14 September 2011 with no comments
Reading a newspaper is probably more of a signalling mechanism than an actual expression of interest and curiosity about what’s happening in the world. By publicly reading a newspaper, you signal a certain intellectual sophistication and declare yourself as part of a cultural and political group, depending on the paper you’re reading. If you really cared about getting smarter, you’d stop reading daily papers.
Newspapers have an incentive to invent controversies as they have to fill their pages somehow, they don’t differentiate between what’s really important and what’s just noise clearly enough – the pages to fill.. – and they’re necessarily short-sighted as they need to sell a paper daily and today’s news is of no interest tomorrow.
If you do care about getting smarter, the dangers of reading a daily paper are manifold: The more news you read out of daily papers, the more you automatically buy into certain storylines about ‘the truth’, and what you believe to be true is increasingly dependent on how the news is presented to you. There are virtually no newspapers in the world who objectively report just the facts – the economics of the business don’t support facts, they support pandering to pre-existing biases and world-views in order to increase sales. And that’s before even considering that no one is able to discertain the true historical importance of facts within a few hours instead of weeks or months. The more daily noise you try to remember, the less capacity you have for acknowledging the really important undercurrents of our times.
Also, you tend to overestimate the importance of certain news pieces just because they get reported a lot and you tend to underestimate the importance of other news that doesn’t get much play in mainstream media. A recent case in point: the
problems e.g. BNP Paribas is having. While Greece is all over the news, the (liquidity) problems French banks are having get vastly underrepresented in mainstream media while having a potentially catastrophic short- to medium-term impact on the financial markets and not being that far-fetched. French banks own $ 57 billion of Greek sovereign and private debt, more than all German and British banks combined. So you just might think that liquidity problems for a few of them might get more play in the news instead of the umpteenth story of politicans bickering about Greece.
While we’re on the topic of Greece: The business of reporting the news is necessarily so short-sighted – else why would you buy a daily instead of a monthly paper? -, it’s actually dangerous. During the last days (here in Germany at least), lots of front-page stories have been ‘debating’ (oh, the signaling value of being critical of political leaders, it makes your readers feel superior) whether or not Greece can ever be allowed to undergo whatever form of insolvency proceeding or even a debt restructuring.
The markets meanwhile, having actually thought about the liquidity and solvency of the Greek state, have rendered a verdict that couldn’t be clearer: “
Everyone’s pricing in a pretty near-term default and I think it’ll be a hard event“. Not to say that markets don’t ever fall prey to irrational behavior. But it’s just intellectually dishonest to ‘report’ about politicians debating whether or not to restructure Greek debt if it’s a sure thing that Greek has to default in some way or another on at least part of its debt.
If you can’t trust (daily) newspapers as they’re just not helpful how can you satisfy your information needs?
- Find sources you trust (the most) and consciously account for their biases – a glaringly obvious example: don’t read Krugman in the New York Times and think he doesn’t have a worldview to sell. Differentiate between reporting mostly facts (e.g. Bloomberg) vs. ‘news’ as (political) entertainment (e.g. Krugman, also nearly every daily paper). Place emphasis on sources that often openly declare their views if relevant (e.g. The Economist).
- Don’t buy into explanations of why things happened; reporters have mostly no clue either, it’s often just conjecture - just try to absorb the facts and try to make up your own mind (have you ever read ‘explanations’ of why flash crashs happened? It’s hilarious).
- Read a huge variety of sources, so that biases tend to cancel each other out – especially on politically charged topics, you need to get different viewpoints (e.g. read The New Yorker and The Weekly Standard).
- Make use of modern media – there is excellent reporting out there, you just have to find it (e.g. Felix Salmon for financial markets and business reporting), also use aggregators (e.g. Hacker News, Abnormal Returns; Long Form; Metafilter etc.), also read out-of-mainstream sources (the little crazy ones, e.g. Zero Hedge).
- Try an information diet as recommended by Rolf Dobelli or Nicholas Nassim Taleb, find out why it doesn’t work for you, but still improve your reading habits.
23 February 2011 with no comments
There’s a single question every CFA candidate agonizes about: How do I study for the exam in the best and most efficient way?
When I finally decided to register for the CFA (Chartered Financial Analyst) Level I exam this June a few weeks back, I spoke to a few charterholders and read several forum postings (e.g. at analystforum.com) about study methods. What I came to realize is how unsure many candidates are about the best possible way to study.
Although I have yet to sit for the exam, I decided to share a few thoughts based on the CFA learning experiences of others as well as my own experiences learning for my First State Exam as a German lawyer, which basically meant learning full-time for 1,5 years and then being tested on six five-hour exams as well as an oral four-hour exam five months later – the following is meant to be as much of a reminder for myself as a hopefully helpful overview for others.
I. Importance of a regular study routine
The amount of material a CFA candidate is supposed to know for each exam is staggering. It’s not the absolute difficulty of the subject material that gets to people psychologically, it’s the sheer amount of it. There are two important ways to deal with massive amounts of material, the first being a regular study routine.
You just have to have enough time to actually get through it. So start learning regularly. It’s too much material to just cram in a few weeks time prior to the exam. Learn to spread your reading somewhat evenly in the months beforehand.
What you don’t do on a daily basis, you don’t do.
Whatever it takes to motivate yourself, it’s worth it to establish a regular routine – the CFA exam is as much a test of your discpline and stamina as it is of your intellect.
II. Repeating & summarizing
You absolutely will not get the best out of your time spent reading the material if you don’t repeat what you’ve already covered before. Start reading the summaries of the last few readings before you begin a new one. This is the second important way to deal with massive amounts of material.
And it’s probably the most under-appreciated advice. It takes time to repeat and it seems so much easier just to get on with the next chapter. But it hurts your ability to recall the material in the long run.
In order to commit the material at least to a sufficient degree to long-term memory, you need to repeat it. Not once or twice, more like five to six times, with increasing intervening periods. So start reading the EOC summaries of the last few readings before starting a new one. You will thank yourself later for this.
If you want to go the extra-mile, start writing your own summaries of the readings. This helps you in multiple ways: You concentrate on the content of each reading by evaluating what’s important enough to write down; you remember much better later what you’ve written down yourself and you already repeat the material for the first time. Alas, it takes a lot of additional time so it’s not for everyone.
III. Why you need to do questions and mock exams
After you’ve gone through all the material and memorized as much as possible of it, you need to start memorizing it even better – by learning and applying the material in a different context and in the way it actually gets tested on the exam: Start doing questions and, later on, mock exams. It won’t be sufficient to just memorize what you’ve read. You need to be able to apply it to the style of questions the exam presents you with.
Lots of people preach doing this as early as possible. I’d caution that it doesn’t make much sense to do questions if you haven’t yet adequately committed the material to memory. It’s a good combination of learning and repeating as well as doing questions and mock exams that helps the most.
IV. So what does it all come down to?
Besides those general strategies, there are a few more practical tips worth keeping in mind:
1. Realize the differing importance of each book and start learning accordingly:
- Ethics & Quant, Equity & Fixed Income, and FRA together make up 69% of the exam
- Ethics is nearly twice as important as any other subject (as per exam weighting / number of pages)
2. How to Deal with each Reading:
- Review the summaries of the last three readings
- Read the LOS and the summary of the reading to spot main topics
- Read the reading itself and mark the important points, don’t just read
- Solve each EOC question
- Write your own summary of the reading
3. Finish your readings four weeks prior to exam time
4. Start doing questions about four weeks prior to exam time, review subjects you’re least sufficient in
5. Try to actually understand what each formula says, don’t just memorize it
6. As you do ever more questions, read all of your own summaries, the CFAI summaries and re-do each EOC question at least once
Hopefully, this helps you as much as putting it together helped me to figure out how to tame the CFA exam materials.
If you have any questions, feel free to comment or shoot me an email.
