Peep into Investment Banking

For a while now, I am getting gut feeling that I am better suitable for Investment industry then my current profession. To give justification to this thought I searched for more specifics on "investment banking". While hoping around on more information, I arrived at carrier-in-finance and a good 100+ page report(2005) from WetFeet. (ISBN:1582074321)

Following Figure shows bigger picture of the Investment Banking (IB) org. chart.


Corporate Finance
This seems to be one of the most sort after branch of IB. This group is the liaison between Wall Street and its players--money makers and money takers. If the client, generally big corporation or IPO, needs money it will approach corporate finance dept. of a IB. This group will analyze and suggest Debt and/or Equity vehicles to the client. Later CF will also value the fair and salable price of the debt/equity offering. At this juncture 'Sales' devision comes into picture to market and sell debt/equity to institutional investor, mutual fund manager, big investors etc.

Another famous and very demanding area of corporate finance would be M&A group which will propose, negotiate and lock the merger or acquisition among two suitable firms. It is obvious that when M&A talks are in the air, working hours could be crazy and very demanding.

CF group would also offer to analyze corporate client's financial needs and propose better financial strategies.

Sales
As mentioned earlier, Sales group will offer suitable securities (stocks, bonds, derivatives etc) to its clients and making market for its underwriting clients. They ought to maintain healthy relationship with buyers. Sales group in IB, just like any other industry, interact closely with its trade and research devision to discover suitable offering to its clients.

Trading
This is another demanding (after M&A) job in IB. Trading group needs to understand the nerve of the market, and have solid knowledge of specific company, industry and economy. This group will make buy and sell calls of securities and make profit for the firm. They are the market maker. They manage their firm's investment risk.

Research
This is the area of IB which appealed me the most as I could offer few of the key ingredient of a successful equity researcher:-

• Solid understanding of the specific industry segment
• Understanding of the macro Economy
• Detail oriented approach and strong analytical skills
• Communication skills
  
• Quantitative analysis

I could leverage on my hands on experience with technology industry and strong analytical skills developed from current profession. Researcher needs to focus on portfolio of companies in given industry to forecast future earning potential and investment prospects. Researcher would analze economic trend, company's market share, short term and long term performance, strategic position against competitors ,and make investment report on the company. This report would be used by the IB firm and client who has the investment in the company and/or considering investment in the company.

Lately there is great emphasis on segregating (a.k.a. Chinese wall) research and sales devision to offer non-biased investment suggestion to clients. I appreciate its ethical importance.

Some of the significant players in IB are (ordered alphabetically) :-

1. Bank of America Securities
2. Bear Stearns
   
3. Citigroup
4. Credit Suisse and First Boston, | Equity Research (ER)
   
5. Deutsche Bank
6. Goldman Sachs
7. J.P. Morgan Chase & Co.
   
8. Lehman Brothers* | ER
   
9. Merrill Lynch | ER
   
10. Morgan Stanley
11. UBS
    

What is tested on CFA Level-I exam

I had a short stint with CFA Level-I. Though preparation started with very high ambition, the time allocation turned out little premature. CFA Institute recommends 250 hours of study with the expected background/familiarity with the topics.

I spent nearly 280 hours but familiarity was lacking. As a result, just 3 days before the exam I chose to postpone my exam for next opportunity date (June, 2008). Here is the breakdown of topics tested on CFA-I. (most of the links will fail as it will look for path on my laptop)

Functional Area	Weightage	TOPICS		STUDY SESSION	READINGS	Comments/Notes
Ethical and Professional Standards	15%	Ethical and Professional Standards		Study Session 1 (PDF)	1&2 3 4	Code of Ethics and Standards of Professional Conduct “Guidance” for Standards I – VII Introduction to the Global Investment Performance Standards(GIPS®) Global Investment Performance Standards (GIPS®) I Introduction II Provisions of the Global Investment Performance Standards II-0 Fundamentals of Compliance
	12%	Quantitative Analysis		Study Session 2 (PDF)	5 6 7 8	Time-value of money 183-224 Disc. Cash Flow Application 225-250 Stat and market returns 251-328 Probability: 329-368 (376)
				Study Session 3 (PDF)	9, 10 11 12	Com. Prob. Dist: 378-428 Sample & Estimation: 433-460 Hypothesis testing: 465-505 Correlation & Regression: 507-575
	10%	Economics	Micro	Study Session 4 (PDF)	13 14 15 16 17 18 19 20	Elasticity Efficiency and Equity Markets in Action Organizing Production Output and Costs Perfect Competition Monopoly Monopolistic Competition and Oligopoly
			Macro	Study Session 5 (PDF)	21 22 23 24 25 26 27 28	Demand and Supply in Factor Markets Monitoring Cycles, Jobs, and the Price Level Aggregate Supply and Aggregate Demand Money, Banks, and the Federal Reserve Money, Interest, Real GDP, and the Price Level Inflation Fiscal Policy Monetary Policy
			Global	Study Session 6 (PDF)	29 30 31 32	Trading with the World International Finance Foreign Exchange Foreign Exchange Parity Relations
Tools and Inputs	20%	Financial Statement Analysis		Study Session 7 (PDF)	33 34 35 36 37	FS statement caveats cash flow Analysis of Cash Flow account standards
				Study Session 8 (PDF)	38 -39	FS & Ratio analysis EPS and equity.
				Study Session 9 (PDF)	40, 41, 42, 43	Inventories Assets Capitalization Depreciation.
				Study Session 10 (PDF)	44, 45, 46	FS stmt vs Tax stmt; hidden liabilities; leasing
	8%	Corporate Finance / CF		Study Session 11 (PDF)	47 48 49 50 51	Capital Budgeting Cost of Capital Capital Structure and Leverage Dividends and Dividend Policy The Corporate Governance of Listed Companies: A Manual for investors
Portfolio Management	5%	Portfolio Management		Study Session 12 (PDF)	52 53 54	The Asset Allocation Decision (small) An Introduction to Portfolio Management (LONG) An Introduction to Asset Pricing Models (long)
	10%	Analysis of Equity Investments		Study Session 13 (PDF)	55 56 57 58	Organization and Functioning of Securities Markets (small) Security-Market Indexes (small) Efficient Capital Markets (very small) Market Efficiency and Anomalies (very small)
		Analysis of Equity Investment: Industry/Company anal.		Study Session 14 (PDF)	59-60 61 62 63 64	An Introduction to Security Valuation + Industry Analysis (large) Equity: Concepts and Techniques (very small) Company Analysis and Stock Valuation (very small) Technical Analysis (very small) Introduction to Price Multiples (very small)
	12%	Analysis of Fixed Income Investments		Study Session 15 (PDF)	65 66 67 68 69	Features of Debt Securities Risks Associated with Investing in Bonds Overview of Bond Sectors and Instruments Understanding Yield Spreads Monetary Policy in an Environment of Global Financial Markets (very very small)
Asset Evaluation		Fixed Income		Study Session 16 (PDF)	70 71 72	Introduction to the Valuation of Debt Securities Yield Measures, Spot Rates, and Forward Rates Introduction to the Measurement of Interest Rate Risk
	5%	Derivatives		Study Session 17 (PDF)	73 74 75 76 77 78	Derivative Markets and Instruments Forward Markets and Contracts Futures Markets and Contracts Option Markets and Contracts Swap Markets and Contracts Risk Management Applications of Option Strategies
	3%	Alternate Investments		Study Session 18 (PDF)	79	Alternative Investments
Exams	100 %	Sample 32 questions from CFA

Microsoft Money 2007 Deluxe

Performance is harassment and functionality is faulty

I am a seasoned user of "Microsoft Money" since 2001 and used Money-2003, 2004, 2006 and 2007 versions. On the subject of convenience and integration of multiple financial activities, Money (and for that matter even Quicken) does a fantastic job.

However, with 4-5 years of usage of 'Money', my money file has grown to nearly 19MB. Due to the large file size, I am getting pathetic performance which is quite annoying. I have a laptop with 2.4GHz dual core CPU and 1GB RAM, however very basic activity such as looking at monthly report, budget report etc. takes 2-3 minutes to display on the screen ! Even if I retry, it once again hangs for 2-4 minutes. I will be lucky if I could get 'any' operation finished faster then 5 seconds/transaction. The problem isn't with specific version but the way Money is designed to store its information. There were some discussion on improving performance by using money data on Database but Microsoft chose not to invest money on any such design change.

Another annoying thing I observed with Microsoft Money is with every newer release one will get fancier but more BUGGY software. So far I found '2004' release best in the bunch but once you upgrade the version and make new entries it is not feasible to go back to earlier version.

Let me give you an example that will explain the problem. Most common activity a user will have is it to download data from financial institutes. Money will connect to these institutes and get the data. It will turn back in 2-3 minutes with newer data and shows status 'done'. On the "Account List" you will see, for example, 5 new transaction and when you inside this account, there is no new transaction listed ! Reason is, though you got 'done' status data hasn't finished downloading. After 2-3 minutes you will get the data in the account. When you see the transactions, you won't be able to 'accept' them as it is waiting on 'something'! In short, after getting data downloaded from the institute, you won't be able to 'accept' them for nearly 3-4 minutes. I am surprised to find that Microsoft is selling software w/o testing such basic functionality !
NOTE:I noticed above mentioned bug only in 2007 release.

I wish to have a better software for my need w/o losing existing data but Microsoft hasn't offered better (not just newer) version yet. Quicken seems to have similar issues. Quicken doesn't allow any migration facility to use existing Money files under their software. Once again, I can just wish that Microsoft Money 2008 comes with higher performance and basic testing.

If you are a first time user, prefer to compare both Money and Quicken for yourself before locking your data with one of the them. With 'Money', once your file grows larger, performance deteriorate significantly.

One last point-- even with above limitations, I am better off using this software then not having it at all. Here I jotted down major limitations of Money; Microsoft does good job of marketing good points so I won't spare much time on that.

Sony KDL-40V2500 40" Bravia V-Series 1080p LCD HDTV

What a quality product Sony has offered ! Wow !

When I got into the market for HDTV, Sony + LCD was my obvious choice due to best quality experience I have noticed. I found KDL-40V2500 right for me on the aspect of size, price and technology.

With free shipping, the TV arrived in my town in just 3-4 days but it wasn't estimated to be delivered for next 6 days. I called EGL (www eaglegl com/) and they chose to deliver in just 2 days. TV came with antenna cable (you might not need it), VGA cable, remote control and batteries for remote.

Here are the list of devices I connected to give you idea what I used and what I could have used to get better quality images. FYI, I used quick-reference guide (came with the TV) to connect these devices.

DVD player: I have a very basic DVD player from cyber home. I have connected it at Video-3 using 'composite' cable. Used few DVDs and quality is AMAZING and couldn't ask for better. One can use better cable to connect. There are 5 ways to connect DVD player with your TV and here are those in the decreasing order of quality: 1) HDMI, 2) fiber optic cable, 3) Component cable, 4) S video cable, 5) composite cable.

I have used lowest quality 'composite' cable and I don't see any reason to upgrade. One can purchase 'HD upconvertible' DVD player which could give better picture even with low resolution DVDs. Blue ray player (hopefully more economical) are on the way which gives the best result.

VHS player: I have 6 years old Panasonic VHS player. I connect it to TV using 'composite' cable. As VHS player takes analog signal there is nothing much one can do. Picture quality is moderate but can't expect DVD quality here.

HOMETHEATER: I connected home theater at TV's Audio-out port using composite cable (just red and white pins) and it is using all of the 5 speakers and giving me sound sound.

LAPTOP: I have connected my laptop to TV using VGA cable I got with the TV. Set my laptop to have extended display of TV and all set to enjoy You Tube. I am thinking of getting 10ft SVGA as free cable is just 3-4 feet long.

ANTENNA: As I wasn't planning to take cable for a while, I bought Terk HDTV antenna (model: HDTVa) from amazon for 35$. Changed TV setting to search 'antenna' instead of 'cable' and it found 6 digital channels in my town (Austin, TX). You can find available digital channels in your area using www(dot)antennaweb(dot)org/aw/Address(dot)aspx. The HDTV digital channel quality was so amazing I found my money worth here. I felt like characters will come out of the TV. It was so awesome that no word can replace the experience.

Amazon offers best bang for the buck ---no-tax, free shipping and proven track record. I saved nearly 500-600$ by not purchasing from local store. Amazon provides 30 days post-sell price guarantee (which I used) and decent 7 days return policy. I got 1 years warranty from Sony and as I paid via Amex credit card so I am getting additional 1 year warranty, making it total 2 years.

I would strongly recommend this 'awesome' TV. Picture is so crisp that I fall in love with it in just 2 days. Best part is the free HDTV channels quality.

Balance Sheet of Warren's life

(My review in Amazon on the book "Buffett: The making of an American capitalist" by Roger Lowenstein. ISBN:0-679-41584-X)

I hand picked this book with the intention to know more about Mr. Buffett and this book has very well satisfied my appetite. In a very lucid way book is walking you along different phases of Warren's life. By the time I reached the last chapter, it has changed my perception about Warren's investment philosophy. In the media, Warren is portrayed at stanch follower of the theory proposed by Professor and investor Ben Graham but that it not entirely true ! Though his investing endeavor (which started in 1943, at the age of 13) is heavily influenced by Ben (since his college years in Columbia), he has adapted to the market dynamics and made choices which Ben wouldn't have made. The best part I found with Buffett is, he has always invested as a businessman rather then gambler/speculator and maintained his originality.

The book's front and back flap has summarized the book very well. Amazon hasn't provided that in "search inside" so putting it here (copyrights by Roger Lowenstein and Random House Inc.):-

"Starting from scratch, simply by picking stocks and companies for investment, Warren Buffett amassed one of the epochal fortunes of the twentieth century--an astounding net worth of $10 billion, and counting. If you had been among the lucky few sitting in his study of Omaha at the start of his career in 1956, and had invested $10,000 with him and kept your money with him throughout , your original investment would be worth $80 million today. That awesome record has made him a cult figure popularly known for his seeming contradictions: a billionaire who has a modest lifestyle, a phenomenally successful investor who eschews the revolving-door trading of modern Wall Street, a brilliant deal-maker who cultivates a homespun aura.

But just who is the Oracle of Omaha, and why is he so successful ? In his illuminating biography, journalist Roger Lowenstein drawn on three years of unprecedented access to Buffett's family, friends, and colleagues to provide the first definitive, inside account of the life and career of this American original. 'Buffett' reveals a man whose conscientiousness, integrity, and good humor exist alongside an odd emotional isolation. It shows how Buffett's investment strategy--a long-term philosophy grounded in buying stock in companies that are undervalued on the market and hanging on until their worth invariably surfaces--is a reflection of his inner self.

Intelligent and offbeat, Buffett was obsessed with money-making from childhood. His parents (particularly his stockbroker/political father) were demanding but instilled in him self-reliance and honesty. As an undergraduate at Wharton, Buffett knew as much about economics as his teacher did -- but at Columbia Business School he met Professor Ben Graham, whose investment philosophy he adopted and then improved on with his own particular genius. 'Buffett' masterfully traces its subject's life: his enormously successful partnership, his early, inspired investments in American Express and Geico, his companionship and investment with Katherine Graham of the Washington Post, his role in the Capital Cities purchase of ABC, his unique relationship with his wife and his mistress, his rescue of the scandal-ridden Saolomon Brothers. Lowenstein paints Buffett as the antithesis of the reckless mentality that fueled the financial debacle on Wall Street at the end of the 1980s, and shows him to be a man of lifelong reach for stability and security. In outlining the character traits and financial philosophy that made Buffett the country's richest man, 'Buffett' presents a landmark portrait of a uniquely American life. "

Though book has very good account of W. Buffett, it could have been written better. I will reserve 5-stars for authors such as George Anders and Uresh Vahalia. I wish I could give 4.5 starts to this book.

Blind date with CFA

Lately, since last few months, I have become avid visitor to Wikipedia, YouTube etc. websites. On every visit, I am getting the feelings of, 'Aha !'. Now, I have very useful and quality information, be it in text, audio or video format, available on my fingertip, provided I have laptop and internet to my service.

Having said that, I believe it is my moral obligation to share with my fellow netizens. my (future) experience and what I find about CFA.


CFA (Chartered Financial Analyst) is marketed as Gold Standard in financial world. To some professionals associated with WallStreet, having CFA (sometimes CFA title while sometimes just first two parts) is requirement. There is some pitch where CFA title is considered as salary booster (The CFA site says that the CFA charterholders receive a 41% higher compensation than non CFA charterholders.)

However, as of now my objective is quite limited. To explore whether CFA (Part-I) will help me to launch my endeavor in investment career more effectively ? Will the knowledge gained during CFA-I study give me strong foundation to go for MBA-Finance next year ?

CFA curriculum that includes following 10 topics seems promising:-
* Ethical standards,
* Quantitative methods,
* Economics,
* Financial statement analysis,
* Corporate Finance,
* Analysis of Equity investments,
* Fixed income investments,
* Derivatives,
* Alternate investments,
* Portfolio management.

The examinations are grouped under three levels, starting with basics and going further on integrating the topics. Here is approximate weitage each of these topics will carry (Copyrights CFA Institute):-


Keep watching for more updates on CFA...

Book's review

For last couple of months I was deliberating on creating some simple database or spread sheet which could list the books I read and allow me to jot some points on the books I enjoyed reading. Just yesterday, thought came to mind that it would be better to have this in the form of a Blog--- it will be good for my reference and easy to share.

So here it is...I will try with the books I read recently and if relevant (means if my memory helps me), I will give my brief review about these books.

Who Says Elephants Can't Dance?: Leading a Great Enterprise through Dramatic Change by Louis Gerstner
(ISBN-13: 978-0060523800)

I found the language of this book very simple and flow was fun to follow. My current tenure with IBM (as of now) made me more interest in reading some of the chapters. I enjoyed first few chapters where Louis Gerstner was describing his early tenure at IBM and cultural shock he got. However, later part of the book was getting less interesting for me, and Louis was playing more diplomatic executive role. I would give 3 out of 5 point for the msg and value this book conveyed.
(5th-20th Apr 2007)

Buffett: The Making of an American Capitalist by Roger Lowenstein
(ISBN:0-679-41584-X)
I have already talked about this on my other blog...so if interested read it here...


The World Is Flat: A Brief History of the Twenty-first Century
by Thomas Friedman (ISBN: 978-0374292799)

Surely an interesting book and worth reading. In most part, Thomas has good
observation and vision of future trend in new globlonomy, however at at some point he talks like a fiction book author! Just as many other articles, this book/author is very ambitious about India's growth but I would like to take it with pinch of salt.