Five Things the CFA Exam Taught Me About Investing

Studying to be a chartered financial analyst yields some common sense tips for everyday investors.

Kristen Owen
Kristen Owen

On June 1st I was one of the over 250,000 people that took an exam for one of the three levels required to become a Chartered Financial Analyst. While I am bound by the Code of Ethics not to share any details about what was actually on the test, I would like to share some of the lessons I have learned while studying that are applicable to the everyday investor.

1. Don’t invest in headlines.

As tempting as this may be in light of recent events, if you are investing based on the latest headlines hoping to beat the market, you’re probably already in a cycle of buying high and selling low. Rather than trying to time the market by finding the next Apple or Tesla by reading the financial press, develop a system for screening and identifying investments based a set of parameters that focus more heavily on the fundamental characteristics of an investment, rather than what’s making the headlines.

2. Look at an investment in the context of your entire portfolio.

For a long time we have all heard about the importance of diversification. It is a well-accepted concept in the investment community because many of the risks associated with investing in a single security, a stock for example, can be mitigated by holding a well-diversified portfolio of securities. What this means for an individual investor is that when you are considering adding an investment to your portfolio, your analysis should be based on not just the risk and return characteristics of the security on its own, but also within the context of what you are already exposed to.

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3. Information has an expiration date.

While the timeliness of information is certainly relevant in the context of when to choose what investments, as described in the first point, this lesson is more about the person than the security. Each of us experience events in our lives that alter our investments needs. As such, an investment you made in your 20s before starting a family, or buying a home, may not be appropriate for you in your 30s or 40s. Just as it is important to keep up-to-date on the latest changes in the economy and investment environment, it is also important to take into consideration changes in information about yourself. Considerations such as liquidity needs and your time horizon should be vital in determining your investments.

4. Do your research.

I cannot stress this lesson enough. Know what you own. Whether it’s in the context of understanding the fundamental business of a stock that you own or knowing how to make the best use of your employer-sponsored retirement program, knowledge is always power. If you own stock, remember that means you have an ownership interest in a company — not just an investment that moves up and down. If you invest in mutual funds, take some time to get to know a little bit about the portfolio managers or the management company and in particular how they use the fees you pay them. The more you learn, the more empowered you will feel about your investing ability.

5. Corporate governance matters.

One of the characteristics I commonly look at when considering an investment is employee turnover. How often does a company lose talented people? Think about it: you have your biggest investment in the company you work for. If the pool of employees around you is constantly changing, for one reason or another, this could indicate something about your company, its culture and its governance. Corporate governance involves the balancing of interests of stakeholders including shareholders, employees and managers. Why does governance matter? Research shows that companies with strong shareholder rights, an element of corporate governance, (as outlined in a corporation’s shareholder rights plan, typically accessible on the company’s investor relations website) can have higher firm values, profits and sales growth than peers with weaker shareholder rights. While it may not be everything you need to know in order to pass any of the CFA exams, these lessons can help you navigate through the investment decision process.

Kristen E. Owen is a Wealth Management Associate at Monument Wealth Management, a Registered Investment Advisory firm located just outside Washington, D.C. in Alexandria, VA. Follow Kristen and the rest of Monument Wealth Management on Twitter, LinkedIn, YouTube, Facebook, and their “Off the Wall” blog which can be found on their website.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for individual. To determine which investment is appropriate please consult your financial advisor prior to investing. All performance referenced is historical and is not guarantee of future results. All indices are unmanaged and may not be invested into directly.