Gyroscopic Investing

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ahhrunforthehills wrote: I was thinking about going through the levels of CFA.  Not for the designation, but just because it seems like some good reading.

The only reason I would do it would be for the designation.

I would then put up my shingle, "Adam1226, CFA," and put all of my clients into the PP.  

I would use the jargon I learned becoming a CFA to confuse them, so that they would think I was doing something really complicated.  In reality I would just be sitting around my office watching Housewives of Beverly Hills, checking rebalance bands once every month or so.

I think this pretty much what Michael Cuggino did, so you'd be in decent company.

The more I learn about finance, the more I think the PP is superior.

I went into an MBA program thinking I could time the market. I left the MBA program realizing no one has any clue WTF they are talking about, and it's all speculation.

I have studied for and completed the first of the three CFA exams.  It's not something I would do for fun.

Also, I wouldn't worry about it shaking your faith in the PP.  As I read the exam materials, two thoughts kept occurring to me: first, "the way this is being presented makes it sound like a completely reliable cause and effect relationship", and second, (mostly in the ethics material) "wouldn't it be nice if this is the way people actually operated."

I guess if you have a lot of free time and you'd like to start your own fund (with clients) in the future this may be a suitable route.

Use the CFA designation to attract clients then just rebalance once in a blue moon.

Unfortunately, it's a catch 22..  you'll need the CFA to attract clients to your fund and you won't have that cush job of sitting there while putting your clients' money in the PP with plenty of free time to study until you actually get your CFA..

Fyi, I have an MFE, work in Finance, and I still use a variation of PP for my personal investing.

Adam1226 wrote: I think this pretty much what Michael Cuggino did, so you'd be in decent company.

My PRPFX has gotten about a 10% lower return YTD than my HBPP so Mr. Cuggino must be hard at work on something.

And as for studying anything about finance I have observed that there are many members on this board at least 1000 percent more knowledgeable than I'll ever be about these things and they still stick with the PP so what would be the point?

MT,
My 35 year old nephew passed all three CFA exams the first time.  It cost him his marriage. Be careful out there!

Out of curiosity I pulled up some sample questions from the Level 1 exam. It seems as though about 1/3 of the stuff is direct from my MBA program. 1/3 is highly related to my MBA studies so that I could easily learn it. 1/3 is just some crazy bullshit like SEC regulations that I'd just have to memorize.

I might register for the program and take the Level 1 exam and see how I do. It would give me an excuse to review MBA material. The downside is the cost. A little over $1k for the course materials and to register for the exam.

The other downside is I don't have 4 years work experience as a financial analyst so I'll never qualify for the actual Charter MFA even if I pass all 3 exams.

jackh wrote: And as for studying anything about finance I have observed that there are many members on this board at least 1000 percent more knowledgeable than I'll ever be about these things and they still stick with the PP so what would be the point?

I found it frustrating (I probably won't do the other two tests) in the same way that it would be frustrating to be required to learn a language only spoken by idiots.  If forced into a such a situation, I would probably simply lose my desire to communicate with them before I was able to master their language (especially if their language required me to create new patterns of thought that I knew beforehand led nowhere).

Wow, mt... That's saying something.  I was under the impression that when combined with the pp, the cfa cert or the knowledge that comes with studying for it could come in super handy for your vp and helping clients.  What did you find so disappointing about it?

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moda0306 wrote: Wow, mt... That's saying something.  I was under the impression that when combined with the pp, the cfa cert or the knowledge that comes with studying for it could come in super handy for your vp and helping clients.  What did you find so disappointing about it?

Too much speculation masquerading as professional knowledge.

For someone who makes their living selling Wall Street products, I'm sure it's great.

It's probably a bit like a graduate course in flat earth geography.  There may have been a time when it was a vibrant area of study that had much relevance for many people.  Then, one day someone came up with a basic insight that invalidated all of the assumptions on which the flat earth geographers had based their careers and at that point a person would have been a fool to embark upon a study in flat earth geography.

MT,

I dealt recently with an asset management firm that follows a pretty strict "dividend growth" strategy with even their more conservative clients, and they put a lot of faith in the CFA licensure.  Back in April I commented to the CEO that the stock market seemed a bit expensive to me considering the risks in the economy.  The CEO remarked that stocks were cheap... were at very good P/E levels, and that bonds were truly what scared him.

Since then stocks are down 5% and TLT is up over 30% (I wonder if most financial professionals really count bond gains as increases of net worth, and not simply an ugly contract to collect a fixed amount of interest for way too long of a time).

I'd like to believe I am seeing the forest through the trees, and while they're smarter men on many levels, it's all within a fairly narrow view of the market.  That said, and despite my obviously superior "since-we-talked" performance record, I feel like maybe I'm (and the rest of us are) missing something... that maybe a dash of groupthink is effecting us as well.  I can't imagine that there's an entire designation involving complicated calculations that really adds no value to your ability to beat the market over time.

You're the one who took a jump into the lions-den of the CFA exam, though... and if you walked away unimpressed that leaves me disappointed as well almost by default.

moda0306 wrote: I'd like to believe I am seeing the forest through the trees, and while they're smarter men on many levels, it's all within a fairly narrow view of the market.  That said, and despite my obviously superior "since-we-talked" performance record, I feel like maybe I'm (and the rest of us are) missing something... that maybe a dash of groupthink is effecting us as well.  I can't imagine that there's an entire designation involving complicated calculations that really adds no value to your ability to beat the market over time.

Why would today's iteration of fortune tellers, seers and wizards be any different than it has been through all of history?  These people always enjoy high status in society, even though the value they add is mostly through making people feel more secure in an uncertain world (as opposed to actually having the ability to see into the future or somehow reliably pull large gains out of the market).

If something like a CFA designation really did confer a performance advantage, what would account for this year's performance rock star falling on his face next year? 

As far as PP groupthink goes, when the strategy stops working I will be perfectly happy to move on to something that does work.  Until then, though, I will likely continue to wallow in the economic humility and skepticism on which the PP is based.

You're the one who took a jump into the lions-den of the CFA exam, though... and if you walked away unimpressed that leaves me disappointed as well almost by default.

For a person who likes doing work on a financial calculator, the CFA might be more appealing.  I tend to see financial math as a subset of what is basically the art of interpreting and projecting human beings' economic preferences in an uncertain world.  Against such a backdrop, I see most apparent demonstrations of precision to be mere simulations that are often wildly off the mark when you look at how things actually turn out.

Think about what a waste of effort something like a CFA would be if society suddenly turned against the idea of having an enormous financial sector premised upon privatized gains in the good times and socialized losses in the bad times.  It seems to me that such a shift is just a matter of time, given that no society can long endure when seemingly everyone's goal is to skim a few basis points off of someone else's pool of real assets. 

To paraphrase Margaret Thatcher, in a FIRE economy sooner or later you run out of other people's money to speculate with.

The key with many economic belief systems is to never look behind the curtain.  Once you look behind the curtain, one often sees carefully cultivated beliefs begin to disintegrate, which can be a disturbing and disorienting experience (especially for those who benefit most from a certain economic arrangement).  If you look back on periods of feudalism, widespread slavery or communism, you see the same reluctance to update economic beliefs, even in the face of overwhelming evidence that a belief system had become obsolete.

IMHO, one of the most widespread economic beliefs that may be looked back on with shock and amazement in the future is the mostly unquestioned belief in the exponential economic growth that a debt-based monetary system requires.  If we all rely on industrial capitalism to provide us with our materials needs and industrial capitalism is, at its core, a process of converting natural resources into garbage, isn't it obvious that once the ready supply of natural resources begins to be depleted our ability to provide for our material needs will also run into problems?  Economists would say that we substitute one resource for another when we run into scarcity of a natural resource, but this only works to a point.  As a human being who runs on air and water, if an economist offered me some carbon dioxide to breathe and toxic sludge to drink in light of a scarcity of breathable air and drinkable water, I would tell him that he was not understanding the nature of my problem (as well as his own).

Medium Tex, "To paraphrase Margaret Thatcher, in a FIRE economy sooner or later you run out of other people's money to speculate with" 

About ten years ago I started a financial planning degree (CFP) since I liked investing so much and wanted a side business.  Eventually I realized I suffered from a hideous disease called "honesty."  I would simply put my clients money in a couple Vanguard index funds and tell them to buy and hold.  Let's face, it the wealthiest CFP's make money by getting their clients to churn their portfolios constantly and by getting them into esoteric investments like oil well royalties, venture capital schemes, and 7.5% load funds, and tax avoidance schemes.  These investments make sense only from the perprective of the CFP NOT the client.  Since I knew I wouldn't sleep at night knowing I was screwing my clients, I knew the CFP wasn't for me.   

FarmerD wrote: About ten years ago I started a financial planning degree (CFP) since I liked investing so much and wanted a side business.  Eventually I realized I suffered from a hideous disease called "honesty."   

Couldn't you make a few bucks by charging nothing on losing years, and then like one percent of profits on profitable years?

Adam1226 wrote:

FarmerD wrote: About ten years ago I started a financial planning degree (CFP) since I liked investing so much and wanted a side business.  Eventually I realized I suffered from a hideous disease called "honesty."   

Couldn't you make a few bucks by charging nothing on losing years, and then like one percent of profits on profitable years?

True.  However, why would I get any repeat customers since I'd be selling a buy and hold index fund strategy

FarmerD wrote: True.  However, why would I get any repeat customers since I'd be selling a buy and hold index fund strategy

I think you'd be surprised.  I've setup PP's for a couple of my friends.  They are so intimidated by the whole process that they just don't want to deal with it.  

They let me know when they make contributions, and I track the performance for them every quarter and let them know how they're doing.  I tell them when to rebalance and exactly how to do it.  

I tell them it's simple, but they are simply overwhelmed by even having to think about it.  (I am not a financial professional, and I don't charge them for it, but I think I could and they would be fine with it).  

Farmer,

I think you'll find that people's attitudes have changed a lot since 2001.

I posted about the PP on a CFA forum for opinions and it's been met with ridicule (so far)..

Ironically, the desire to better understand the PP rekindled my desire to pursue this designation and prompted me to sign up to retake it June this year (I failed level 1 exam back in 2010)..

blackomen,

Let us know how this goes and how you think about the PP afterwards.

I think it'd be good to have somebody schooled in investment analysis only after being a PP adherant to later sound off on his experience.

Back in April I was exposed to some CFA types that hated bonds at the time... I loved LTT's at 4.2%.  I obviously was the "dumber" guy in the room, but ended up being considerably more "right" in my simple analysis.

I find it interesting how analysts can brush-off amazing performance of gold and/or long-term bonds over a period, but scream about the losses.  It's like the gains don't count because they shouldn't have happened.  Even if I was a great analyst, if I carried a diverse basket of stocks I thought to be real winners, I'd still hold at least a small pile of bonds, gold and cash as diversifiers.  Maybe not 4x25, but one definitely has to respect the unknowable.

blackomen wrote: I posted about the PP on a CFA forum for opinions and it's been met with ridicule (so far)..

Ironically, the desire to better understand the PP rekindled my desire to pursue this designation and prompted me to sign up to retake it June this year (I failed level 1 exam back in 2010)..

Are they ridiculing it because they don't like the way it looks or because they don't like the way it works?

Many casual PP conversations tend to have a "pearls before swine" quality.

I would also expect a group of CFA candidates to be a little uneasy around the PP, since it suggests that much of what they do is virtually worthless (and no one likes ot hear that about something they have worked hard to achieve).

I might be concerned if a bunch of CFA types didn't ridicule the PP.

MediumTex wrote:

blackomen wrote: I posted about the PP on a CFA forum for opinions and it's been met with ridicule (so far)..

Ironically, the desire to better understand the PP rekindled my desire to pursue this designation and prompted me to sign up to retake it June this year (I failed level 1 exam back in 2010)..

Are they ridiculing it because they don't like the way it looks or because they don't like the way it works?

Many casual PP conversations tend to have a "pearls before swine" quality.

I would also expect a group of CFA candidates to be a little uneasy around the PP, since it suggests that much of what they do is virtually worthless (and no one likes ot hear that about something they have worked hard to achieve).

I might be concerned if a bunch of CFA types didn't ridicule the PP.

They specifically feel uneasy about the low allocation of stocks and the high allocation of bonds and gold (which historically have "underperformed".)

Even if you want to manage others' money using the PP, you'd need to know it inside and out and articulate how and why it performs the way it does in a variety of economic circumstances.  Unfortunately, I'm still far from that point in my knowledge of finance and economics.  Simply telling your clients you will equal weight their money into those 4 assets because it's performed well in the past or just quoting Harry Browne alone isn't gonna fly.

An important standard a CFA charterholder must abide by is Diligence and Reasonable Basis.  One can agree or disagree that the PP is a good choice for a particular person's investment goals as long as there's a reasonable and adequate basis backed by extensive research and analysis to support that stance.

It was the over-analytical side of me that made me hate gold until some time in mid-2010.  I analyzed it for its uses outside of being the monetary equivalent of a Mickey Mantle baseball card, and saw something close to the market value of silver at worst, and something akin to a painting or antique, at best... not something truly reliable as a "store of value," since it couldn't be efficiently fashioned into something useful at today's price.

I even used an example stating "what 1 ounce of gold will buy you" in terms of hedges against inflation," and came up with a list of nonparishable tools and consumables that would help get you through an inflationary period.

I think it takes an entirely different angle to be able to properly "analyze" a shiny yellow metal that people value for relatively nebulous reasons.