Inclusion of Short Summaries

I have been forgetting lots of important formulae and concepts. I wonder if there is any point studying like this. During Level-I prep, I used to forget stuff the first time around also. I need a couple of revisions before everything sinks in. I had made lots of flashcards for level I.

Since I’m already writing here, I will try to even write short summaries for each reading. I got this idea from Matt’s blog. I think what he does makes a lot of sense. It’s much easier to read a summary instead of reading tons and tons of material from the Curriculum.

I’m about to start reading Industry Analysis and should be able to complete it sometime today. So stay tuned 🙂

Reading 41 (Competitive Strategy) Completed

I got done with the second part of this reading that focused on Differentiation, Cost Focus and Differentiation Strategy. There is a brief explanation on Stuck in the middle firms and on the requirements of sustaining competitive advantage. Lastly, the reading finishes off with the importance of generic strategy in strategic planning of a firm.

I’m thinking of jotting down some main points henceforth, because it will help me in quick revision later.

Differentiation– Focus on only some needs of the buyer and fulfill them. Charge a premium for it, but try to maintain cost parity by reducing cost in all areas that do not affect differentiation. There can be a number of firms pursuing this strategy, as long as they choose different buyer attributes.

Focus– Can be either cost focus or differentiation focus. If a focuser’s target segment is not different from other segments, then the focus strategy will not succeed.

Stuck in the middle– No competitive advantage. It basically means trying to follow all the strategies at the same time. It can be successful only if the competitors are also stuck in the middle or if the industry structure is highly favorable. In the long run, if other competitors shift towards a generic strategy, then the firm that is stuck in the middle can lose its profitability.

Three conditions under which a firm can simultaneously achieve both cost leadership and differentiation are-

1. Competitors stuck in the middle- Might be a temporary situation because the competitors might shift to a generic strategy in the future, leaving your firm in a soup.

2. Product innovation- It should not be easily copied by the competitors.

3. Cost is strongly affected by share or interrelationships- If market share dictates the cost structure, then this will help. Also unmatched relationships between industries that one firm can exploit and other cannot will also help.

Sustainability– We need to focus on the risks of the different strategies and try to eliminate them as much as possible.

Generic Strategies and the Strategic Planning Process– STPs must always be dictated by the generic strategy of the firm because it helps in building competitive advantage. Categorization of business units into build, hold or invest is a method of resource allocation and not a stategy.

Similarly, market share per se is not important competitively; competitive advantage is.

***

So this completes Reading 41. I’m done with the end of chapter problems too. The ones in the Curriculum were quite challenging and I got only 2 correct. 😦 The ones in Schweser (concept checkers) were easier.
Also, in some industries, market leaders do not enjoy the best performance because industry structure does not reward leadership. The pursuit of leadership sometimes diverts attention from achieving and maintaining competitive advantage. So, smaller firms that are not market leaders might become more profitable because of their competitive advantage.

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Tags: CFA, Equity Valuation, Thoughts, Finance

Done Reading 40 from the CFAI Textbook

Finally achieved this task after not studying for a week. It probably took me around 2-3 hours to re-read everything in Reading 40 from the CFAI Curriculum and the Schweser notes combined. I had to go back to Schweser for some parts because the details in the Curriculum really bogged me down 😦

The main trouble that I had was with the first LOS that differentiates the accounting rules betn IASB, GAAP and other accounting rules all over the world for common accounting treatments of Consolidation, Business Combination, Joint Ventures etc. The curriculum has more details on this part. I would say, for everything else, Schweser does a good job.

Important Formulae:

1. P/E (intrinsic)= Tangible P/E + Franchise P/E

= 1/r + (FF*G)

Franchise Factor (FF)= (ROE-r)/(ROE*r)

Growth Factor(G)= g/(g-r)

It is necessary for retention ratio (b)>0 and ROE>r for a company to have franchise P/E.

2.  P/E= 1/(real interest rate+ (1-inflation flow through rate)(inflation rate))

Even if inflation rate is high, if all of it  is absorbed by the inflation flow through rate, then the P/E is unaffected. Otherwise, the higher the inflation rate, the lower the P/E ratio.

The entire chapter spans more than 60 pages in the Official Curriculum…it’s long and boring. I’m yet to work out the chapter end problems. I’ll make sure that I do it tomorrow and complete Reading 41 too.

Reading 41 talks about Competitive Strategy and should be more interesting to read, because I just completed a course in management that’s based on this stuff.

I need to remind myself to stop wasting time on my other blog, Time and Again, and by watching Heroes (my new found fascination).

Hope all of you are studying hard. Please keep commenting and motivating me too. I think I’m falling behind. 😦

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Tags: CFA, Equity Valuation, Thoughts

Reading 39: Capital Markets and the Economy

Done with this reading though I’m not sure how much I really understood…especially the last part involving the shift to a swap based benchmark for credit. If anyone who’s reading this blog has done this part, then it would be great if you could explain it to me in the comments section 🙂 Please?

Found this link from Investopedia quite useful…I had forgotten concepts like Duration, convexity and all that…

Mental Note: Come back to this part again and re-read it.

Starting tomorrow with Equity Valuation- Reading 40.

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Tags: CFA, Asset Valuation, Thoughts, Life

Reading 37: The Equity Valuation Process

I’m on a roll today 🙂 I got done with this reading in about 1.5 hours. Since the Asset/Equity Val. book is really thick, I’m thinking of using Schweser to first quickly read through the entire chapter. Then, come back to the Curriculum and brush up over the different areas, read the examples and work out the end of chapter problems.

This is exactly what I did today and it saved me tons of time. Otherwise, I don’t think that I would have been able to wade through 30 odd pages in less than 1.5 hours (incl. the chapter end problems).

The main concept that you need to focus on is the ex-ante and ex-post alpha, which is really easy.

Ex ante alpha= Expected HPR- Reqd. HPR (Acc. to CAPM or FF Model)

Ex post alpha= Actual HPR- Contemporaneous HPR

Oh by the way, I just used the 2007 Schweser. Like I’ve mentioned, I won’t be buying 2008 Schweser stuff, except for the Qbank. No money 🙂

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Tags: CFA, Asset and Equity Valuation, Thoughts

Checking on the progess of my fellow preparers

I asked a question at AnalystForum today.

Somehow, I’m going really slow…slower than I’d expected. I’m hardly getting any CFA studies done. I’m set to graduate in 20 days and supposed to be looking for jobs. So, not really feeling motivated enough. Done with Corp. Finance, Ethics and FSA. I don’t know how much I remember though.Would be interested in knowing how are you people doing and what have you finished studying already…

If you’re interested in seeing the responses of other people who’re preparing for L-II, then click on this link.

Will start with Book 4- Asset Valuation in a bit. I feel pretty charged up currently. Hope the above link charges you up too. 🙂

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Completed Corporate Finance…

…which is nothing much, considering the fact that I’ve been wrestling with one book since the past 5.5 weeks! I’ve hardly studied and partied way too much. It looks like all that I’m blogging about here are excuses for not studying. Yet, that’s all they really are…excuses!

So, I’m 24 days behind my schedule. I should have gotten done with Asset and Equity Valuation by now. I’m set to graduate on 12/15 and after that, again…I don’t know if I’ll be able to study. For one, I’ll be really tensed about my job scene. I already am really tensed. I don’t know what to do.

Revised goal– Complete Asset and Equity Valuation by the end of December (something better than nothing).

I’m going to start off tomorrow morning. One piece of advice to all of you reading this blog- Cut down on any other source of distraction. I need to reduce the time I’m spending on my other blog, Time and Again. It’s really hampering everything else in my life which should have been my primary aim right now. So, let’s do it before it gets too late.

Reading 33: Dividend Policy

OK…so it took me more than a week to read only 30 or so pages. I already knew most of it thanks to my MBA coursework. I need to get more consistent with my studying habits and make it a point to complete about 10 pages everyday. Studying once or twice a week is hurting me real bad and I’m way behind my schedule. I should have started Asset Valuation and Equity by now, but there are Readings 31 and 32 to be done.

 I’m finding it difficult to balance this stuff with full time MBA and work and job search right now. I am giving myself a couple of more days to finally finish Corp. Finance. Sunday- Nov. 10 sounds like a decent deadline and I BETTER stick to it now, else I’ll land in deep shit.

 Starting Today:

Reading 32: Capital Structure and Leverage