Is the CFA® useless for value investors?

Investors such as a Buffett and Klarman don't believe in Modern Portfolio Theory, CAPM etc. Buffett calls it "Alice in Wonderland" and Klarman states that he does not even know how to calculate Beta. So if one is a value investor, would it pretty much be useless to take the CFA® program? Obviously it is good to know other financial theories for personal enrichment, but if I am a deep-value investor, and my only investment philosophy will be value investing, is it pretty much useless to get a CFA®?

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Comments (31)

Apr 17, 2012 - 7:06pm

Thanks for your insight. I had no idea that many Value PMs are CFAs. However, how do you respond to this posting, particularly, "The curriculum is based around CAPM and EMH -- many successful value investors have been outspoken about how wrong headed these theories are. Buffett calls them "Alice in Wonderland," Klarman rails against, etc. I spent 750+ hours reading this crap and have never used any of it on the buyside."

I am confused because I want to get the CFA designation, but as a value investor, I wouldn't want to waste my time learning completely different financial theories that I find inferior to value investing. Do these PM's just ignore these MPT theories and just absorb the rest of the CFA curriculum?

Ravenous HF

(Senior Gorilla, 819 Points) on 12/5/11 at 3:13pm
Sorry, it is useless. I have it and passed 3/3 and work at a top HF so I am qualified to say that. And it definitely, no questions about it, won't help for a quant role. You can read the CFA syllabus and realize that in 10 seconds. It is also basically useless for front office finance roles. That statement goes against the grain, but when you realize the breadth of the CFA and the time committment against what you would need to know for such a role, it's clearly not a good use of time. The accounting is subpar, and the valuation material is misleading (DDM -- are you serious?). The curriculum is based around CAPM and EMH -- many successful value investors have been outspoken about how wrong headed these theories are. Buffett calls them "Alice in Wonderland," Klarman rails against, etc. I spent 750+ hours reading this crap and have never used any of it on the buyside. I wish that I never completed the CFA program, and I refuse to pay dues or use the letters anymore because it is such a crock of shit.

If you have a clear counter argument for why obscure academic theories (which have been proven wrong by industry experts) hold water in the real world, please feel free to enlighten us.

Apr 17, 2012 - 7:09pm

ummm the CFA doesn't only teach MPT. I'm doing level two and multiples and fundamental valuation (equity inv + some parts of corp fin) have by far more weight than portfolio mgmt

Jul 25, 2012 - 2:46am

Agreed, I'm reading it right now, and it within the first couple of pages states that Markets are perfectly efficient.

Coram Deo
Jul 25, 2012 - 5:57am
JamesCannariato:
Agreed, I'm reading it right now, and it within the first couple of pages states that Markets are perfectly efficient.

Do you believe / subscribe to everything you read? Take the good, ditch the bad, get the three letters, that's how you use the CFA course.

"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper
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Apr 17, 2012 - 8:12pm

Designation is more valuable than the knowledge. You'll likely never use information again but the buy-side respects that you jumped through the hoop.

It is very rare that I see a job opening that does not prefer CFA/MBA.

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Apr 18, 2012 - 7:46am

Karate Boy is right. Designation is more valuable than the knowledge, but I believe that having a job in the business trumps all of that and I've seen plenty of PMs with no CFA/MBA.

That said, they do a good job teaching financial reporting and accounting which is absolutely essential for any sort of fundamentals based equity analysis.

It depends where in your career you are. If you're an entry level buyside grunt, it's probably a nice thing to hang your hat on. You'll learn a bit more about other instruments you don't spend a ton of time on, you'll get better at basic financial analysis, and some of the more common ways that management can fudge their numbers.

If you're pretty deep into the business already, you probably know most of the applicable parts of the curriculum already. Better to spend it networking and building up more specialized areas of your knowledge base.

Apr 18, 2012 - 12:40pm

I am very suspect of the ability of someone starting today to become a PM without an MBA/CFA.

I don't like that b/c I find it a poor use of time but it seems the industry has evolved into this.

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Apr 18, 2012 - 2:50pm
KarateBoy:
I am very suspect of the ability of someone starting today to become a PM without an MBA/CFA.

I don't like that b/c I find it a poor use of time but it seems the industry has evolved into this.

Agreed. I think this is true in a lot of industries; as college degrees become commoditized there's an increasing expectation of advanced/terminal degrees and/or certifications. School districts requiring M.Eds, a high % of accountants doing MAccs, etc.

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
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Apr 18, 2012 - 5:23pm
KarateBoy:
I am very suspect of the ability of someone starting today to become a PM without an MBA/CFA.

I don't like that b/c I find it a poor use of time but it seems the industry has evolved into this.

In full disclosure, I have no solid data on this save my own random observations and experiences

In traditional fund management, I agree with you completely. Mutual funds love the designations.

My experience with hedge fund managers has been generally less uniform. Less than half of the ones I know have an MBA, maybe 30% have CFAs, the rest are a mix of buyside lifers and complete randoms.

Though I do agree with KP, CFA, there's probably a trend towards it over the long term. I'd simply wonder whether there's, at this point, enough of a justification to spend the time doing it.

Apr 19, 2012 - 6:33pm

I realize the designation is extremely important in PM industry, now more than ever. I'm just sort of against spending hundreds of hours learning different theories of finance that I don't agree with as a value investor.

Sep 6, 2013 - 2:16am

Terriers12:

I realize the designation is extremely important in PM industry, now more than ever. I'm just sort of against spending hundreds of hours learning different theories of finance that I don't agree with as a value investor.

I don't think most of you kids are understanding the point here. To be a great PM/analyst you don't need it. But nothing says a good understanding of finance is a bad thing (whether or not you agree with the theories) and nothing says you MUST use them in your career. If you're just too lazy to do it, that's one thing, but especially if you're already in S&T, IB, research, it's really not all that difficult.

Apr 19, 2012 - 7:53pm

Then learn faster lol. If you end up spending less than 100 hours on each level, you get more bang for your time.

Follow me on Twitter: https://twitter.com/_KarateBoy_
Apr 19, 2012 - 11:58pm

The only well-known HF manager I can think of that has a charter is Howard Marks.

A small sample size, but of the roughly half a dozen "value" managers I know not a single one has ever taken a CFA test.

I find the accounting in L2 to be useful. Some of the material is pointless. Obviously I've never built a dividend discount model, calculated information ratios for the Treynor Black model, or priced bond options by building a big tree and going backwards for bimodal "up" or "down" interest rate shocks.

It is essentially an insurance policy. A CFA and top tier MBA help mitigate career risk. Without a bunch of glossy credentials you have to hang your hat on performance (which is how it should be), but if for some reasons an individual hits a bump on the path in the HF space its nice to have something to fall back on. If you blow up, hit a ceiling at an organization, or just can't generate performance, CFA + MBA will probably get you a relatively lucrative job at a mutual fund, insurance company, pension fund, etc.

Best Response
Apr 23, 2012 - 12:21am

Odd to see such vitriol against the exams - in investing as in life I put a premium on knowing what I don't know.

The CFA has been irritating, time-wasting, and no doubt mostly just an exercise in rubber stamping my resume. That said, I'm glad I've gone through it. It's important to have a solid knowledge base that includes a good understanding of the principles I disagree with. Railing against MPT or the DDM without really knowing what they are or why they were developed just comes across as ignorant. I happen to like DDM as a teaching tool, for example. It's hard to imagine anyone actually valuing a stock that way, but it's a helpful construct to force you to think about the value of equities as a discounted stream of future cashflows, and cashflows you'll only have a claim on to the extent management returns cash to shareholders. It refocuses your attention on capital allocation in a useful way.

The CFA is like taking an introductory philosophy course in college - you'll typically read some Marx and some Smith, maybe both the Bible and the Koran, not to mention the full range of political theories from Plato to Hobbes to Locke. You will disagree with some, maybe all of what you read, but you still benefit from the exposure. Just as a few survey courses scarcely qualify you for any job, it's a mistake to think of the CFA as some kind of career panacea. Doubtless it's of little value to someone with many years of experience. But for most people, especially early in their careers, it is a convenient way to learn quite a bit of background material related to investing. And as others have mentioned, there are a few useful nuggets in there.

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Apr 25, 2012 - 12:42am

+1 tempaccount,

I'm sitting for Level 2 in June and while I think a decent amount is rubbish that I will never use, I have certainly learned a lot from it, probably more than I actually learned in undergrad. As mentioned, the FRA material is phenomenal for anyone that wasn't an accounting major in undergrad.

Level 2 seems to be heavy on the valuation principles which is great for me. I hate quantitative methods but it does teach a new found respect for statistics and how everything is interrelated.

My name is Nicky, but you can call me Dre.
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Jul 25, 2012 - 7:20am

CFA: Crappy Fucking Analyst

I hate victims who respect their executioners
Sep 6, 2013 - 4:37pm

Easy on the MBA and Cfa loving. Both are much more relevant to am than to hf. Hardly any top hf manager has a Cfa and only few have an MBA.

Cfa is an epic waste of time that's completely useless unless your goal is closet indexing at a long only am, MBA is more relevant there as well. Given long onlies are much more marketing than performance driven (given almost all of them just closet index and underperform anyway), useless credentials become much more important. (This is obviously a generalization some boutique long onlies do Very well, and most hfs underperform as well but hey).

Not even sure what the Cfa even signals, that you can study super boring useless stuff for long hours? Just apply to M&A lol. It's almost a counter indicator to intelligence, if you are the smartest guy in the room you don't need some Designation to reassure yourself.

Sep 6, 2013 - 11:39pm

leveredarb:

Cfa is an epic waste of time that's completely useless unless your goal is closet indexing at a long only am, MBA is more relevant there as well.

Whenever I hear someone use hyperbolic phrases full of intensifiers like "completely useless" on a topic for which there is lots of disagreement, it becomes evident that they aren't thinking objectively and their view on that topic can be safely ignored.

Sep 7, 2013 - 5:30am

There isn't much disagreement tbh.

CFA --> AM.
No CFA --> HF.

Most of the above posters are referring to am, despite this thread being in the hf forum, this just unnecessarily confuses people outside the industry and may get them to do a Cfa (which as far as hfs are concerned is last completely useless except for the few shops the are full of ex long only guys) despite not needing one.

Sep 7, 2013 - 8:17am

leveredarb:

There isn't much disagreement tbh.

CFA --> AM.

No CFA --> HF.

Most of the above posters are referring to am, despite this thread being in the hf forum, this just unnecessarily confuses people outside the industry and may get them to do a Cfa (which as far as hfs are concerned is last completely useless except for the few shops the are full of ex long only guys) despite not needing one.


Yea I always see it as useless when someone has a proven and tested grasp of a broad array of financial products, accounting and has proven their drive and commitment. Useless.
"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper
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Sep 7, 2013 - 9:25am

Oreos:

leveredarb:

There isn't much disagreement tbh.

CFA --> AM.

No CFA --> HF.

Most of the above posters are referring to am, despite this thread being in the hf forum, this just unnecessarily confuses people outside the industry and may get them to do a Cfa (which as far as hfs are concerned is last completely useless except for the few shops the are full of ex long only guys) despite not needing one.

Yea I always see it as useless when someone has a proven and tested grasp of a broad array of financial products, accounting and has proven their drive and commitment. Useless.


Anyone with the necessary experience to work at a hf will have shown drive and commitment in numerous other ways and have the knowledge of accounting and finance needed. Whilst some of the concepts may be useful, a lot of them are garbage, you would be much better off reading margin of safety / graham etc...

It can be useful for people from completely unrelated backgrounds to demonstrate an interest in the industry, if you come from the more usual path in the of getting hired (sell side ER/banking/other fundamental fund) it doesn't demonstrate anything incremental. If you come from the traditional path and need the Cfa to demonstrate drive and commitment then I don't know what to say lol.

Anyhow this argument is mood, people with the Cfa will respect others with it, people without it won't care, most people at hfs don't have it so most won't care.
/thread

Sep 7, 2013 - 9:58am

But there's opportunity cost and Cfa may be one of the lowest value add ways to develop your fundamental investing skill.

The what others are thinking point is interesting, but what pc of Cfa holders use ddm, what pc has what level and what curriculum do they use? Lvl 1 mainly focuses on basics of finance, you don't need to get the designation to know that other market participants know what time value of money is what a swap is and that hopefully none of them is stupid enough to use ddm lol.

Sep 7, 2013 - 10:06am

leveredarb:

But there's opportunity cost and Cfa may be one of the lowest value add ways to develop your fundamental investing skill.

The what others are thinking point is interesting, but what pc of Cfa holders use ddm, what pc has what level and what curriculum do they use? Lvl 1 mainly focuses on basics of finance, you don't need to get the designation to know that other market participants know what time value of money is what a swap is and that hopefully none of them is stupid enough to use ddm lol.


I see your point. But stand by my view. It was rather narrow minded of you to choose a simple swap as your example, my point rests less on the complexity of the products but the awareness and understanding without having to go on to investopedia
"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper
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Sep 7, 2013 - 10:40am

I used simple examples cuz I'm only familiar with level 1, I do think your point has merit and we can agree on there being some intrinsic value in knowing what other market participants have been taught.

Sep 7, 2013 - 12:00pm

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