< The Finance Professionals' Post: October 2011

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16 posts from October 2011

10/31/2011

When Should I Start Studying for the CFA Exam?

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 When should I start studying for the CFA® exam?

- Anonymous

This is a timeless question and I can’t think of any class I taught where this has not been asked. It is also not level specific. I have heard it from Level I, II, and III candidates. As we have covered in the past, studying for any CFA® exam is not to be taken lightly.

Continue reading "When Should I Start Studying for the CFA Exam?" »

10/27/2011

The Inner Voice of Trading

Inner-Voice-Trading

Trading has become one of the core activities in modern capital markets, and a potentially very rewarding career path. This is evident in the size and growth of hedge funds and proprietary trading. Despite this, there is a scarcity of books on how to become a successful trader. Thus, Michael Martin's new book is especially welcome.

Continue reading "The Inner Voice of Trading" »

10/26/2011

The Lost Profession of Banking

Banking used to be a profession, not just a business. That profession is vital to the real economy, and essential at a time of profound economic system transition. It's about time we rebuild the banking profession, using public-private hybrid models when necessary, to promote banking's critical public purpose, such as rebuilding our energy infrastructure for the post-carbon era.

All this was brought home to me while listening to the presentation for a large-scale rooftop solar project at the Business-Climate conference hosted by PriceWaterhouseCoopers.

Continue reading "The Lost Profession of Banking" »

10/25/2011

CFA Prep Podcast: Level III Advice

CFA Exam Prep PodcastIt is an innocent and common mistake for Level III candidates. Most will not even know it can be so costly. Listen to Nathan Ronen give key advice to CFA Level III candidates here.

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10/24/2011

Martin L. Leibowitz: Alpha Orbits

CFA

Let us ponder, for a moment, a hypothetical market consisting of only two assets: (1) cash and (2) one big Treasury bond. To keep things simple, let’s make the bond a perpetual with a 5 percent coupon and a current yield of 5 percent so that its price is 100. Further, let us assume that there is no credit risk whatsoever.

Now let us suppose that some investors own only cash, some own only the bond, and others own a mix of both.

We all know what happens to the bond price when the yield goes up or down: If the bond yield rose to 6 percent, the price would drop from 100 to 5/(0.06) = 83.33; if the yield fell to 4 percent, the price would rise to 5/(0.04) = 125.

But we also know that when the price goes up for any reason, the bond’s yield must fall.

In our hypothetical model, the all-cash investors are risk averse as a group, probably believing that bonds are simply not the “right kind” of asset for their highly risk-averse type of fund. But now let’s suppose that one of these all-cash funds suddenly receives an unanticipated contribution that raises its portfolio asset value to a level that modestly increases its risk tolerance. The fund decides to break out of its all-cash stance and buy some bonds, which nudges the bond price up to 101.

Then, a second all-cash fund, noticing that an all-cash fund’s buying bonds has become more acceptable, proceeds to take a nibble. The price moves up to 102.

When a third all-cash fund sees that owning a few bonds has become reasonably respectable, its bond purchases move the price up to 104.

At a cocktail reception at the next All-Cash Funds Conference, these few radical bondholders are the “talk of the town.” Having at least a small bond allocation quickly changes from being a novelty to being downright fashionable.

With this new surge in motivated buying, the price moves up to 107.

Some momentum investors observe this price action and begin to salivate. They don’t hesitate long, and their purchases raise the price to 110.

(Let’s not muddy the waters by wondering who is selling these beautiful bonds. A few contrarians are always lurking in the wings.)

Thus, over the course of a year, the bond’s 5 percent coupon, plus the 10 percent price appreciation, produces a hefty 15 percent total return.

Now let us consider a long-term investor with a 50/50 cash/bond portfolio. The assumed expected return for the bond was set at 5 percent in the last mean–variance optimization. With the dramatic shift in the structure of market returns, the fund decides to call for a new study.

Continue reading "Martin L. Leibowitz: Alpha Orbits" >>

10/20/2011

Making Rare Earth Element Disclosure Transparent and Compliant

"Getting the Most Out of other Organizations’ Practices"

When prices for rare earth metals rose sharply over the last five years, we saw junior mining companies take on rare earth projects and seek financing to explore them on the equity markets.

Such events would not normally create a compliance problem. But, in the rare earth business, there were a few new twists that made clear disclosure harder to do. One such twist was that there were just so many rare earths; another was that the term had been popularly stretched to cover other metals that were not rare earths at all. Rare earth elements are the lanthanide series (lanthanum through lutetium, elements 57-71 on that long-neglected row of the periodic table atop thorium, uranium and the Lawrence Labs synthetics), plus yttrium, which occurs with the lanthanides and shares most of their chemical characteristics.

Continue reading "Making Rare Earth Element Disclosure Transparent and Compliant" »

10/19/2011

Investment Advisors Respond to Market Paradigm Shifts in an Age of Uncertainty

As extraordinary uncertainty continues to characterize the global investment markets, “paradigm shift” has become the catchphrase of the moment. Investment managers are interpreting this shift in a variety of ways and responding to it with a diversity of new tools and strategies. We spoke to three investment advisors who will be speaking at NYSSA’s upcoming "10th Annual Wealth Management Summit" for their views.

Continue reading "Investment Advisors Respond to Market Paradigm Shifts in an Age of Uncertainty" »

10/18/2011

Can I Reuse Study Materials for the CFA Exam?

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“I am studying for the CFA Level II examination again because I did not pass it the first time. I bought all the curriculum readings and I have last year’s prep provider’s study notes. Can I use these materials again or do I need to buy everything a second time?”

-Anonymous

Continue reading "Can I Reuse Study Materials for the CFA Exam?" »

10/17/2011

Why the “Occupy Wall Street” Protesters Have Picked the Wrong Target

EfinancialCareers

It’s easy to see why people who are angry with the current dismal economic state of the country so often mistakenly place the blame for this situation on Wall Street. After all, hasn’t it become the national symbol for greed, wealth, and corruption?

Continue reading "Why the “Occupy Wall Street” Protesters Have Picked the Wrong Target" »

10/13/2011

Career Coach: Job Search Success for the Finance Professional (Part 2)

CareerCoach

In my last column, I introduced a few key ideas to consider when you either find yourself in job search or have been in search for a while.  My intention now is to build upon the ideas presented and to encourage you to understand how to apply this knowledge—selectively and productively—to your own unique situation.

Below are five additional recommendations that have worked for numerous clients over many, many years.  These basic principles will serve as a platform for future columns and allow us to focus on a more in-depth basis on industry specific job search and career matters.

Continue reading "Career Coach: Job Search Success for the Finance Professional (Part 2)" »

10/12/2011

Recent Research: Highlights from October 2011

"Estimating Implied Default Probabilities and Recovery Values from Sovereign Bond Prices" 
Evert B. Vrugt
The Journal of Fixed Income (Fall 2011)

This article develops a tractable framework to simultaneously estimate default probabilities and implied recovery values from sovereign bond prices. The model is simple and parsimonious yet allows for a term structure of default probabilities and provides an implicit recovery value. The latter is especially valuable in the context of sovereign credit risk where historical default rates are both rare and country specific. The model is applied to analyze the Greek debt crisis in 2010. In April and May, the probability of a Greek default quickly rose from 5% to 40%. After the €750 billion EU-wide rescue package is announced, the default probability instantaneously drops below 10%. The implied recovery value remains between 40 and 60 cents on the euro throughout this period.

Continue reading "Recent Research: Highlights from October 2011" »

10/11/2011

Nerds on Wall Street

NerdsWallStreet

Not long ago, trading on a stock market meant you would be in a crowd of people energetically shouting, running around, and making a mess with great quantities of paper.

No more.

Visiting a financial market now is more like visiting the “cloud,” a big data center. Computers and network gear hum in racks. Fans blow. Rows of tiny lights flicker. Occasionally someone shows up, but do not count on much water cooler conversation.

Technology did not suddenly transform our markets. It has been a gradual process, and understanding how we got here, and the simpler machines we used along the way, provides insight into today’s complex markets. It turns out that going back to the basics, from the buttonwood tree and hand signals, is a good way to explain technology that can seem hopelessly complex and buried in jargon.

Continue reading "Nerds on Wall Street" »

10/10/2011

NYSSA Announces December 2011 CFA Scholarship Winners

NYSSA is pleased to announce the winners of the December 2011 CFA Exam Scholarship Program. NYSSA offers up to five scholarships in both the fall and spring to New York–area CFA candidates. Recipients are selected based on experience and/or interest in the investment profession, ethical standards, and commitment to NYSSA and CFA Institute. This period's candidates were very impressive, as noted by one Scholarship Committee member, "We were extremely pleased with the calibur of applicants." Scholarship winners receive Schweser study materials, free NYSSA CFA weekly review, and discounted registration fees.

Continue reading "NYSSA Announces December 2011 CFA Scholarship Winners" »

10/05/2011

Wall Street Bourse at Museum of American Finance

HerzogCertificate Wall Street Bourse, the first numismatic show to take place at the Museum of American Finance, will be held on October 21 and 22, 2011. Twenty-two dealers will bring stock and bond certificates and bank notes including US and worldwide rarities in a wide array of topics and subjects such as railroads, mining, autos, aviation, Internet and technology, telecommunications, and navigation.  In addition there will be autographs, coins, tokens and other ephemera related to finance and its history.  Admission to museum events, including the Bourse (which will be run by an independent numismatic group), will be free to the public from 10 am to 4 pm on both days.  Much to the delight of collectors and enthusiasts of numismatic objects, the Bourse will also feature an auction by Archives International Auctions on Friday evening at 8 pm, hosted at India House (One Hanover Square). John Herzog, founder and chairman emeritus of the Museum, says "This show should be of interest for the historical perspective it offers practitioners about companies they might be analyzing."   

Continue reading "Wall Street Bourse at Museum of American Finance " »

10/04/2011

Do You Have the Right Personality for Wealth Management?

EfinancialCareers

More and more, financial advisors seeking greener pastures in private banking and wealth management are having to contend with a variety of evaluation tools beyond the traditional interview drill, including some that measure your personality.

Private banking and wealth management firms are increasingly employing job-specific testing, aptitude tests and “psychometric” or personality profiling—the latter of which is particularly popular among the most profitable independent wealth management organizations.

Continue reading "Do You Have the Right Personality for Wealth Management?" »

10/03/2011

Book Review: The Wizard of Lies

The-Wizard-of-LiesThe Wizard of Lies is hard to put down. It reads like a novel. Diana B. Henriques of The New York Times was the go-to reporter for the Bernie Madoff scandal since its beginning in 2008. The first reporter to be granted on-record interviews with Madoff post-arrest, the a recent Times review boasts Henriques “…probably knows more than anyone outside the F.B.I. and Securities and Exchange Commission about the mechanics of the fraud.” She uses that knowledge and resource here to offer an in-depth look into the man behind the $65-billion-dollar Ponzi scheme that rocked the nation.

Continue reading "Book Review: The Wizard of Lies" »

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