Monthly Archives: May 2012

Final Preparations for the GMAT/CFA

About five months ago I decided to do what I thought was a foolish thing to do: take the GMAT and CFA  back to back. Five months later, I can confirm that that was a stupid mistake. It’s kind of like saying I figured out that the stove is hot after touching it. One’s brain has only so much capacity and there isn’t much overlap between both tests besides elementary statistics, and the GMAT doesn’t even have that much if any.

Anyways, as we enter the home stretch, I just want to rehash what to do and more importantly, what not to do during the last week. The most important fact for both tests is that the studying should be done by now. Cramming at this point can only have minimal success, unless you go to a week-long boot camp or something.

For the GMAT, the four things that you could improve is:

1) Fundamentals: Right triangles, inscribed angles, things that you will forget after you take the GMAT because nobody uses it in real life

2) GMAT-specific strategy: No other tests have data sufficiency type questions

3) Anxiety: GMAT is the only computer adaptive test that I know of – which means if you are doing well, you should be feeling pretty bad as the questions get harder

4) Dealing with complexity: Take simple tasks/questions and obfuscate them with words. How else are you going to make simple algebra and grammar challenging?

For the CFA, I recommend you just taking the mock exam and studying every question you get wrong. What I noticed is that every question I got wrong on this mock exam was the same type of question I got wrong on the last CFA exam, which means I didn’t focus on my weak areas.

I would continue to do practice questions for both exam up until the test day, similar to warming up your body before a marathon, you can still run a little a few days before.

Good luck everyone…

42 Days of Trading and Potty Training Success

I don’t know why it never occurred to me but a great way to study for the CFA (or learn about finance) is to just start trading. Reading financial statements in the CFA textbook really puts me to sleep, but I start to care about actual financial statements when my money is on the line. My whole spreadsheet is too wide to paste here, but I have another column that converts holding period return into effective annual rate. This is important so you can compare apples to apples, as you could have a 1-day holding period return that is the same as a 10-year holding period return. This is a rather simple topic in the QM section of the CFA which I always forget…but not anymore.

As you can see, most of my gains have been from options and unsurprisingly, I have scored pretty high on the derivatives section as I read through the CFA materials. Two other important columns I have are my thoughts going into the trade and lessons learned getting out of the trade. I was pretty brutally honest with myself and I think it has been helping me maintain discipline through all of this. I never think I’m God’s gift to trading, most of this is probably beginner’s luck. For 42 days of trading, I have made $5,392.58 (off of an initial investment of $10,000) with an annual rate of return of 15,693,016,289,017,900,000,000,000,000%. This number will obviously go down as I take more losses and when I start business school, I won’t have this much time to read news and trade during the day.

If I’m still this successful 3 months in, 6 months in, and beyond, I might consider a career in sales and trading. Good news is that I just got a mentor who works as a Managing Director in Equities Trading at an investment bank through the American Corporate Partners (ACP) program, which I spoke about before. They setup veterans with mid to senior level executives in industries that veterans might be interested in. I’ll be sure to pick his brain about this topic as well.

In other news, my daughter is officially potty trained- I’m pretty damn excited about that.

Trade # Open Price Quantity Original Open Date Security Sell Price Close Date Gain/Loss HPR
1 $1.15 20.00 $2,340.00 4/3/2012 PUT GROUPON INC CL A $10 EXP 10/20/12 $2.20 4/17/2012 2019.9 86.32%
2 $0.50 20.00 $1,040.00 4/10/2012 PUT ZYNGA INC $8 EXP 09/22/12 $0.85 4/18/2012 619.96 59.61%
3 $17.81 150.00 $2,678.50 4/17/2012 VXX $18.25 5/14/2012 $51.93 1.94%
4 $0.95 20.00 $1,940.00 4/18/2012 PUT BEST BUY COMPANY $18 EXP 09/22/12 $1.15 5/7/2012 319.94 16.49%
5 $0.95 20.00 $1,940.00 4/19/2012 PUT RESEARCH IN MOTION $10 EXP 12/22/12LTD $1.25 5/3/2012 519.94 26.80%
6 $0.40 40.00 $1,640.00 4/26/2012 CALL GROUPON INC CL A $17 EXP 07/21/12 $0.40 5/14/2012 -$100.04 -6.10%
7 $1.00 20.00 $2,040.00 4/26/2012 PUT AOL INC $20 EXP 01/19/13 $1.30 5/7/2012 519.94 25.49%
8 $10.75 100.00 $1,082.00 5/2/2012 GRPN $14.89 5/14/2012 $403.50 37.29%
9 $8.90 100.00 $897.00 5/2/2012 ZNGA        
10 $13.50 100.00 $1,357.00 5/3/2012 KKR        
11 $7.92 100.00 $798.79 5/3/2012 BAC        
12 $10.21 100.00 $1,027.86 5/8/2012 GRPN $14.89 5/14/2012 $457.64 44.52%
13 $8.04 100.00 $810.55 5/8/2012 ZNGA        
14 $1.10 20.00 $2,240.00 5/9/2012 PUT AOL INC $22 EXP 01/19/13 $1.35 5/10/2012 $419.93 18.75%
15 $1.13 20.00 $2,300.00 5/11/2012 PUT BEST BUY COMPANY $15 EXP 01/19/13 $1.25 5/14/2012 $159.94 6.95%
16 $0.74 20.00 $1,520.00 5/14/2012 MSFT 130119 C 35.00        
17 $7.45 400.00 $2,987.00 5/14/2012 BAC        
18 $0.46 40.00 $1,895.00 5/14/2012 YHOO 130119 C 20.00        
19 $0.41 5.00 $225.00 5/14/2012 BAC 121117 P 6.00        

Citi Launches “Citi Salutes” Initiative

Financial services firms have a special relationship with veterans as they represent not only a measurable customer base but they are employees as well. The Citi Salutes website is very well designed and addresses veterans as customers as well as future employees. It is a good sign of the evolution of veteran hiring as well as the individualization of firms trying to attract veteran talent. Citi was one of five banks that sponsors Veterans on Wall Street (VOWS), which launched in June 2011. For my earlier post on “The Evolution of the Relationship between Military Veterans and the Finance Industry from 2011-2012,” click here. Citi plans to hire 1,000 vets in 2012, probably mostly in retail banking.

 

Link to more news about Citi Salutes.

J.P. Morgan MBA Early Advantage Application is Up (May 1 – June 1)

Click here for the website and here for the application.

From their site:

Overview

It’s never too soon to raise your career profile. This summer, we’re offering exceptional students who are about to start their MBA the opportunity to spend two eventful days with J.P. Morgan’s Investment Bank. If you are interested in a career in investment banking, this is a great opportunity to build your network, enhance your skills and learn more about the programs we offer for MBA students. This program is open to Black, Hispanic, Native American, female, LGBT, military and veteran incoming MBA students.

In the summer of 2012, you’ll have the opportunity to meet our senior leaders and network with some of the most influential people in our industry. You’ll fine-tune your technical skills with training sessions dedicated to corporate finance. And, you’ll benefit from innovative personal branding and leadership training.

MBA Early Advantage helps position candidates for spots in our pre-internship programs. Learn more about these programs – Winning WomenLaunching Leaders and Proud to Be – and how they can put you on the fast track to a summer internship.

Who’s eligible?

The J.P. Morgan MBA Early Advantage program is open to Black, Hispanic, Native American, female, LGBT, military and veteran students from all professional backgrounds who are starting their first semester of a full-time, two-year MBA program in Fall 2012.

How to apply?

Applications are open from May 1, 2012 to June 1, 2012.

Don’t Try to Be Great

I recently read a fantastic op-ed at WSJ titled, “10 Things Your Commencement Speaker Won’t Tell You,” and it was item # 10 that really reflected a theme that I’ve been trying to beat into the heads of transitioning junior military officers (JMOs) for a while now:

“10. Don’t try to be great. Being great involves luck and other circumstances beyond your control. The less you think about being great, the more likely it is to happen. And if it doesn’t, there is absolutely nothing wrong with being solid.”

This is a great point especially for transitioning JMOs because your platoon leader or company command time in combat was great. It is easy to think that because you have done something great, you will continue to do great things. Let me take a second to define great. When I talk to JMOs, a 20-year career at a Fortune 100 company isn’t considered “great.” There is almost a delusional sense that any JMO can become the CEO of any Fortune 100 company, be the next Steve Jobs, or go win a Pulitzer/Nobel prize within the next 5-10 years. I’ve been trying to beat that out of my friends’ minds, but now I think I have the statistical tools to do so: probability and standard deviation:

Probability: When the weatherman says there is a 50% chance of rain tomorrow, it doesn’t mean that there is a 50% chance that it will rain tomorrow. It means that out of 100 days with similar atmospheric conditions as tomorrow, it will rain 50 days out of 100. So if I said, if you give me $1 million dollars (and that is all the money you have), there is a 70% chance that you will make $1 million dollars off of that and 30% chance of losing everything, that isn’t necessarily a good deal for you, because you could be a millionaire today, but tomorrow you don’t have anything to support your family with. If you look at probability in this light, it should make you more risk averse. The Black Swan talks about this, although this isn’t the central theme to the book.

Standard Deviation: To modify that a little bit for more realistic applications, let’s take the GMAT as an example. What does it mean to do “great” on the GMAT? Does it mean 800? 700? 750? And how are you going to prepare for that score? Are you going to study 1,000 hours? No, why would you? Your approach to the GMAT should be the same as the weather. I’ve put in x amount of hours (most recommend 100 hours), and out of 100 tests, I would usually get 680-720 on the practice exams (although practice exams aren’t a good indicator of actual GMAT score, it is an indication). So if you get a 680, I wouldn’t say you did very poorly and if you got a 720, I would say run with it.  Standard deviation measures how much variation exists from the mean. The better you get at the GMAT, the more you lower your standard deviation. If you can consistently get a 695-705, that is better than a 690-710, which is better than 680-720.

Hard work can lower your standard deviation of success in life, but you will always end up with a range. Nobody ever gets a specific score consistently on anything, i.e. getting a 700 on 20 attempts at the GMAT. Luck and other circumstances will make you a 680, a 720, or anything in between. So JMOs should stop worrying about the end goal – 720 (or 800 for my ambitious friends), and look at what they really want to get out of their next job, or their long term career.

Each job pays you in two currencies: US Dollars and Experience. Everyone needs money, but make sure you get some worthwhile experience as well. When you look back at your life 20 years later, you should feel comfortable being a 680 or a 720 because that is what you have built your life around. Luck might take you to 800 (Steve Jobs success level) or 600 (Mediocre level: stuck in middle management at a Fortune 100 company).

This is obviously much easier said than done and I struggle with this as well, but I think taking this approach to life is at the minimum, more fun and less pressurized.

 

The Acquisition and Use of Power (Updated)

Update: Robert Caro’s fourth book about Lyndon Johnson is finally out, I just received an Amazon saying that my pre-ordered book has shipped. You know it’s got to be a badass book when a former President of the United States of America writes a book review about it, like President Bill Clinton just did for the New York Times. In case that wasn’t enough to convince you, here is another review. I’m tempted to pause reading the second book of the three book triology of Theodore Roosevelt to read about LBJ instead. The first three books established how LBJ acquired and used power, but this fourth book will demonstrate the ultimate use of power when he becomes the most powerful man in the world. Robert Caro, “The Passage of Power: The Years of Lyndon Johnson, Volume 4).”

 

Previous Post:

It has taken me almost a year, but I have finished Robert Caro’s four remarkable books: The Power Broker: Robert Moses and the Fall of New YorkThe Path to Power (The Years of Lyndon Johnson, Volume 1)Means of Ascent (The Years of Lyndon Johnson, Volume 2), and Master Of The Senate (The Years of Lyndon Johnson, Volume 3). Mr. Caro has said that he will publish a fourth and fifth volume about Lyndon Johnson and I’ve pre-ordered the fourth volume which is coming out soon: The Passage of Power: The Years of Lyndon Johnson, Volume 4).

 

I’ve noticed remarkable similarities about how Robert Moses and Lyndon Johnson acquired and used power. They are both masters of manipulation that had a loyal band of followers who were tied to their “boss” financially and psychologically. Both men were very complex individuals who were practical in achieving power and once they had it, on balance, used that power to achieve good. One often hears the phrase, “Power corrupts,” but Mr. Caro states that a more accurate phrase is, “Power reveals.” There are also differences between the two: Moses did not acquire power through being elected, yet he molded New York City and New York State to his will. On the other hand, Johnson has been acquiring power through his elected positions when he was elected as a U.S. Congressman from Texas, when he was only 28 years old. I’m not erudite enough to provide a glowing review on these books, thousands have already been written, I encourage you to check out reviews on Amazon or elsewhere if you aren’t convinced yet.