Author Archives: CFAMNEB

Societies 2.0: CFA Institute Delivers More Than Just Exam Results

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By: Tom Crandall, CFA, CAIA and Kate Lyons, CFA – CFA Society Minnesota Board Members

Intrigued? You should be!

Recently, the CFA Institute hosted delegates from societies around the globe to share details on the progress around their latest initiative, Societies 2.0.  Representing the CFA MN Society, Board Members Tom Crandall and Kate Lyons joined Executive Director Mark Salter in Vancouver to learn more about this initiative and how it will add value to our members.

As the name implies, Societies 2.0 is the Institute focusing on societies in a different way than the it has before.  Recognizing societies are experts in their own market and understand their members best, the Institute is looking to support the societies in all their different and unique initiatives by promoting the highest standards in ethics, education, and professional excellence.  In turn, this partnership will transform the society/institute relationship into a professional body rather than a group of test-passers.

We’ve outlined the three objectives that the Institute will focus on –

  • To develop future professionals through relevant and accessible credentialing programs, high

standards of entry and professionalism

  • To deliver member value that accelerates the professional success of our members and that

continues to develop educated, ethical members at the top of their profession

  • To build market integrity that benefits investors and our members that serve them

So what does this mean for you?

The CFA Institute has committed both financial and human capital resources in order to support the initiative.  A key element to the success of this initiative is to reduce the volunteer burden and increase operational consistencies at the society level. Beginning this year, the societies will begin to receive increased funding that can be used to reinvest in the society infrastructure.  Externally, the Institute is proactively advocating by engaging policy makers and regulators through leadership projects aimed at influencing perspectives. Actively engaging on industry shaping discussion such as Uniform Fiduciary Duty and capital markets issues such as fintech regulation, the Institute is finding a seat at the table and better able to represent societies and Charterholders as a whole.

The CFA Society of Minnesota is a society that is well known for our programs, innovation, and engaged members.  Sure, we already knew that but our strong midwestern sensibilities keep us from really acknowledging this fact, out loud (being transplants, we feel no uneasiness in highlighting!).  We believe that the society is in an excellent position to benefit from this new initiative and provide new value and better experiences for our members.

We are excited to explore what these new relationships mean to our local society and how we can leverage these additional resources from the Institute.  Should the Compensation Survey be a national effort?  How can we better engage with our Federal Reserve Bank?  What type of professional education/career development do our members want? Is there a way we can give back to our community? These are just some of the questions that can be considered and we are looking for your voice in the discussion.  Keep an eye out in coming weeks for additional information and a special request for your thoughts and interests!

Day in the Life of An Equity Analyst Event Recap

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By John C. Bird, Operations Analyst at Nuveen Asset Management and CFA Level II Candidate

Day in the Life: Equity Analyst, featuring Andrew Rem, CFA and Paul Dwyer, CFA

Day in the Life featuring Andrew Rem, CFA and Paul Dwyer, CFA

Interested in pursuing one of the investment world’s most exciting careers? On September 21st, a group of professionals and students listened to Andrew Rem, CFA and Paul Dwyer, CFA talk about their experience as Equity Analysts. Over the course of lunch, our speakers shared with us their backgrounds, what they do on a daily basis, important lessons they’ve learned, and even some tips on breaking into this extremely sought-after career.

Background

Our speakers: Andrew Rem, CFA and Portfolio Manager of Small Cap Value Fund at Nuveen Asset Management, and Paul Dwyer, CFA and Senior Research Analyst at Punch & Associates, did not start out life knowing they wanted to be Equity Analysts. Andrew spent some time in Retail management, while Paul did a stint in Investment Banking before finding their passion in Equity research and analysis. Both men have found they are value-oriented in their investment approach, and that they prefer small and (in Paul’s case) microcap companies when looking for investment opportunities. With Nuveen being part of TIAA, a multi-billion dollar financial services company, and Punch being a 15-person, employee-owned, RIA, with ~$1 billion under management, you could say Andrew and Paul work in opposite ends of the spectrum when it comes to firm size and organizational structure. However, Andrew and Paul cautioned their young listeners not to be picky when trying to break into the industry. “Just get a job with a firm, large or small, and develop your craft first. Once you are in the ecosystem, then you can worry about firm size, investment style, and the like.”

Tasks of an Equity Analyst

It presents a unique challenge when summarizing a “typical day” in the life of an Equity Analyst, because no two days are the same. However, our speakers were able to broadly summarize an analyst’s duties in the following categories:

  • Research at the Office
    • Includes reading, financial modelling, making / talking to industry contacts, Peer / Competitor reviews, Management calls
  • Travelling
    • Includes Industry / Investment conferences, field trips to companies, and Investor days
  • Activities around Earnings Season
    • Includes listening to Quarterly/Annual calls, updating models / forecasts, reporting on company given updated information

While all this might sound fun, it is important to remember that being an Equity Analyst is not a “9-5” job, and with little oversight from supervisors, one must be a self-starter, highly motivated, and interested in the work to succeed. The best Equity Analysts have a process.

Investment Process

Our speakers stressed the importance of having a repeatable Investment Process. “Focus on creating and then improving your process,” Paul encouraged the audience. “A good process will yield good results over time, while no process is no better than gambling.”

The speakers went on to describe the typical process in researching investments will often have the following steps:

Source -> Research -> Pitch -> Decide -> Monitor -> Close

Andrew recommended having an independent view and being skeptical of the “consensus” when analyzing and forming an opinion on an investment. “It’s only by doing something different, and zigging when the market zags, that one can expect to outperform over the long term.”

Food for Thought

Not surprisingly, given the exciting, intellectually stimulating, and often financially rewarding nature of the work, it is very competitive to break into and analyst positions don’t open up very frequently. Our speakers shared some of their recommendations on breaking in. These included:

  • Study for and obtain your CFA Charter
  • Be active in the stock market. Manage your own portfolio of investments and have a reason for why you own what you own.
  • Get to know your local investment community. Be active in the CFA Society of MN and in your Investment Club on campus (if applicable)
  • Demonstrate an interest and a passion for investing. This is a tough business and only a genuine love for the trade will get you through the tough stretches.
  • Attach an Investment write-up to your resume and cover letter when you go to apply for an open role. Even if you are wrong about the investment, this will demonstrate you are thinking about your investment decisions and will help you stand out in an interview.
  • Follow professional investors, read books and articles on investing, ask to shadow professional investors, and be persistent! The journey is part of the fun!

A special thanks to Andrew, Paul, and all the members of the CFA Society of Minnesota that make events like this one possible. Now it’s time to get out there and invest! Cheers! Be sure to check out upcoming Day in the Life events on our events calendar.

Thinking Backwards with Philip Mudd Event Recap

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By Chris May, CFA, Society Vice President

“Where is Osama bin Laden?” was the most common question the intelligence community was asked in the decade following the attacks of September 11th, 2001. Philip Mudd was near the heart of the counterterrorism efforts in his role at the CIA, however, that was not the question that the intelligence community was primarily focused on.

Mudd used this as an example on September 19th, when he presented to a full house at Shindig in Minneapolis. His discussion focused on the aspects of analytic decision making with a lens towards ‘thinking backwards,’ as he calls it. Of primary consequence in thinking backwards is the importance of getting the question right. Mudd implied, rather grimly, that had the CIA focused on bin Laden instead of the more important question of how to protect Americans, the results for our country may have been different.

Beginning with the right question requires the analyst to understand the objective at hand. While this may seem obvious Mudd again used his experience in counter-terrorism to illustrate the point. In the summer of 2002, he was asked to provide President George W. Bush with a briefing. At the conclusion of his briefing, the President asked Mudd, what action he would recommend. At this juncture, Mudd recognized his error. He assumed his job was to update the President on a developing situation with all of the key facts. However, in retrospect, he came to realize that the President needed to understand how to act in accordance with those facts. The real question was – How serious is the threat and what actions should be taken? In light of that, he needed to present a different type of a briefing.

The analyst should present the decision maker, not with key facts, but rather with a ‘decision advantage.’ This is the core of thinking backward. Mudd laid out six steps to thinking backward and related that concept to everyday decision making (such as buying a car or house).

  • Define the objective
  • Determine the right question (typically a “How” question)
  • Determine 6-10 key characteristics (drivers in Mudd’s parlance)
  • Assign metrics
  • Encourage an outside view to identify vulnerabilities
  • Meet regularly and use metrics to drive honest conversation

When done appropriately, thinking backward allows an analyst to appropriately assess a situation and contextualize the relevant information for a decision maker. Mudd believes that this is the key distinction between an expert and an analyst.

For those interested in learning more Philip Mudd authored the 2015 book – The Head Game

Mudd can also be found on YouTube providing a similar talk for those that missed this event:

Books referenced during the discussion:

Thinking, Fast and Slow by Daniel Kahneman

The Gatekeepers: How the White House Chiefs of Staff Define Every Presidency by Chris Whipple

Event Recap: “Strategies for Success: Thriving in the Finance Industry”

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By Nouchie Xiong, an MBA Candidate at the University of St. Thomas Opus College of Business, Class of 2019

On April 16, CFA Society Minnesota hosted a panel discussion with prominent women in the financial services industry. Abbot Downing’s Deputy Chief Investment Officer, Carol Schleif, CFA moderated the event as panelists shared their unique experiences, concerns over the industry’s lack of diversity and career advice to young professionals.

The panelists were:

  • Beth Lilly, CFA – President and Portfolio Manager, Crocus Hill Partners
  • Kate Kelly – Regional President & EVP at PNC Bank
  • Mary Daugherty, CFA – financial educator, consultant and corporate director

The event began with the panelists introducing themselves and providing a brief history about their career journey and family life. The conversation was followed by answering the questions: why is there limited diversity in the financial services industry? What happened? How do we move the needle to thrive?

Beth began with an explanation that the number of women in the industry and their participation declined around 2008. Furthermore, there is a misperception that women must be good at math to succeed in the field when in fact that isn’t always true. Beth confessed she wasn’t the best in math herself but loves and has a real passion for the industry. Citing Peter Lynch, she clarified that working in this industry is 75% artistic and 25% scientific. Professionals in the field draw on a variety of skill sets to inform their research and decision-making. Women are also intuitive and their different perspective can lead them to see things that male colleagues might miss. There is also the false perception that work-life balance is impossible due to long hours. The reality however is that not everything is dictated by investment banking hours. In fact, there is flexibility as long as you’ve proven yourself. The onus is on companies to allow for this flexibility to support women who want a family or to care for their aging parents.

Kate added that participation from women on corporate boards has also flattened. Women need to participate in these roles because having more representation can influence culture and shift organizational dynamics long-term to be more inclusive. Carol elaborated on Kelly’s point with supplemental data: women as board members contribute to 42% increase in sales, 66% increase in capital, and 53% increase in equity. Ultimately, women contribute to profitability and sound business practices.

Mary also shared three theories of her own. One, women and minorities don’t major in something that doesn’t make money or get them a job. They tend to go into accounting and some find out that it’s a poor fit. However, when they are trying to switch careers they come up against companies that tend to hire people who follow a more traditional path into finance. Companies need to think differently if they want quality talent. Two, the STEM fields have done a good job attracting talent at an early stage and parents love STEM too. As a result, these young women opt out by the time college rolls around. Finance needs to do a better job in attracting talent early. Three, the lack of women colleagues in the male-dominated industry allows for the “macho effect” pushing away potential candidates. There are so many battles that women in the industry must decide whether to take on, take offline, or not pursue at all. An environment like this is not conducive to promoting inclusivity or equality.

Following the Q&A, the event concluded with the panelists imparting lessons learned and career advice.

Carol started by telling everyone to be bold, be strident, and put a stake in the ground. Most importantly, try not to overthink and make sure to read The Confidence Code. Beth talked about how she wished she had spent more time emotionally to develop a stronger self-esteem and encouraged everyone to work on themselves. Everyone should believe that they deserve to be where they want to be. Kate inspired everyone to think about pursing infinite desire rather than perfectionism. Mary concluded that learning to admit mistakes is also important to becoming a better decision-maker.

UMD Shines on the Big Stage

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University of Minnesota Duluth seniors Ryan Woitalla, Reed Leonidas, Nawal Mirza, Frank Takkinen and Ryan Kimbrel earned an opportunity of a lifetime last month by winning one of the two sub-regions of the CFA Institute Research Challenge – Americas competition on March 19-20. The team, all members of UMD’s Financial Markets Program, are led by program director Joe Artim.

After winning the Upper Midwest local competition in Minneapolis in February, the UMD team advanced to the CFA Institute’s version of March Madness, which brought 54 teams and more than 250 students to Boston from countries such as Argentina, Brazil, Chile, Peru, Colombia, Mexico, Barbados, Dominican Republic, and Canada.

The Americas Regional clearly demonstrated to be a very challenging and demanding competition. Every team in Boston advanced out of local competitions collectively besting hundreds of other teams. In speaking with one of the finals judges, it was evident that the margin of victory between teams was very small. Additionally, a 10 minute presentation with 10 minute Q&A certainly leads to a lot of information to communicate and a lot of information for the judges to evaluate. A premium had to be placed favoring those teams that were clear in their recommendation while weaving together facts to support it.

March 20 seemed to be an anxiously long day for the five UMD students who presented their investment recommendation on their subject company Fastenal first in the morning semi-final session before advancing out of the five team pool to the evening finals round. By the time the finals took place that evening, the 54-team field was down to just five for each of the two sub-regions.

On the big stage with the bright lights, the UMD team shined not only in their extensive presentation but perhaps most importantly in the Q&A segment of their “buy” recommendation. My sense was that UMD prevailed not by focusing solely on the 10 minutes of prepared presentation but by spending six months truly grasping a deep knowledge of the company and conducting the proprietary research necessary to excel in the pivotal and unpredictable Q&A.

Faced with advanced questions on the company’s inventory turnover, product mix evolution and future in the face of a growing e-commerce threat, the team seemed to stay in stride. Further, questions on insider trading and short interest could have been easy to overlook or misinterpret.

They now head to Kuala Lumpur, Malaysia for the Global competition on April 27.  Just five teams will compete at this level: two from the Americas Regionals, two from the EMEA Regionals, and one from the Asia Pacific Regionals. It will be a couple more weeks of following the tick-by-tick of FAST for the five students who showed the drive, knowledge and teamwork to continue to break new ground for UMD.

 

Christopher Young, CFA is a Senior Investment Manager for Wells Fargo Wealth Management and a volunteer for our local Research Challenge competition. He traveled to Boston for last month’s Americas Regional and wrote this first-person account of UMD’s success.