Anticonsumerist's Journal

Where are you and where are you going?
Hristo Botev
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Re: Anticonsumerist's Journal

Post by Hristo Botev »

OK, in for the 11th edition; hopefully will have it in a couple weeks.

mathiverse
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Re: Anticonsumerist's Journal

Post by mathiverse »

Cheepnis wrote:
Wed Jan 06, 2021 2:29 pm
Thanks Jacob. My interpretation of your post is that my fear is well founded. I'm really only interested in this stuff as a means to and end, otherwise it's pretty boring. I don't see myself retaining much knowledge (or be able to use it well) without the practice, but I feel like 8 (or 4 textbooks) worth of knowledge cannot be maintained without much more time devoted to practice than I am willing (or even able) to provide. At the risk of sounding overly defeatist or self-deprecating: I'm not a very enviable intellect. I always lagged behind all my friends often despite trying harder. My decent grades were only attained via brute force as opposed to any natural talent.
Hey Cheepnis,

I had some questions about this. I'd be interested in your answers if you're willing to discuss them.

How many hours would you estimate you've spent on learning investing so far? How many hours total do you want to spend over the course of, say, the next five years? If you want a shorter timeline, then how many years do you want to spend and how many hours do you want to spend in total during that period? How much time is "too much"? Like if someone said you'll take 1000 hours total to reach the level you want, would you decide the effort wasn't worth it? What if someone said 300 hours? 500 hours?

Another question is what benchmarks are you using to say you're slower than average in this particular field? I understand you say you were slow in school, but that may not apply here. So I'm curious what progress you expected for the time spent and what progress did you actually make?

On the other hand, perhaps you are slower than average, but does that mean 2x slower or like 20% slower? Also are you slow because you're less capable or because of the way you approach the material?

Finally, how much maintenance is acceptable? 10 hours a year? 10 hours a quarter? 10 hours a month? 10 hours every two weeks?
jacob wrote:
Wed Jan 06, 2021 2:18 pm
How many hours would you say it took you before you felt your investing skills were "passable"? I know you've spent many hours beyond that point investing, studying investing, and reading, but I'd be curious about what your lower bound "I could have stopped here and done okay with 10 hours a month" amount of studying was? How long did it take you to get through the textbooks in the finance curriculum you suggest?

EDIT: Also is the knowledge level necessary to pass the CFA level 1 exam about what's necessary to be ready to invest or would even more knowledge be necessary? Or less?

EDIT: I found estimates that the average studying time for a person who passes the CFA level 1 examination is 303 hours. Based on what I can tell, this is usually after undergraduate coursework in a related field such as business or economics.

Link to page with quote from below
On average, a typical candidate takes 4–5 years to pass all three exams. Successful candidates report spending about 300 hours studying for each level, ranging from 303 hours for the CFA Level I exam to 328 for the CFA Level II exam and to 344 for the CFA Level III exam.

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Re: Anticonsumerist's Journal

Post by jacob »

Prob about 500-1000 hours for me having zero background in business or economics. (With a background in physics it took me quite a while to stop thinking about the accounting equation as "equity = assets+liabilities". Turns out that accountants haven't invented negative numbers yet, preferring to subtract positive numbers.) But I was also interested in it ... read a lot about options theory which is useless to most retail investing but which came in handy for my stint in high finance.

That's about 1/2 of what the average person spends on watching TV in a year.

About a freshman's year of business and economics.

Is that really a lot? I don't think so. Especially not when it comes to one's life savings.

This [studying] is to develop a basic [theoretical] framework to put more "recreational" reading(*) into context. It only has to be done once. By recreational reading I mean reading monologues describing what is typically someone's investment autobiography but which is presented as them having discovered the one simple easy truth for magic returns. It could also be business news or just news in general. Trade magazines. Even out-of-the-box stuff like history or chemistry books if that gives you ideas. When you read a news report about "the yield curve inverting", you know what that means. You know that when rates go up, bonds go down. In other words, you have some framework for interpreting what you see. Over time, your own practice builds on this. This also includes what kind of emotions you feel or you see others feeling.

(*) I like reading old "this investment can not fail" type books. E.g. "How to retire rich with money market funds" from the 1980s .... stuff like that. Seeing how awful investment confidence (or conceit) looks in retrospect.

In Dreyfus terms, the point is to become "competent" (it has a technical definition, look it up) and "competence" (what the layman considers competent) usually takes about 300 hours. Proficiency and expertise comes with experience---not sure it can be taught because successful investing also has a "gut-factor"---and that's a lifelong endeavour. This is practically the foundation of what I mean by the renaissance ideal. To become competent in an many fields as possible and then combining this base knowledge towards an efficient and proficient life AND way of thinking.

As noted above, practice without learning enough, that is, "advanced beginner"-style is dangerous. Reading the curriculum first makes it hard to fall into the trap of thinking one can learn everything one needs to know in an afternoon.

Crusader
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Re: Anticonsumerist's Journal

Post by Crusader »

I have opened this thread for us:

viewtopic.php?f=5&t=11785

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unemployable
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Re: Anticonsumerist's Journal

Post by unemployable »

Re: CFA and exams/studying.

There are three exams and traditionally they were given once a year on the first Saturday in June. In this century first Level 1 also was administered in December, then the June date was moved back to the end of the month, and now post-corona all the exams will be moving to computers/online, taken at a test center similar to how the GMAT is done. There used to be a "CFA effect" where trading volume was lighter during the first week of June, and people on CNBC would wonder why it's so quiet when everyone knew half the office was studying for the goddamn CFA exam, but I presume this has subsided.

Anyway, I am a CFA charterholder (dues current) and passed the three levels in 2001-02-03. (About 10% of people who ever register for Level 1 pass all three on the first try.) I worked full-time, as most do. I would start towards the end of January, easing into the material and by the end of February would be devoting 5-6 days a week, 3+ hours/day to it. April and early May was the most intense period and I learned to save ethics for last as it's all reading and recall with no math to practice. During the last half of May I would taper off as a marathoner would, and would start taking practice exams and brushing up on weak points. Anything I forgot when reviewing the syllabus, or got wrong on a practice test, went into a separate notebook and I would study only that in the last couple days before the test.

I probably spent around 20 hours per week at my most strenuous, and do believe the oft-quoted 300 hours per level is a fair estimate of the overall burden -- and you have to be actually devoting 300 hours to the material. It's not like 300 hours in an office job where 200 hours are fluff. I used only the material and books from the curriculum, plus some practice tests I dug up from various sources. I did not take any prep courses or use any third-party prep texts.

You do not want to start too early, as you will forget stuff and stress too much. Most people who do not start at least three months in advance either no-show or bomb. Four to five months, the length of a college semester, is a happy medium. Your job should be one where you usually are done at 5 and you don't want any huge life events going on (marriage/divorce/kids/death or sickness of relative). Ask them to die in the fall maybe. You're not going to be dating unless it's that cute girl in the prep class. It helps to live in a place you don't want to be outside until June. I remember going to lunch on the Wednesday before Memorial Day for Level 1, and the temperature on signs in downtown Chicago flashing 38°F.

Everyone tends to come to the exams with material they already know from their jobs. For me this was options/futures/derivatives and a bit of portfolio management (levels 2 and 3). This certainly helps cut down the study time in places -- BUT -- it is still important to learn the material the way CFA Institute presents it to you, for example regarding the terminology they use, the specific models and equations and theory behind them, the little pieces of info that never came up on the job and so on. You don't need a specific academic background, but it helps to have taken macro- and micro-economics (101 and 102, nothing harder) and it really helps to take a few statistics courses. I'd say the best major to choose for the CFA is stats. I was engineering, so no help there except comfort with math.

The material is updated every few years and some of the stuff I learned 20 years ago is now borderline outdated (think 5% risk-free rates... and there was a LOT on there about bonds in general, think there's less now). But you still have to know how to figure out whether a company can cover its dividend.

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Re: Anticonsumerist's Journal

Post by Crusader »

@unemployable
Maybe a stupid question, but why would someone want to take the CFA exams? So that you can work in finance? Is that all it takes? Is working in finance stressful? They do make a lot of money, it seems, but I imagine it isn't worth it due to the stress.

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Re: Anticonsumerist's Journal

Post by unemployable »

Crusader wrote:
Wed Jan 06, 2021 7:40 pm
@unemployable
but why would someone want to take the CFA exams? So that you can work in finance?
So you can move ahead and improve your employability in finance. It's a "you don't need it but people have it" thing.

The CFA is roughly equivalent to a MBA concentrating in finance, coursework-wise. At consulting firms and investment managers they tend to carry equal weight. However the higher you go (head PM or CIO level) the more you'll find a preference for the MBA, to the extent that a CFA alone may not cut it.

The CFA has the advantages of lower hard cost (a few grand) and lower opportunity cost (you don't have to take off two years of work to go to school). It has an clear disadvantage of more time (three years IF you pass all three exams on the first try and in consecutive years -- I believe you can do them more quickly now but that's a lot of all-out studying) and binary nature (it's pass/fail and if you fail you wasted the time and effort).

anticonsumerist
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Re: Anticonsumerist's Journal

Post by anticonsumerist »

jacob wrote:
Wed Jan 06, 2021 5:40 pm

(*) I like reading old "this investment can not fail" type books. E.g. "How to retire rich with money market funds" from the 1980s .... stuff like that. Seeing how awful investment confidence (or conceit) looks in retrospect.
This is also very helpful, thank you very much. I think I'll look into such books as well.

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Re: Anticonsumerist's Journal

Post by jacob »

Crusader wrote:
Wed Jan 06, 2021 7:40 pm
@unemployable
Maybe a stupid question, but why would someone want to take the CFA exams?
Another common reason is that it's a way for non-financial people to break into finance(*). That's why I signed up for it. However, from studying for it (basically reading the level 1 curriculum) and talking to various quant headhunters, it was quickly clear that a) I didn't want to become an analyst after all; and b) They were more interested in my math skills. Whenever I mentioned that I was studying for the CFA, they're were like "Why?! You should spend your time practicing brain teasers and learning C++".

(*) There's no barrier to entry other than the ~$1000 sign up fee. However, to get the actual certification after passing the tests, you have to have, IIRC 1 or 2 years of experience and get someone in finance to endorse you. Didn't have to be deep (a financial journalist could get it) but you had to have some work experience. It's much like joining a professional society. Annual fees, etc.

Another way of taking it was concurrently with a college degree in business/finance. There's a lot of overlap and so less need to (re)study.

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Re: Anticonsumerist's Journal

Post by unemployable »

jacob wrote:
Thu Jan 07, 2021 8:27 am
b) They were more interested in my math skills. Whenever I mentioned that I was studying for the CFA, they're were like "Why?! You should spend your time practicing brain teasers and learning C++".
I think one is better off just getting a grad STEM degree or maybe even busting your balls undergrad to become a quant. Less time and funding usually isn't an issue with most STEM fields. Work might even reimburse it. I think you in particular could've found a quant job eventually with just the experience you had. That's a criticism of the interview process and the general inefficiency of the job markets, not of you.
to get the actual certification after passing the tests, you have to have, IIRC 1 or 2 years of experience and get someone in finance to endorse you.
Four years relevant experience and two sponsors. Not as onerous as it sounds as three of those years are spent taking the exams (or used to be) and if you're in finance you'll be around CFAs anyway so finding sponsors is no big deal. Annual dues around $400/year and most employers let you expense them (or they're a writeoff if self-employed). If you're in a larger city they usually run job fairs and circulate job listings, and hold events with well-known speakers you can attend for free or nominal cost. I heard Ben Bernanke speak before he became Fed chair, for example.

The exams themselves probably run around $3-4k including official study materials and recommended texts, but not prep courses, if you pass all three on the first try. I got out the door for about $2k back in the day.
Another way of taking it was concurrently with a college degree in business/finance. There's a lot of overlap and so less need to (re)study.
Yes but I do believe you still need the four years of work and again it's important to learn the material the CFA Institute's way.

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Re: Anticonsumerist's Journal

Post by jacob »

unemployable wrote:
Thu Jan 07, 2021 10:48 am
I think you in particular could've found a quant job eventually with just the experience you had. That's a criticism of the interview process and the general inefficiency of the job markets, not of you.
I did. I worked for a private equity principal trading company from 2012--2015 owned by one of the wizards in the Market Wizards series of books. While I didn't go the usual [headhunter] route, I think being able to use words like "futures" in a sentence in an intelligent way helped me get the job. Also, when the big boss asked me if I had ever read [his favorite book] during one of the interviews, I was able to answer in the affirmative due to the excessive amount of "recreational" reading I had done.

Cheepnis
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Re: Anticonsumerist's Journal

Post by Cheepnis »

@Mathiverse,

Spent on investing specifically so far? None outside pop-investor books like RWDWS or The Intelligent Investor or The Four Pillars of Investing and a bunch of others. Bodie will be the first to delve into the nitty-gritty after I finish Econ 101. I don't think I have an upper limit of hours I'm willing to spend on this in my lifetime. I see the time spent reading these books more as a necessary exercise for the mind, which provides benefits even if I'm not gunning for a 3 hour marathon. The 1000 hour rule of thumb and the way Jacob talks about this (you only have to do it once!) is all well and good, but I know from experience that I'm not going to retain very much of it until I interact with the material in some sort of tangible way on a regular basis, which there are no opportunities for in my life currently, and that's what I think I'm unwilling to build.

Some folks seem to be able to cram new concepts or "frameworks" or what-have-you into their heads after a quick glance. I have a hard time retaining basic facts, much less theoretical or conceptual material. Right now, even though I've been doing all the "Key Questions" in the econ book, I'm really only retaining anything that seeps in accidentally such as "banks can only lend an amount equal to their excess reserves". But the way the systems work? Supply curves/demand curves? Fuck, I read those sections, I (very slowly and with lots of referencing) did the questions, but I couldn't tell you jack shit about them right now other than they exist.

I think my difficulties in this regard partially lead me to settle on music as my primary endeavor for much of my life. Here Confucius is mostly wrong, a lack of theory isn't a hinderance to making perfectly great music, and of course there's no stakes. So I could happily lock myself in a little room and practice for hours until things started sounding good, just exactly like most great musicians have done it. Having the background in practice made learning the theory easy for me when I got interested in that. It's also why I'm good with my hands. I can build something and if it doesn't work I'll just do it again and learn from the experience. I'm not building bridges or cranes so the theory doesn't matter.

Here's my best case outcome from reading Bodie + 1 or 2: turn unknown unknowns into known unknowns. At which point I can go out (and probably lose some money) actually learning what I read by the act of investing. So I'm slow because I have a hard time groking read material. Given enough time I'll get through it all, but my skepticism lies in having the ability to use any of it barring complete immersion in the material far beyond reading some textbooks and doing a few exercises in my free time. I'm going to do it, I'm motivated, but as the case in school and as the case with the econ book, I'm learning very little.

Maintenance might have been the wrong word. If I ever get to a place where I need it I'll count my lucky stars.

mathiverse
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Re: Anticonsumerist's Journal

Post by mathiverse »

Thanks for the interesting answer, Cheepnis.
Cheepnis wrote:
Thu Jan 07, 2021 12:54 pm
Spent on investing specifically so far? None outside pop-investor books like RWDWS or The Intelligent Investor or The Four Pillars of Investing and a bunch of others. Bodie will be the first to delve into the nitty-gritty after I finish Econ 101.
I wanted to note that the time spent on those pop-investor books and the economics books count in the 1000 hour figure Jacob suggested, so this answer is underestimating the time you've put in. Since you're almost through McConnell it sounds like you've spent a decent amount of time, but perhaps still a small fraction of the expected "time to competence" if we accept Jacob's figures (and an even smaller fraction if you decide you should multiply his figures by some number greater than one to account for different learning speeds).

EDIT: The point being that maybe you're expecting too much from too little study rather than being bad at studying or rather than being likely to need 2x - 3x the time of the average person. If you had put in 500 hours and couldn't do much, that would be a bigger concern. I'm not implying hours are all you need. Some hours are better than others. But at this coarse-grained level, it's possible you're making as much progress as one would expect at this point in your studies given the ratios between your study hours and the "expected" study hours.
Cheepnis wrote:
Thu Jan 07, 2021 12:54 pm
Maintenance might have been the wrong word. If I ever get to a place where I need it I'll count my lucky stars.

You may also be overestimating the maintenance required. Required maintenance is somewhat under your control once you get to the point where maintenance becomes an issue. You can likely choose to limit your investing ambitions to the level of skill that doesn't require too much maintenance. From the ERE book:
5.2.4 Appropriate Response: Skill serves to shift the line in the figure down and to the left because skill makes the use of time and capital more efficient. Except at a very high level, maintaining skill has no cost, so if something is learned once, no further effort is required. In this case it's sensible to develop a skill to just before the point that it begins to require maintenance, continued practice--beyond this point, replacing skill and time with capital assets makes more sense.

biaggio
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Re: Anticonsumerist's Journal

Post by biaggio »

Regarding the curriculum. There used to be a superb set of notes on various financial topics written by John Norstrad, affiliated with Northwestern Uni---I sifted through some of them some 3 years or so ago. I liked his expositions which were concise but with pretty verbose derivations. Thanks to waybackmahine we can still enjoy them: http://web.archive.org/web/201710281929 ... index.html

Sorry for posting in your journal. If this is not the right place feel free to move it elsewhere.

anticonsumerist
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Re: Anticonsumerist's Journal

Post by anticonsumerist »

jacob wrote:
Wed Jan 06, 2021 10:46 am
See http://earlyretirementextreme.com/start ... sting.html (start with Bodie)
The Bodie book arrived today. It is 1,041 pages long!

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