Stretching Accounts Payables

"Stretching" Accounts Payables (i.e. paying accounts payables past the due date without remitting the penalty, or paying after the discount period has expired but still taking the discount) is a common way that some firms gain cheap financing. However, a firm can only get away with it if they have an imbalance of power between them and the vendor. Here are a few Dilbert cartoons that illustrate the basic idea almost perfectly:



Unfortunately, unless you're a Wal-Mart (notorious for abusing their vendors), the flyswatter eventually ends up in the vendors' hands. So, "free" isn't always "free".

If a textbook vendor was smart, they'd just use Scott Adams for most of their illustrations.

How Do They Determine A Passing Score on The CFA Exams?

Since the CFA June exams are now done, there's a lot of concern as to how CFAI determines a passing score. So, here's a breakdown for Levels 1 and 2:

In the past CFAI used a strictly numeric method of calculating the pass rate - they'd take 70% of the 95th percentile score. So, back in the day, the minimum passing score would be no greater than 70%, and would typically be even less.

Now, their scoring system has a significant subjective component to it. Here's how it works: CFA Institute brings a number of charterholders that they call "Standard Setters" to Charlotte sometime in June. These people then discuss what they think a "minimally qualified" candidate should know (for L1 and L2). CFAI is pretty opaque as to what this actually means, but my understanding is that they look at the exams and come up with "the score".

They refer to what's know as the "Angoff method". If they apply this method in its strictest sense, this would involve each standard setter examining each question and making a subjective determination as to what percentage of well-qualified candidates would answer correctly on the question. For each question, the standard-setters percentages are averaged to get a percentage for that question. The individual question-percentages are then summed to get the passing score (in terms of number of correct answers needed).

So theoretically, the minimum passing score could be above 70%. But according to the scuttlebut on analyst forum, the minimum has likely been below 70% in each year. So, my gut reaction is that a 70% would get it done, and even slightly less.

But that's just a guess on my part.

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Let The Second-Guessing Of The CFA Exam Begin!

One of the frustrating parts of taking the CFA exam is that there's between a 6 and 8 week (depending on which level you took) lag from the time you took the exam to the time you get results. So, there's a lot of time for second-guessing, wild mood swings, and so on. Several of my students and I took the exam at the same test center, and we all shot the breeze over lunch. They were all pretty confident after the morning session. I've already talked to one of them this week (yesterday), and he said that right after the exam, he felt pretty good overall.

Now today, he said he's started the second-guessing. I warned my guys about this, but it's still hard to avoid.

I'm a regular reader of (and sometimes contributor to ) AnalystForum. It seems like the same thing is going on there in the Level 2 forum. It's understandable, since the group there is a pretty open one, with a lot of participation (damn! - I wish I could get a bunch like that in MY classes).

But relax, all. What's done is done, and we'll know the results when we know. If we make it, there'll be plenty of time to start studying for the next level. If not, we'll have plenty of time to start plugging the holes in the current one that we'll have to retake.

But it's still hard to wait.

Ah well. In addition to the exam, I also got two rejections this week. Now I have to patch them up and ship them back out so I can stay compliant with Mungo's Rule (see #5-b). And there's more data to torture for new projects.

To the Bat Cave, Robin!

How to Get a Good Job - Early Advice For Finance Majors

Since I run Unknown University's student-managed investment fund, I get to know a lot of our brightest students - they often come with GPAs well north of 3.50. Many of them hop to eventually work in the investment management industry, either as an analyst, for a hedge fund, as a trader, etc....

Unfortunately, they often have a hard time because A) there's a lot of competition for those jobs (particularly now), and B) Unknown University is not a school that top firms typically recruit from (we're not Ivy League, or even close).

So, I thought I'd put together some tidbits I've found on how to get that plum job - whether on Wall Street or in Corporate America (where most graduates end up). The key is (to borrow a phrase from The Seven Habits of Highly Effective People) to Begin With The End In Mind. So, let's look at the sort of things you'd want to have

• Good Grades
• Take hard courses - Accounting/Finance
• Know Your Professors - one or two a semester
• Build your reputation
  
• Have experience (summer jobs/internships
• Get your contacts
• Family & friends
• Alumni - get a mentor
• Don't depend on your placement office
• Know "the deal" - research your job and your company
• Read their annual report
• Vault.com
  
• Read the WSJ - become versed in the language of business.
  
• 
  

Popular posts: CFA, Academia, Graduate School,

How about some things for the undergrads?

networking
Work Backwards

• What's the job
• What does it require
• does it fit you
• what will your resume need to look like
• How can you find an entre
  

get a mentor
clubs
know your profs
know your dean
do something for the college - advisory board
be a boy scout - trustworthy, loyal, etc...
get good grades and a good reputation

Back In The Research Saddle Again

What a relief to have the CFA exam behind me. So far today, I've worked on two projects and talked with two coauthors. They should make for interesting projects - both are using existing data in entirely new settings, and both seem to have the potential for ending up in good quality journals.

One project is with a former grad school classmate that I've wanted to do a paper with since we graduated. On this one, I get to play "data monkey" (it involves a LOT of data manipulation, and he'll be responsible for the initial writeup. On the other project, I get to use some stuff I worked on several years ago that never went anywhere, but with a new data set. The paper is with a new coauthor that I met at a recent conference. In this one, I'll end up doing some data work on the front end, and will probably end up doing more of the writing.

I have high hopes for both projects. They're both "core" finance (dividend policy and bankruptcy), but both papers approach the issues in what I think are novel ways. And to make it more fun, I get to work with two new data sets, and with two new coauthors. I'll have to be careful not to say too much more, since both are regular readers of the blog.

So, as far as I'm concerned, the summer research season is now officially open. So, as Elmer Fudd would say, "Be vewwy vewwy qwiet. I'm hunting data."

Time to close up shop for the day and go on a bike ride. Either that, or rent advertising space on my overly large posterior.

Last Minute Fun With The CFA Exam

T'was the night before the CFA exam, and of course the Unknown Son starts complaining loudly of severe stomach pains. Of course, this ended all possibility of any last-minute reviewing. He started vomiting repeatedly, and ended up sleeping in our bed with the Unknown Wife, and I went to the guest bedroom (no way I'd get to sleep with a sick kid in the bed).

I got up early the next morning and went to the exam. Just before heading in, I called home to find out that unknown Son was on his way to the hospital. He was admitted in the morning after tests revealed elevated liver enzymes, which typically indicates some kind of viral thingy in the liver.

Despite concerns in the back of my mind about Unknown Son, the morning session of the exam went surprisingly well - or at least I thought so. The afternoon session, on the other hand, was a different story. The best way to describe it is "They didn't call, they didn't send flowers, and they didn't respect me in the morning." So, I have no clue if I made it over the hump or not.

Ah well, done is done. I headed home, changed, and went to the hospital to relieve U.W. and sleep overnight in Unknown Son's room. At least, I slept from 12 until about 6 - he was more interested in reading me sections of his latest book selection (Diary of A Wimpy Kid). His liver results were more normal today, so he got discharged this afternoon, with follow-up tests for later in the week.

With this behind me, I'm eager to put the books down and get back to research tomorrow. For tonight, it's SLEEP (I already took at two-hour nap this afternoon, and should get a good 10-12 hours in).

Forecast For Blogging: Light

Blogging will be light for the next two days - the CFA L2 exam is all day tomorrow. I'm doing my final reviews today, and will probably go out and see Iron Man tonight with the Unknown Wife to relax (and yes, we'll ditch the kids first).

Another Few CFA Test Taking Tips

It's a time for a break from studying. So, here area few more CFA test-taking tips:

1. Accept the facts as a given - In other words, you might think the scenario given in the question is far-fetched or even incorrect. No matter - assume it's true, and work from there.
2. Read Carefully! - in particular, watch for negatives and double-negatives. Make sure you pick up words like "least", "most", etc... In fact, you might want to underline them.
   
3. If you work out of order, make sure you fill in the correct bubbles. If you mess up (even if you catch it later), it could cost you a lot of time to fix.
4. Read ALL the answer choices - in particular for questions that ask for the "most" or "least" correct. Don't stop at the first seemingly correct one.
   
5. Rephrase the question - sometimes there can be complicated phrasing (see #2 above).
   
6. Underline the relevant facts
7. Try to answer the question in your own mind before reading the answer choices.

As far as what's the best order in which to answer questions, there are a couple of schools of thought. In my opinion, it's best to start with a section you're most comfortable with. That way, you'll build your confidence and "bank" some points." But if you take this approach, keep these points in mind:

1. Try not to start with ethics - the questions can be lengthy, and can suck up a lot of time.
2. If you do start out of order, make sure you enter your answers in the correct parts of the answer sheet (see # 3 above). Doing your "most comfortable" section first makes sense. But I'd recommend against doing the whole exam in this way -- if you do, it's all too easy to get confused. So, it might make more sense to do only one or (at most) two "strong" areas and then just work the rest of the exam in order.
3. Some questions can be real time-wasters (like multistage stock valuation ones). If you're pressed for time, mark these and go back later. A real "time waster" can suck up the same amount of time that it would take to tackle 2-3 easier ones.
   
4. Check your answers when you're done.
5. Don't change an answer unless you have a good reason.
6. Don't panic if you hit a string of hard questions. There are a total of 240 questions on the Level 1 exam and 120 on Level 2. Although CFA Institute is not very clear about the level needed to pass, a 70% should be plenty (and as low as a 65 or so might do it, but that's just a guess on my part with no empirical support). So, keep moving, and don't panic.
   
7. Finally, plan on checking yourself at the 90 minute mark to see how your progress is and check once again with a half-hour left to make sure you haven't left things blank, put answers in the wrong spaces, etc...

Good luck, and keep studying.

Meetings Stink

The semester is over, but the meetings continue (and continue, and continue). I love it how an ineffective chair of a committee can turn 10 minutes of information into a 45 minute snoozefest. Since a picture beats a long explanation, here's one that sums it all up:



And here's one to give to the chair of whatever committee you sit in case they don't know meeting protocol:


Note: both are from Graphjam

Today's CFA Exam Tip

As I continue to grind through the CFA Level 2 material, I'm struck by the number of questions that use a "Which of the following statements is the least true ..." format.

Here's a tip to minimize the chance that you'll misread these types of questions: cross out the "least true " and write in ""Which of the following statements is "FALSE"".