The Finance Professionals' Post

"You're Fired!" Now What? Survival Strategies

Chances, are, you saw it coming.  You no longer have a job.  Technology, globalization, and fierce competition have created a tough job market. Downsizing. Re-aligning. Right sizing. Regardless of the cold corporate rhetoric, to protect yourself you must have an action plan.

Here are survival strategies to help put you back in charge of your career.

Photonics: The Prospects of an “Old” High-Tech Market—Part II

In Part I of this article, I discussed cutting-edge research in nanophotonics from the Kavli Institute of Nanoscience Delft in Holland, the University of California, Berkeley, and Massachusetts Institute of Technology (MIT). In Part II, I review more practical achievements, which I have placed into two categories: Lab-to-Fab, for research in need of commercialization, and Prêt-à-Porter, for currently available commercial products. I have chosen most of the technologies and devices from among Laser Focus World magazine’s list of the top 20 photonics innovations of 2012 (Wallace 2012), and from the highlights of the SPIE Photonics West 2013 conference in San Francisco. Despite the diversity of the technologies, they can be further classified according to three recurring themes: multispectral and broadband applications; terahertz technologies; and green, bio-optical, and acoustic engineering. 

Photonics: The Prospects of an “Old” High-Tech Market—Part I

In 2010, I reviewed six companies recognized by The Wall Street Journal in its Technology Innovation Awards (see Totty 2010 for awards and Lerner 2010 for review).

Most of these companies were in the field of optics and photonics. Since then, I have rarely touched domestic equity markets, but it is time to return to them. The defense sector is the largest consumer of electro-optic devices, and with significant cuts to the US defense budget looming in 2013, investors would be wise to look at alternative applications of photonic technology.

This time, again to avoid personal bias, I have chosen technologies from Laser Focus World magazine’s list of the top 20 photonics innovations of 2012 (Wallace 2012). I have had to omit some developments from my review due to my inability to understand the underlying technologies and the magazine’s inclusion of purely manufacturing-related advances that hold little new technological content. Laser Focus World’s list is divided into four sections: Looking around Corners, Controlling Light, Sensing Redefined, and the Photonics Toolbox (the last section deals mainly with manufacturing techniques). I have used a different classification: Cutting Edge, Lab to Fab, and Prêt-à-Porter.

Leaders (Desperately) Wanted: Bad Bosses Need Not Apply

People today don't trust banks, Wall Street, or government. We need men and women with the leadership skills necessary to fill the leadership vacuum of our times. 

Many bosses think they're leaders. But they're wrong. They're merely bad bosses.

How Your Work and Education Background Correlates to Your CFA Exam Performance

If you don't have a finance-related background, are you disadvantaged when it comes to the CFA exams?

In the December 2012 exams, we set out to find some clues to shed some light on just that. In our Analyze Results tool, we now include a question where candidates can input their work and education background, indicating whether their backgrounds were finance-related or not.

Given enough of a sample size, we could then compare the various background profiles with pass rates, and see how pass rates varied across candidates that had different backgrounds in work and education.

The results were quite surprising.

Continue reading "How Your Work and Education Background Correlates to Your CFA Exam Performance" »

Why I Marched Against the XL Pipeline

My daughter and I joined an estimated 50,000 demonstrators in Washington, D.C. marching against the XL Pipeline that would connect the Canadian Tar Sands to American refineries.  After a half century on this planet, I took to the streets.  Here’s why.

Book Review: How to Win Friends and Influence People

NYSSA CDC Monthly Reading Recommendation

It is with great pleasure that the Career Development Committee announces a monthly reading recommendation as our newest offering. To fulfill NYSSA’s mission to foster the interchange of ideas and information, we will recommend books, journals, and scholarly articles that we believe will support you in your career advancement. We hope that you will enjoy these readings and find them as beneficial as we do.

What JPMorgan's Recently Released Internal Reports Unintentionally Say

After apologizing at Davos—but only to his shareholders—according to William Cohan on the Bloomberg View, the JPMorgan Chairman and CEO hastened to add about 2012, “We did have record profits. Life goes on.”

It is true; JPMorgan reported a strong financial performance in 2012, “London Whale” trading fiasco notwithstanding. I must admit that despite my 18 years inside the firm (when it had a meager $300 billion balance sheet), I struggle to comprehend $100 billion of revenues, and a $2.3 trillion balance sheet, with an “off-balance sheet” managed by a few handfuls of mostly male, mostly 30-something traders that is many orders of magnitude larger. Maybe I’m a dinosaur. Life goes on.

Not so fast.

Of Guns, Whales, Freedom, and Justice

After visiting an awe-inspiring women’s empowerment program at work in several rural villages north of Delhi, our host at the Ashram, scanning his Blackberry, related the news: a horrific shooting…assault rifle…children slaughtered…in a school…in Connecticut (my son’s school is in the state)…and then after what seemed like an endless pause as I grew more anxious…Newtown.

Limericks Économiques: Punitive Measures

A six-billion loss dealt a blow
To the name of a bank's CEO.
To atone for this trade,
He merely was paid
A paltry ten million or so.

The Courage Deficit: Why Regulators Must Act More Decisively in Equity Trading Markets

Public confidence in the integrity of equity trading markets appears to be at a once-in-a-generation low. The flash crash, the 45-minute path to near-insolvency at Knight Trading, and the large losses for investors in Facebook have not instilled confidence that the public can engage fairly in US equity markets.

Great Famines: Lessons from the Nineteenth Century

Of all horsemen of the Apocalypse, Famine has the most connection with economics. The final death toll in most famines is mostly determined by another horseman, Pestilence, which follows famines through many obvious and less obvious channels. My purpose is a study of economic, not medical, history, so I’ll refer to “famine,” although most excess deaths can be attributed to epidemics.

Wall Street Survives One Storm but Now Faces Another

Now that Wall Street’s huge bet on presidential candidate Mitt Romney has failed, banks face four more years of a less than sympathetic ear in the Oval Office.

The world’s major capital market banks are in bad shape. They are trading well below book value, were recently downgraded and the majority of them have failed for more than two years to earn a return on equity greater than its cost.

Seven of the top 10 banks have had chief executive changes since 2009, three of these being made “effective immediately.”

Will Sandy Trigger Our Great Transformation?

We are now a couple of weeks into the aftermath of Super Storm Sandy, and no one has yet improved upon the analysis of Bloomberg Businessweek’s November 1 cover story: “It’s Global Warming, STUPID.”

In 1944, the famous political economist Karl Polanyi explained the root cause of WW II when he wrote in The Great Transformation, “The true nature of the international (economic) system under which we were living was not realized until it failed.” Similarly, mainstream economists and finance theorists still do not get the vital interconnection between the true nature of the (economic) system under which we are living, and healthy ecosystem function. What will it take?

No Security in Book Value

Said a banker: "The Crisis revealed,
In investments we carried for yield,
How extreme fluctuations Affect valuations,
So better to keep them concealed."

Said investors: "It's better to trust
In the price you could fetch if you must,
And the equity value
Which, hopefully, now you'll,
Accordingly, have to adjust."

Investment Beliefs

What are your investment beliefs?

Such a simple question—and so hard for most market participants to answer. Go ahead, take a shot at making a list of your beliefs and see what you end up with.

More than the Mainstream: Mish’s Global

Last month, the Dow, S&P 500, and Russell 2000 were all up 4-6%. After that round of QE, everyone in the financial markets and mainstream media seemingly cheered.

“It’s clear that the global leaders are doing all they can to combat the slow economy…we look forward to a strong year-end rally,” Ryan Detrick, chief technical strategist at Schaeffer’s Investment Research said on CNBC.

Social Feedback

Last month, Robert Frank began his column in the New York Times with this sentence: “There may be no topic that more reliably divides liberals and conservatives than the relationship between success and luck.” The first few paragraphs of the piece—and the last few—had a political flavor to them. Like an Oreo cookie, the good stuff was in between.

I suppose you might find it hard to believe that the “good stuff” was academic research by three sociologists. The researchers had participants in their study rate the quality of songs that they previously had not heard. The bottom line: Their judgments were distinctly different depending on whether they received information about how others had already rated a particular song.

Do You Have a Responsible Borrowing Strategy?

It is almost inevitable that at some point in your life you will have to borrow money to make necessary purchases. Items that are synonymous with the phrase, “We need a loan,” are typically major financial obligations such as a home, car, or college education.

According to the Federal Reserve System, there was $12.9 trillion in household debt outstanding at the end of the first quarter of 2012. Meanwhile, as of August 2012, the Federal Reserve Bank of New York reports household indebtedness at $11.38 trillion. The bank also reported that student loan debt rose to $914 billion last quarter.

Maximize Your CFA Status on Your CV & LinkedIn

By now, CFA candidates know whether or not they have passed or failed. If you didn't pass this time, don't take it too badly. If you retake, use the hundreds of pre-preparation hours as an advantage. 

Of course, after results day, there's a shift in terms of candidacy statuses. For those of you who either passed or are retaking level I this December, you may be thinking about how you can best leverage your CFA status to spruce up your CV. However, one very important factor to bear in mind are the ethics and professional standards set up by CFA Institute on stating such things on your CV. Without knowing it, many candidates are in violation of these bylaws and could be sanctioned by CFA Institute.

When Should I Practice Item Sets?

I wanted to get started on my preparation for June 2013 Level II and saw you had recommended doing the CFA curriculum readings (with exception to Ethics) post–Labor Day through December. Do you also recommend doing the accompanying problem sets with the readings or saving those for later (i.e. Jan–May) when I would also use the prep provider materials (i.e. Schweser)?

–Alfred M., Level II Candidate

Three Must-Know Tips to Nailing Ethics

If you're new to the CFA exams, hopefully by now you're aware of how important mastering ethics is to your CFA studies. In an effort to help, here are three steps to ensure you are on the right path to nailing the ethics section in the exam.

What's Going to Happen to the Euro?

The Eurozone has changed; it’s very apparent. In the last year or so, the playing field has been tipped with mountainous debt problems that Greece, and now Spain and Italy, are experiencing. Of course, all of Europe will experience a huge knock-on effect from the problems in Greece and Spain—but the question is, by how much? If the Euro fails, will all hell break loose? This article outlines some of the possible outcomes of the current Euro crisis.

Limericks Économiques: Watch That Denominator

A fall in the joblessness rate
Would normally seem to be great,
Excepting, of course,
When there's less labor force,
Deflating the weight of that rate.

Should I Give Up on the CFA Exam?

I got a band 4 in CFA® level 1, should I give up or continue? I've also started studying for CPA.

–Nikita P.

Video: Regulatory Insights from Eliot Spitzer

Former New York Governor Eliot Spitzer recently joined NYSSA for an interview with Bloomberg Television anchor, Pimm Fox. Spitzer gave his observations and opinions about the top regulators of the current economic recovery effort—Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke.

On Ben Bernanke:

• Bernanke is "the last man standing." He is the only one who has been willing to make the hard economic decisions as policymakers have remained in gridlock.
• He has used monetary policy to the fullest extent, but now there is little more that he can do.

On Timothy Geithner:

• Geithner did not have an adequate understanding of the structural failures that existed in the financial services sector.
• After the financial crisis of 2008, Geithner did not request enough from the banks in return for being bailed out. He simply did not comprehend how much reform was actually needed.

---

Dealing with Failure

The CFA® exam is no ordinary exam, so the high failure rates generally mean that there is significantly more disappointment than the average qualification. Also, CFA candidates tend to be overachievers—i.e. not used to failing. I had my own bittersweet experience in this once in Level II.

Here are the steps you should take if you didn't manage a pass this time around:

Limericks Économiques: Swing States

It's an axiom proven and tested
By candidates besting and bested:
If you're looking to win,
Mind the jobless rate in
All the states where the outcome's contested.

Investing in High-Tech in Russia, Part II: Challenges and Opportunities

In Part I of this article, I dealt with misconceptions about Russian high tech and Russian markets in general. I now explore investment opportunities outside of the familiar defense, oil, gas, and commodities sectors. I also examine financial and cultural barriers to investing, and macroeconomic considerations.

NONDEFENSE HIGH-TECH SECTORS

My CFA Experience (Level II): Vy Bui

After almost eight weeks of waiting from June 2^nd to July 24^th and another five terrifying hours of waiting on the day results were released, it was a great feeling to know that I passed the CFA^® Level II exam. I couldn’t be happier knowing that all my hard work and support from family members, friends, instructor, and coworkers paid off in the end.

Following up on my previous two articles about my CFA Level I exam experience, this article will emphasize what did and did not change in my study strategies that helped me successfully overcome the daunting challenges of moving from the Level I to the Level II exam.

Mind the Gap

A 45-year-old like me with two young sons and parents in their 70’s is pretty screwed when it comes to effective communication. My kids run away from a ringing phone as if it were a shrieking demon. My parents adore the phone, but only in my wildest dreams would they think of responding to an email. For all I know, emails to them are forwarded to some Arctic wasteland.

Podcast: How Your Memories Cost You Money

If history repeats itself, why not change our actions? Surely this would prevent us from making the same mistakes over and over again—right?

Ken Fisher, author of Markets Never Forget (But People Do) and the "Portfolio Strategy" column in Forbes, says that our bad memories are to blame. Citing events and patterns from the not-so-distant past, Fisher believes the answer to America's latest financial woes can be found if we just look at our history.

What we forget:

• Our memories fail to recognize the repetitive patterns of events we live through.
• The 1990 recession, which strongly compares to the 2008 financial crisis, is rarely analyzed in public commentary.
• In Republican presidential election years, returns are great; but in inaugural years, they are negative. Returns are negative in Democratic election years, but great in inaugural years.
• Republicans and Democrats never look at their own weaknesses in terms of cycle history.

Off-Grid Financing

The ramifications of the Libor scandal—what Warren Buffett glibly called a can of worms that affects the whole world—grow by the day. Criminal indictments of individuals, even if firms are too big to indict, appear to be in the making as the tsunami’s shock waves are about to spread to many of the usual suspects. One can only imagine the trial lawyers licking their chops. Has there ever been a class action lawsuit on behalf of the whole world?

Central bankers and regulators, understandably panicked at the height of the crisis, may have been complicit in some of the distortions in an effort to create the pretense of financial system stability. However, like the so-called “war on terror,” we find the war on financial system collapse is filled with ends-justifying-the-means moral and legal questions.

At the Institute

This posting marks the end of a very long series about CFA Institute’s annual conference. Today’s title doesn’t refer to that Institute, though, but to a post-conference visit to the Art Institute of Chicago and the musings about the conference, the business, and the profession that it triggered.

For insight, it’s hard to beat a world-class museum. You come face to face with beauty one minute and brutal reality the next. Your perspectives are altered and your beliefs are challenged. You see the sweep of history—the connections across time reveal themselves and the true innovations seem mysterious and remarkable. You think about notions of quality and the nature of genius, of art and craft, of inspiration and perspiration.

Investing in High-Tech in Russia, Part I: From Italy with Love...for Russia

In June 2011, I attended the 18th annual conference of the Multinational Finance Society. My hotel, located in a prosperous section of Rome, did not have hot water running, and the air conditioning didn’t work—conditions that seemed incongruous with the surroundings. But I was pleased to discover that the TV had 20 international channels, including five Russian ones, two Chinese, and several Arabic. I found the most interesting channel to be Bloomberg Europe, where I caught a conversation about investment in Russia.

Discussions about investment in Russia usually center on oil and gas, but the leader of the Bloomberg panel shifted the subject to high tech. While “Russian high tech” seems like an oxymoron thanks to our mainstream media, the perceptions of Russian high tech, and of Russian markets in general, are very different from reality.

Limericks Économiques: Day of LIBOR Reckoning

Though collusion on rate executions
Was the norm in finance institutions,
When the tide quickly turned
Many bank traders learned
They would naturally face prosecutions.

A Call to Action

At the start of the first full day of the CFA annual conference, John Rogers issued a challenge to the members of CFA Institute. Rogers, the organization’s CEO, did not mince words.

“Our industry has forgotten what it takes to maintain the trust of clients, regulators, and the public as a whole,” he said. As a result, “Our profession has lost much of its good standing and public respect.” Alas, it has been “a failure of self-control” that has caused the damage.

So now what? According to Rogers, CFA Institute intends to be a bolder voice for reform of the investment industry. He said that finance came to be thought of as an end in itself, to the detriment of the industry, its professionals, and society.

Is Jamie Dimon’s Business First Class?

JPMorgan CEO Jamie Dimon went before congress again a few weeks ago to make the case for why a $2 billion trading loss was a stupid mistake, not a willful breach of at least the intent of Dodd-Frank. And again our representatives who wrote the law didn't hold him to the standards set by JPMorgan’s own Code of Conduct: following the spirit and intent, not just the letter, of the law.

When Mr. Dimon’s predecessor J.P. Morgan Jr. was called before the Senate in 1933, he spoke humbly of a banker as a member of a long-standing profession for which there had grown a code of ethics and customs, “on the observance of which depend his reputation, his fortune, and his usefulness to the community in which he works.”

More than the Mainstream: Bronte Capital

For years, people would complain about what they saw as the inherent partisanship of the mainstream media, “The Times is too liberal!” a Republican would yell. “The Journal is too right-wing!” Democrats would yell.

While I found this to be true, what really bothered me was the inability of mainstream media to create a connection between the day’s headlines and the larger picture.

So while I would use sources like the Wall Street Journal, the New York Times, and Bloomberg to monitor the headlines, I always was searching for sources that would help me bring context to them.

They Call It Innovation

Two sessions at the CFA annual conference typified the nature of the discussion of “innovation” in the investment world.

The first was a plenary session that featured Harold Bradley of the Kauffman Foundation, Bill Hambrecht of WR Hambrecht, and Duncan Niederauer of NYSE Euronext. It was titled, “Has Innovation Helped or Hurt the Integrity of Markets?”

Is the CFA Charter Really Useful in Getting an Investment Banking Job?

In September 2006, when I was a second-year Goldman analyst, one of my associates texted me to “show off” that he had just passed Level III of the Chartered Financial Analyst^® program. I have to admit that I was jealous! I knew it was a definite plus on his resume because I’d heard that it was extremely challenging.

I thought, “If he has the time to study for the CFA [exam], I can make time too!” It was September already but I still applied for the December 2006 Level I exam. I passed. I passed the next two levels in June 2007 and June 2008, respectively.

Flawed, Ignorant, and Dangerous: A Bain Capital Partner’s Worldview

“At base, having a small elite with vast wealth is good for the poor and the middle class.”

This is how Adam Davidson’s piece in the New York Times Magazine summarized the frustrated former Bain Capital partner Edward Conard’s worldview, as expressed in his forthcoming book, Unintended Consequences: Why Everything You've Been Told About the Economy Is Wrong.

The article reveals the logic of what we might call the “extreme compete” elite investment class, as expressed by one of its highly “successful” participants—Conard ran the New York office for Bain Capital.

Emerging Markets Warrant an Overweight Position in Investor Portfolios, Says David Hale

Economist David Hale told delegates at the 65th CFA Institute Annual Conference that steady increases in exports and capital spending, combined with favorable demographics, will allow emerging market countries to continue to grow their economies at rates superior to those found in the more developed economies of “old industrial countries.” Given the comparatively strong growth outlook, he argued, emerging markets warrant an overweight position in investor portfolios.

In building his case, Hale noted that emerging markets have doubled their collective share of global GDP, exports, and capital spending over the past two decades, with China playing a key role in this growth. China displaced Germany two years ago as the world’s largest exporter of tradeable goods, amassing foreign exchange reserves of $3.3 trillion today (versus $3.4 trillion for all developed countries combined).

Time for Regulatory Change?

The shocking news out of JP Morgan this week about a $2 billion trading loss is a stark reminder that even Jamie Dimon, the CEO of such a major firm, can be completely in the dark about what's happening inside the very firm he runs. Dimon has said publicly that this surprised him.

Nonetheless, the timing is perfect for the politicians and regulators to pile on with their solutions to fix the banking industry. There are several regulations that will be referred to in the media and blogosphere during the next few weeks in relation to the JP Morgan trading losses.

Thankfully, you don't have to go to Washington, DC, or Wall Street for the debate. The New York Society of Security Analysts (NYSSA) is hosting a program called "Regulatory Changes as an Opportunity" this September. The speakers for the event will be Jim Allen, CFA, Head of the Capital Markets Policy Group for CFA Institute; and Kim Olson, a principal with Deloitte & Touche LLP.

The Checklist Manifesto

In 2009, Atul Gawande published The Checklist Manifesto: How to Get Things Right. Sometime later, a copy arrived at my office, courtesy of a money manager, but it sat unread for many months.

I shouldn’t have waited and, if you haven’t read it, neither should you. I knew of Gawande from his articles in The New Yorker, but despite the favorable notices I read when the book was published, I really didn’t expect much. Checklists? OK, right.

Update: Commodities Are Different (in a "Full World")

The concern I raised last June that we should enforce the Bank Holding Company Act and not allow the too often irresponsible, gigantic, TBTF, and taxpayer-subsidized banks to engage in proprietary physical commodities trading has now been raised in a new article by Reuters. Abuse by large-scale, trading-driven firms, more so in physical commodity markets than in financial markets, can lead to drastic harm in the real economy as we learned from Enron's manipulation of the California electricity markets. But, as I detailed in my post, the issue is much bigger than speculators driving price swings in commodities. A world with finite resources and planetary boundaries will have allocation problems that markets cannot handle effectively or fairly. Rising commodities prices, and the effects they have on the poor, are primarily due to the fundamentals of limits to growth we are beginning to bump up against. The confluence of allocation, pricing, equity, and limits questions when dealing with scarcity of critical resources where there are no easy substitutes is already posing real challenges, as we discussed in our “Big Choice” essay.

When Accounting Fraud Brings Down the House of Cards

Certified Public Accountants, in spite of the trade or business, have a responsibility to uphold the very best standards of ethics and professionalism. CPAs are usually viewed as one of the foremost trusted professions within the world. They are additionally among the foremost regulated professions, the requirements to obtain the CPA designation being one of the most stringent (including having to complete a series of education and knowledge requirements before being allowed to take a seat for the US CPA Exam). Even once they pass the CPA Exam, they must maintain their education through continuing professional education as regulated by their state board of accountancy. Additionally, if they are a member of a state CPA society and/or the American Institute of CPAs, they need to maintain higher levels of CPE and a code of professionalism.

Update on Brazil: March 2012

When Worldview last addressed Brazil in the autumn of 2010, the country was on the eve of presidential elections and had been enjoying a year and a half of outstanding post-crisis investment returns and celebrations in the press. The world had rediscovered Brazil and concluded it was a haven from the economic carnage that had ripped through developed world economies. Even among emerging markets, Brazil’s economic and financial performance looked spectacular.

Our piece suggested that while the long-term dynamic in Brazil still looked good, asset prices had likely gotten ahead of themselves and were no longer as attractive as before. The risks we identified had to do with the then presidential candidates lacking charisma, the temptation to over-rely on Petrobras “pre-salt” rents, euphoric animal spirits that could lead to imprudent fixed investments, and a rush of financial capital back to the developed world once signs of a recovery began to look stronger. Some of these risks have diminished, others have taken place, and still others remain.

Common Mistakes Made by First-Year CPAs

As with anyone new to a career, you’re bound to make a mistake or two. CPAs are no exception. You can learn, study and pass the Certified Public Accounting exam, but that doesn’t mean you’ll be able to practically apply that knowledge in the real world. Here are a few of the common mistakes that first year CPAs make that you can be aware of and ideally, avoid. Many of these common mistakes will be covered in your CPA exam review course.

1. Treating sales as revenue before the product is delivered. Sales do not count as income until the product or service has been delivered to the purchaser. Counting sales as revenue before they are realized can cause business decision makers to think the company is more profitable than it is and make false projections. Only count sales as revenue when the product or service has been delivered.


2. Confusing profits for cash flow. Track what a business is spending and selling. Just because there may be a profit, does not mean there is cash to pay bills. Make sure you are presenting the full picture to your clients or employer so they can make the right decisions by analyzing the profit-debt ratio.


3. Dipping into cash reserves. Your business clients may be inclined to dip into their cash reserves and make a large equipment purchase or the like. While they will be able to claim depreciation over the years, it will hurt them when tax time comes around. Instead, encourage your client to take out a short-term loan or even lease the equipment if it will need updates over time. Leasing compared to outright purchasing can be of great benefit as there is no large sum of cash required nor do you have to pay for maintenance, etc. Weigh these options and present them both to your clients. Clients like options.


4. Not reserving enough to pay estimated taxes. Many of your small-business or self-employed clients may be required to pay estimated taxes throughout the year. Make sure these clients have an accurate system that encourages them to put aside the necessary funds to pay their quarterly estimated taxes.


5. Poor accounting system. Typical in small-business or self-employed environments, it is important to advise your clients on an appropriate accounting system if you are not involved in the day-to-day. They need to be able to record their deposits and expenses while maintaining a record of the transaction with ease. As a CPA you are in the perfect position to advise them on the proper method and software.


6. Deducting expenses inappropriately. There is a right way and a wrong way to record tax deductions. Especially when it comes to clients with a small business. For example, you can save your client a lot of money by deducting business-related travel expenses as a business expense, versus as an unreimbursed employee business expense.


7. Passive loss rules. If your client receives a K-1 from any investment, including a business, make sure they are not being limited by the passive loss rules. An active business owner should not be subjected to the passive loss limitation rules. This could mean the difference in thousands of dollars on your client’s tax return.


8. Failing to elect real estate professional status. If your client is involved in real estate investment, be sure you have filed an election with the status noted. This status will allow your client to take advantage of a number of specific real estate investment deductions. If you miss this election, you cannot file an amended return down the road to correct. Any of those potential deductions are lost. Be sure to file the election for your real estate professional clients.


9. Missing carry-forward tax benefits. Some tax credits or deductions can be carried forward to the next tax year if your client cannot use them in the current tax year. However, many professionals often forget about these carry-forwards a year later. Be sure you keep accurate records and are carrying forward your client’s tax credits and deductions where necessary.


10. Not planning ahead for taxes. Tax time is a great time to sit down with your clients and plan for the future. There are only so many deductions and credits that can be taken advantage of without planning. Take some time with your client to analyze their current, past, and future tax and financial situation and determine where they can save on their taxes in the future.

These are 10 of the most common mistakes first-year CPAs often make. By focusing on the needs and goals of each client, and by following the suggested practices of both the National Association of State Boards of Accountancy (NASBA) and the American Institute of CPAs (AICPA), you will be acting well within your professional limits and will almost always satisfy your client(s) or employer.

–Grant Webb, Bisk Education. Bisk has been training accountants and financial professionals for more than 40 years. For questions or comments, Grant can be reached on Twitter @grantwebb2.

The Myth of the Job Creators

Jim O’Neill (see the review of his book The Growth Map by Bill Hayes [2011]), chairman of Goldman Sachs Asset Management, theorizes that developed countries have entered a second Gilded Age, while emerging markets are simultaneously living through their first. Equally perceptive is his observation that the middle class of the developed nations is squeezed between the representatives of the Gilded Age—their own robber barons, and the “intelligent proletariat” workers of the emerging markets who compete with them for jobs but who have a much lower cost of living.

We are made to believe that this scenario is a necessary outcome of a modern capitalist society. Adam Smith’s notion of the capitalist—the entrepreneur investing (i.e., risking) his own money by organizing production and hiring workers—is all but forgotten, however applicable it was to eighteenth- and nineteenth-century England. In the England of the 1700s, most if not all people in the upper income brackets were noble landowners, bankers, merchants, and industrialists, in about that order; we can be fairly certain that the upper classes did not include journalists, dancers, and actors. For example, Nell Gwynne—famous actress, mistress of King Charles II, and a mother of his children—received an annual pension of 1,500 pounds, which was supposed to make her retirement comfortable but was well below of an income typical of a great lord.