< The Finance Professionals' Post: January 2014

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9 posts from January 2014


Falling Short of Expectations? Stress-Testing the European Banking System

The Single Supervisory Mechanism – a key pillar of the Eurozone banking union – will transfer supervision of Europe’s largest banks to the ECB. Before taking over this role, the ECB will conduct an Asset Quality Review to identify these banks’ capital shortfalls. This column discusses recent estimates of these shortfalls based on publicly available data. Estimates such as these can defend against political efforts to blunt the AQR’s effectiveness. The results suggest that many banks’ capital needs can be met with common equity issuance and bail-ins, but that public backstops might still be necessary in some cases.

The Eurozone is mired in a recession. In 2013, the GDP of the 17 Eurozone countries fell by an average of 0.5%, and the outlook for 2014 shows considerable risks across the region. To stabilise the common currency area and its (partly insolvent) financial system, a Eurozone banking union is being established. An important part of the banking union is the Single Supervisory Mechanism, which will transfer the oversight of Europe’s largest banks to the ECB (Beck 2013). Before the ECB takes over this responsibility, it plans to conduct an Asset Quality Review (AQR) in 2014, which will identify the capital shortfalls of these banks.1

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Book Review: Hedge Fund Market Wizards


This fourth book in the Market Wizards series includes 15 interviews with hedge fund traders. It details many variations regarding which markets to trade in, what time frame to incorporate, and how to use information. The wizards trade in all markets, including futures, options, equities, and bonds.

Determining how great traders acquire and use their special skills has been an elusive quest. We have no shortage of cookbooks on how to trade, but only a limited number of books describe the decision processes of those who speculate as a profession. Trader confessionals exist often as testimonies to egos, but few focus on the details of decision making.

Material that does successfully capture the essence of how speculators think is the Market Wizards series by Jack D. Schwager. These books are neither cookbooks nor testimonials but question-and-answer conversations with traders who talk about their thought processes, how they entered the business, their trading styles, and market battles they have undertaken. These interviews provide a sense of realism about how traders think. The interviewees are not always extraordinary individuals; often, they are simply hard-working professionals who manage the anxieties and uncertainties of trading by developing styles that work within the comfort of their skills and personalities.

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How I Passed the CFA Level I Exam with Just 2 Weeks' Studying

My name is Scott, and in the summer of 2011, I passed my CFA Level I with just 2 weeks worth of studying. <

I started two Saturdays away from the actual test having done no more than a cursory glance at my books beforehand. And somehow, incredibly, I managed to pass. Zee wrote to me one day asking if I'd like to share my story with 300 Hours readers, and over the course of the Christmas holidays, I wrote my experience down.

Here is my story.

An Important Success Factor: My Job and Education

I believe a significant factor that allowed me to pull this off was my background, both in work and education

I read Economics at Oxford and did pretty well - that helped me save time in some of the basics of CFA Level I. I was also a management consultant for investment banks and wealth managers. Consultant projects range from several weeks to several months, and having 3 years experience at the time, I had a wide range of knowledge and expertise across several financial sectors.

Without a relevant background in work and education, I don't think this would have been possible for me.

Desperate Times Call for Desperate Measures

I didn't choose to attempt to take CFA Level I with only two weeks' prep - I basically had no other choice.

My biggest mistake was to underestimate how little time and drive I would have for the exams. I always did well in exams in the past and thought that this would be just like the others. Although the exam itself was probably not too different in difficulty, balancing it with work was the problem.

I was rammed with a high-pressure project about 3 months before the exam, working 80-100 hour weeks. This meant that I didn't have any time to do anything else, never mind think about studying for the CFA exams. As the exams approached, I had two choices - either forgo the exam and waste the money I paid for the signup fees and materials, or try and pass with by the skin of my teeth.

Two weeks before E-day, I chose to push for it and see what happens.

My Two Weeks of Studying Hell

I took a full 10 working days off to study for the CFA Level I. That was already a very painful sacrifice, but nothing compared to what I had to endure in the following two weeks.

Through the entire two weeks, I dedicated all of my time to studying. I didn't leave my flat and lived off takeout meals. I had told my friends, girlfriend and parents that I would be incommunicado for two weeks so I didn't speak to any of them either, save for a few online chats here and there. Basically I became a hobo for two weeks in my own home.

And what did I get done? I'd say there were 3 important things that I got right, given my situation.

I started with practice exams, and did as many as I could
Starting with exam papers allowed me to roughly understand what areas I would need more studying in and what areas I could go light on. By the end of the two weeks, I managed about 4 papers under proper exam conditions, and speed-read about 6 more - reading the question and immediately going through the model answers. Practice exams really helped tune my studying - I would recommend it regardless of whether you're time constrained or not.

I outright binned a few topics.
Apart from doing the practice questions in the exams, I skipped these 3 topics:

  • Economics: light weighting in exam, and I could wing it a little based on what I learned in school
  • Corporate Finance: light weighting in exam, and I had a bit of experience from my job that helped me
  • Derivatives: light weighting in exam, and I also found the exam questions very confusing and not worth the time


–300 Hours

This exerpt was reposted with permission from 300 Hours, a site dedicated to CFA candidates and charterholders.

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How to Build the Perfect Resume for Goldman Sachs, J.P. Morgan


As we reported in October, several big banks have built out their online career centers over the last year as they face increased competition for top young talent. J.P. Morgan and Goldman Sachs have been particularly diligent, offering a host of information about the company as well as a few bits of advice for prospective candidates.

Previously, we combed through the material on the two sites to pull out some unique interview tips. Now, we’re talking resumes. The information below was taken from the career sites of Goldman Sachs and J.P. Morgan as well as recent interviews we’ve done with the two banks.

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Recent Research: Highlights from January 2014

"Hedge Funds versus Hedged Mutual Funds: An Examination of Equity Long/Short Funds"
The Journal of Alternative Investments (Winter 2014)
David McCarthy

This article offers comparative analyses of equity long/short mutual funds and equity long/short hedge funds and indices. It first identifies a universe of liquid alternative mutual funds employing an equity long/short investment strategy similar to most equity long/short private hedge funds. It then provides a general profile of these mutual funds (e.g., size, start dates, sponsorship) before comparing their equity exposure and investment performance to that of private placement equity long/short hedge funds and indices. Based on the data analyzed, the article concludes that, as a group, diversified single-manager equity long/short mutual funds offer similar equity exposures and do not perform materially differently from comparable private placement hedge funds, at least as represented by leading hedge fund indices.

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Fired? What Do You Say in Your Next Job Interview?


So something happened in your previous job, and you were fired. Maybe you deserved it, maybe you didn’t, or maybe you were culled in a company-wide ‘restructuring’ exercise. And maybe you don’t have enough money to head off into the sunset into early retirement to dabble in a spot of day-trading, real estate speculation or Bitcoin bartering.

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Q&A with Michael Kitces of Nerd’s Eye View

Blogging can help advisors attract and retain clients. I’ve decided to collect stories from advisors that illustrate this.

I’m starting a Q&A series with a contribution by Michael Kitces author of the Nerd’s Eye View blog and Pinnacle Advisory Group. Blogging has brought him more visibility, which has “helped to bring clients and cement relationships with centers of influence,” as he explains below.

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Smart Career Move: Recruiting Your Personal Board of Advisors

If you’re serious about managing your own career, you already know that no one can do it for you. As the saying goes, YOYO: You’re on your own.

Yes, rugged individualism can be wonderful, but it’s not appropriate when it comes to navigating the 21st century job market. What you need, instead, is an informal board of advisors who will personally give you insights and perspectives regarding your long-term strategy as well as your next career move.

Who are these people? What they have in common: They’re all people you know and like and trust. Like any truly effective advisory board, collectively, their knowledge is broad and diverse. Here are some tips for recognizing the people in your life who you want on your personal board of advisors:

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Book Review: The Everything Store

The-Everything-StoreThe Everything Store: Jeff Bezos and the Age of Amazon, written by Brad Stones, is one of the best business books I have read. It gives a graphic detailed picture of both Amazon's visionary driver, Jeff Bezos, and all the steps that created the company. Each of these steps, the challenges, the ups and downs, can be instructive case studies.

Jeff Bezos is an ex–"Wall Streeter." He started at Bankers Trust, then went to DE Shaw. There he was directed to the Internet, and to the Everything Store. He combined the two in a start-up in a converted garage. The push was to "Get Big Fast." The Amazon start-up illustrates the benefits of a positive cash flow model. Customers paid with credit cards, while Amazon paid its distributors every few months. Early on, the company became "customer obsessive," which it continues to do to this day.

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