learning outcome statements during this process. I need to have this done by the end of August 2008.
  2. Order of Study - Whilst I am most looking forward to a few key areas, I have been advised that following the order of Quantitative methods, Economics and then Financial Statement Analysis at first will be most beneficial as the course is cumulative. During my study, I plan to read each section and then devote at least a few hours afterwards to revise whatever I have just learned.
  3. Get familiar with financial Calculator – I have chosen to use either the Texas Instruments BA II plus or the BA II plus pro. Getting familiar with all the new functions will be important early.
  4. Identify and Read Schweser Notes - Identify strong and weak areas and begin reading and annotating the Schweser course notes (books 1-5). During this process, if i get stuck, I will refer to the CFAI texts if necessary or ask someone for help. I am lucky enough to work at a place with a bunch of very intelligent analysts so this should be fine. I estimate this part to take approximately 4 minutes per page as an average or somewhere around 80 hours.
  5. Listen – As odd as it may be, I plan to listen to audio tapes explaining the material on my way to work. Again, I will listen to the Schweser material that I have got my hands on.
  6. Complete Concept Checkers – Either whilst I am annotating the notes when I read through them or after completing my first read through, I will attack the concept checkers at the end fo each module in each book. I expect this to take approximately an hour per module or 16 hours. I will try to ensure my understanding on the concepts is spot on at this point but also be conscious of getting my time per question down to less than 60-70 seconds as time will be a factor in the exam.
  7. Reinforcement and Flashcards- If time permits, I will read through the Schweser CFA level one course notes one more time making reference to my annotations. I will then make flashcards to help me remember key parts of the course.
  8. Read Schweser Secret Sauce – This is a condensed 220 page version of the course. I will read through this once I am fairly comfortable with it all and use it to reinforce key concepts. I expect this to take 7-10 hours.
  9. Exam practice - practice exams, end of each book questions, Schweser question bank, and Schweser books 6 and 7 that are full of questions. The aim is to do so under time and to get above 80% in each of the more difficult Schweser practice exams. After I have done each question, I will think about what was tested and focus on the concept it is getting at.
  10. Exam strategy - Identify strong areas and weak areas.  I will not spend time on questions intended to throw me in the exam, it is well reported that this sends many candidates to their demise. Do the Volume 6 and 7 exams after you have finished all material. You should aim to get 75%. Schweser tests are difficult but if you crack 75% you will surely get at least that much in the real exam which is far more conceptual. By working with maths, you will know how things are affected.
  11. Things to remember about the CFA Level one exam - I need to get 70% in the real exam to guarantee a pass.The real exam is less numerical and more conceptual than the practice questions. Constantly revising and keeping tons of key messages in my mind will be crucial.

I may add to this plan over the coming months and write blogs as to my progress. It is August 10 now, I have 120 odd days left.

Updates: CFA Blog Level One reflections Part One. Another great link for CFA study advice. Contact me below if you need help locating any of the materials I mentioned above.

Careers Paths, Tough Decisions And Saving Sex Until Your Old Age

Finance just isn’t flowing through my proverbial veins this week, so I thought a slightly more personal and far less theoretical blog was in order.

Hopefully, this blog will serve the purpose of getting my regular readers (I know you’re out there) somewhat more acquainted with me and it may serve as a useful collection of thoughts for those in a similar situation to myself. That is, graduates with either a couple of years work experience ranging to very little experience who are considering their next steps.

If that fails, hopefully the odd header image will do the job. If you are new to my blog, you may prefer one of my more regular posts such as Options Trading Strategies, Technical and Fundamental Analysis, or Short Selling Strategies.

Having moved on from the job which has occupied my last two and a half years at a Sydney web design and development agency, and having recently graduated from Law at Sydney University, I have spent the last month collecting my many thoughts and considering the path forward.

It is certainly not an unenviable situation to find myself in but like many others in my position, I am somewhat overwhelmed by the number of choices and the desire to make my next move somewhere close to the correct decision moving forward.

The most apparent decisions open to me at the moment include training as an analyst or a lawyer at a reputable firm, starting my own business, working in a combined sales / marketing role at a small to medium sized company or going travelling.

The really tough decisions seem to arise where you exclude future options or careers as a result of choosing a certain path. The obvious example is putting a small barrier in front of a career as a lawyer or an investment banker by not getting in to one of the big firms as a graduate.

It is for this reason that choosing to not work out at least two years as an analyst at an investment bank or my two years as a lawyer in training at a law firm is somewhat of a tough choice.

Warren Buffett equates making choices purely based on the fashioning of your resume rather than pursuing what you are interested in to “saving sex until your old age” and I am somewhat inclined to agree.

However, I believe it would be hard not to benefit from the situations I would find myself in and the people I would work with at a leading Investment bank or law firm and thus the decision is somewhat blurred as I am always interested in exposing myself to situations that I can learn from.

In my opinion, the main difference between working in the ‘big firm’ situation above versus a smaller company or even in my own business would likely be the difficulty of the work and the repetitiveness of the tasks that I was assigned to in addition to their hierarchy in the greater scheme of the company.

I’m sure this is a decision many out there are faced with and if anyone wants to comment below with any thoughts, I would encourage it.

At this point, Whilst Descartes may recommend travelling as the ideal option, I am going to think about my steps begin helping out where I can at an investment analysis and advice company known as Intelligent Investor in a mixed role of analysis + legal assistace + sales and marketing (if they’ll have me).

I believe this combined role will give me a good introduction to working in Finance. As a bonus, I will be working close to great people that I can learn from; a very important factor for me.

Finally, I have decided to try and get some leading Australian executives to participate in interviews on career paths, different postgraduate degrees, key skills in finance and generally in a series of interviews that I plan to set up.

Understanding Technical Analysis and Fundamental Analysis in Investing

This article is primarily intended to give an introduction to how technical analysis is used to make investment and stock market trading decisions. It will then compare the position of technical analysts to fundamental analysts in terms of what information and data each group uses in their quest for high returns.

I have sourced most of the information below from a copy of the 2007 CFA Level 1 course notes that I have been reading.

Technical Analysis

Technical analysis involves the examination of past market data, such as stock prices and the volume of
trading, to lead to an estimate of future price trends and subsequently an investment decision.

The assumptions underpinning the technical analysis model are as follows:

  1. The market value of any good or service is determined solely by the interaction of supply and demand.
  2. Supply and demand are governed by numerous factors (examples include people’s moods, guesses and opinions). The market weighs all these factors continuously and automatically.
  3. The prices for individual securities and the overall value of the market tend to move in trends, which persist for appreciable lengths of time. That is, when new information enters the market, it leads to an adjustment of stock prices.
  4. Prevailing trends change in reaction to shifts in the supply and demand relationship. These shifts can be detected at some point in the action of the market itself.

The philosophy behind technical analysis is in sharp contrast to the efficient market hypothesis and fundamental analysis.

Fundamental Analysis Versus Technical Analysis

Fundamental Analysis involves making investment decisions based on the difference between the fundamental value of a company and the current price of that company’s stock.

Fundamental analysis involves an examination of the economy, a particular industry, and financial company data in order to lead to an estimate of value for that company. If this value is then compared to the current stock price, investment decisions can be made assuming that the market will correct and move towards the estimated value at some point in the future.

Although both fundamental and technical analysts agree that the price of a security is determined by the interaction of supply and demand, technical analysts and fundamental analysis have different opinions on the influence of irrational factors. A technical analyst might expect that an irrational influence may persist for some time, whereas other market analysts would expect only a short-run effect with rational beliefs prevailing over the long-run.

A bigger difference exists between the two regarding the speed of adjustments of stock prices to changes in supply and demand. Technical analysts believe that new information comes to the market over a period of time because of different sources of information or because certain investors receive the information or perceive fundamental changes earlier than others. Based on this belief they expect stock prices to move in trends that persist for long periods, and a gradual price adjustment to reflect the gradual flow of the information.

However, fundamental analysts believe that new information comes to the market very quickly and they expect stock prices to change abruptly as a result of this.

How do Technical and Fundamental Analysts make investment decisions?

  • Technical analysts make investment decisions by examining past market data to estimate future price trends. They identify new trends and take appropriate actions to profit from the trends. Technical analysts use market data and non-quantifiable variables like psychological factors and claim that their method is not heavily dependent on company financial accounting statements.
  • Fundamental analysts make investment decisions by examining the economy, the industry and the company to estimate the intrinsic value of the company’s stock. They then compare the intrinsic value to the prevailing market price and take appropriate actions. Fundamental analysts typically use economic data (including accounting data and information released by the company to the market).

Why Technical Analysts believe Technical Analysis is superior

According to technical analysts, it is important to recognise that the fundamental analysts can experience superior returns only if they obtain new information before other investors and process it correctly and quickly. Technical analysts do not beleive that most investors do so consistently.

Secondly, Technical analysts believe that it is too difficult for fundamental analysts to pinpoint a specific time to take investment actions even if they have identified the under-valued or over-valued securities.

Technical analysts need only quickly recognise a movement to a new equilibrium value for whatever reason (they need not know about an event and determine the effect of the event on the value of the firm and its stock). In addition, because they don’t invest until the move to the new equilibrium is under way, they contend that they are more likely to experience ideal timing compared to the method of fundamental analysts.

Finally, technical analysts believe that financial statement analysis is not sufficently accurate to depend on to make investment decisions and therefore consider it advantageous not to depend on such statements.

I will later write an article about the potential fundamental analysts’ responses to these points but more can be read about fundamental analysis and Warren Buffett’s concept of Value Investing in one of my previous articles (includes a video).

Click here for a look at Company Valuation methodologies like multiples and discounted cashflow analysis.

Welcome to JamesCox.com.au

original james cox finance blog background

This website will share a range of financial information centering mainly around corporate finance, investing, share trading, the stock market, growing companies and business, Economics, Law, Random relevant news events, and generally making money (probably some poker thrown in).

I am writing this blog for three main reasons. Since finishing my law degree, I find myself reading many books on these subjects and so far i am finding them particularly interesting.

In addition to this, financial topics are traditionally very hard to ‘get into’ or learn about and there seems to be a certain and somewhat intentional cloud of secrecy around their understanding. The number of times I have searched “learn share market” or “what is an option?” into Google and arrived at a page telling me to go to seminar or pay for an ebook (that is likely to tell me to go to a seminar) has led me to believe someone should be providing this information for free.

Finally, understanding these things is interesting even on the face of it but can obviously allow you to have a much greater chance of success in a variety of important facets of life no matter what you do and who you are. You don’t have to be a capitalist or investment banker to enjoy finance and regardless of your political and moral inclinations, understanding these topics are likely to increase your ability to live in what is obviously a capitalist society.

I am not a finance expert, I have a sound business sense in development and a legal background, but i am by no means going to write like so many money magazines or guides where you need a cipher to understand the majority of an article. Ideally, this blog will be simple, straight to the point and introductory to a wide range of financial topics.

This blog will hopefully demystify some of the concepts that seem so foreign to most people and provide a less than 400 page insight into the financial world from the perspective of an financial novice as I begin to truly understand alot of the concepts myself.

I look forward to writing this blog and i hope someone out there will enjoy reading it.

If you enjoy the blog, please become a fan and get in touch of on James Cox finance blog facebook group.