Commentary From the Mile High City

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Joshua Sharf

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June 8, 2009

CFA Level II Post Mortem

Saturday was gorgeous.  So naturally, I assumed that Sunday would be the same, and that I'd be spending a perfectly beautiful Colorado day inside taking a test.  I needn't have worried.

In the meantime, a few observations:

1) It's a ton of material to cover.  It doesn't cover any more breadth than the Level I, but with fewer questions, there are fewer opportunities to make up an gaps with other questions.

2) There's much less calculation than in the Level I.  More of the questions are qualitative, and of the questions that do require calculation, the arithmetic is usually pretty straightforward.  While the Level I might ask you to calculate a NPV or the value of an annuity or depreciation based on double-declining balance, most of the work here is in recognizing the type of problem and setting it up.  You could probably do the math with a slide rule.

This means that:

3) More of the questions - although not all - of the the know-it-or-not variety.

4) There are three choices instead of four.  This makes is harder to sneak in the two-for-one questions: A and B, A not-B, B not-A, not-A not-B.  And yet...

5) They still manage to do so, along the lines of, "under the so-and-so theory of capital allocation, Mrs. Smith should put what percent of her money in Amalgamated Congoleum?"  You need to know what the theory is, what it says about this specific calculation, and then you need to do the computation.

In short, it's not just a knowledge test, it also requires you to put pieces together.

I do know I did better than last time, but whether I did well enough to pass, well, we'll find out in a about 2 months.  The monks grind slowly, but they grind exceedingly small.

May 27, 2009

CFA and Hedge Funds

The CFA unfortunately doesn't have much helpful to say about evaluating hedge fund performance.  You'd like to see if there's any alpha there, but the best they can offer is a series of variations on the CAPM theme, where alpha's what's left over after you've subtracted out the Betas for whatever you want to qualify as a risk factor.

If I believed in CAPM this would be alarming for its arbitrariness.

February 26, 2009

Borrowing for Consumption

While reading the section on foreign trade in the Economics study session, I came across this unfortunate paragraph:

In 2005, we borrowed almost $800 billion from abroad. In that year, private investment in buildings, plant, and equipment was $2270 billion and government investment in defense equipment and social projects was $430 billion. All this investment added to the nation's capital, and much of it increased productivity. Government also spends on education and health care services, which increased human capital. Our international borrowing is financing private and public investment, not consumption.

This is as untrue as it is is comforting.

Let's grant for the moment that everything they list here can be classified as investment. There's still roughly $10 trillion of other spending that took place that year, much of which was consumption. One can't simply assume that the $800 billion was borrowed solely to finance these projects.

But of course, even these projects aren't all investment. Social projects may or may not simply be money down a hole. Education? To a point, but it's hard to see how another couple of hundred thousand sociology majors are going to materially contribute to the well-being of the country. Health care services? Certainly, except that the overwhelming majority of health care spending takes place in the last year of life. This isn't to say that those lives have no moral value - of course they do - only that their economic value is diminished. (Watch this, by the way, when the Democrats start arguing this summer that we can't afford health care for the old and sick, but count all health care spending as, "investment.")

No, in addition to buying things we no longer make ourselves, a lot of the spending cited above really is just consumption. It's a shame that an organization devoted to clear anbalytics can't get that right.


Power, Faith, and Fantasy

Six Days of War

An Army of Davids

Learning to Read Midrash

Size Matters

Deals From Hell

A War Like No Other


A Civil War

Supreme Command

The (Mis)Behavior of Markets

The Wisdom of Crowds

Inventing Money

When Genius Failed

Blink: The Power of Thinking Without Thinking

Back in Action : An American Soldier's Story of Courage, Faith and Fortitude

How Would You Move Mt. Fuji?

Good to Great

Built to Last

Financial Fine Print

The Day the Universe Changed


The Multiple Identities of the Middle-East

The Case for Democracy

A Better War: The Unexamined Victories and Final Tragedy of America's Last Years in Vietnam

The Italians

Zakhor: Jewish History and Jewish Memory

Beyond the Verse: Talmudic Readings and Lectures

Reading Levinas/Reading Talmud