Experimenting with Investment Strategies

When I first started investing my Supplementary Retirement Scheme (SRS) funds 7 years ago, I wondered how should I invest the money. Should I invest in the same way as my cash account, i.e. adopting market timing and buying individual stocks, or should I keep it as a cash reserve to be used during severe market crashes like my CPF funds? If I invest like my cash account, I wondered what if my investment strategy had been wrong all this while? Would I then still have sufficient funds to retire? Since the SRS account is small compared to my cash account, I decided to invest it in a different way from my cash account, as a form of hedging in case my investment strategy turns out to be wrong. It also serves as a test lab to try out different investment strategies. After 7 years of experimenting, I think it is time to conclude some of the lessons learnt from these investment experiments. 

Active Investing vs Passive Investing

The first major difference between my cash and SRS accounts is that the former adopts active investing while the latter adopts passive investing. In active investing, you have to do everything by yourself, from setting up a valuation model, analysing hundreds of stocks based on the model, updating the data in the model based on the latest financial statements, deciding what stocks to buy and when to buy them, monitoring the stocks in your portfolio and deciding whether to buy some more or to sell them off. A lot of time is required in this approach. In passive investing, things are a lot simpler. You just need to decide which stocks or unit trusts you believe will appreciate in the long term. Once you have decided that, you just need to invest a constant amount of money in that particular stocks or unit trusts on a regular basis, regardless of whether the markets are going up or down. Of course, you do need to review these stocks and units trusts occasionally, to make sure that they do not stray off-course from your investment objectives and criteria. However, the time spent in passive investing is a lot less compared to active investing.

From personal experience, both active and passive investing can be profitable. Passive investing has achieved an annualised return ranging from 3.11% to 7.04%, depending on the unit trusts bought. Coincidently and very importantly, this is also the annualised return for one market cycle (peak-to-peak), as the unit trust prices have roughly returned to where they originally were 7 years ago.  You may wish to read Review of My SRS Investments for more info. Active investing, on the other hand, has achieved a few more percentage points in returns compared to passive investing, based on rough calculations. It should be highlighted that it is difficult to determine the exact investment returns for my cash account as the investing and non-investing cashflows are not segregated, similar to my CPF account which has monthly contributions coming in and housing loan repayments going out in addition to investing cashflows.

Is the extra few percentage points in returns worth the huge amount of time spent in analysing stocks? From a time-value of money perspective, the extra few percentage points will translate to fairly large differences in wealth when compounded over many years. However, from a lifestyle perspective, time spent on analysing stocks means that you have less time for other things in life. Furthermore, do you really need the extra wealth from the few percentage points in returns to retire or to pass down to the next generation? I guess the choice between active and passive investing boils down to personal preference, whether you like the bolts-and-nuts of investing like a personal hobby or you prefer to spend the time on other more important things in life.

Individual Stocks vs Indices

For the cash account, individual stocks are bought and sold. Some stocks can turn out to be multi-baggers that multiply your investment many times over while others can turn out to be salted fishes that wipe out your investment. You can refer to How to Get a Multi-Bagger? and The Salted Fishes for the list of multi-baggers and salted fishes that I have accumulated in the past 16 years of investing with my own money. Generally, a lot of emotions are involved with individual stocks, with joy for multi-baggers and despair for salted fishes. Even when your stock is a multi-bagger, you are constantly in a struggle over whether to continue holding on to it or sell it off before it declines. With unit trusts, however, the emotions are a lot less as unit trusts are less volatile than stocks. The emotions involved can have an impact on whether you can be a long-term investor and consequently, whether you can achieve the returns stocks can potentially provide in the long run. You may wish to read Different Mentality in Stock and Unit Trust Investing for more info.

Because the price of individual stocks can go down to zero, I usually have a limit on the amount of investment in each individual stock. Furthermore, due to privatisation over the past few years, there are not many stocks on the Singapore Exchange that meet my investment criteria. This has resulted in a limit on the amount of money that could be invested in stocks. In contrast, the price of index funds do not go down to zero and hence, there is no limit on the amount of investment. Even though index funds could lose half their value in a severe market crash, historical evidence shows that they usually recover, so there is nothing much to worry about for long-term investors.

Index Funds vs Lifecycle Funds

Within the SRS account, I also split the funds into 2 and invested in equal portion in an index fund and a lifecycle fund. The benefit of a lifecycle fund is that the asset allocation will gradually change from aggressive to conservative over time. This saves an investor the need to regularly and consciously adjust his asset allocation as he ages and is less able to take risk. However, my experience with lifecycle funds is that the asset allocation may not fit the investment objectives of all investors who invest in the same fund. Furthermore, the asset allocation may change from the initial asset allocation model in unexpected ways over time. You may wish to read Experience with Lifecycle Unit Trusts for more info.

Conclusion

When I started the investment experiments with my SRS account 7 years ago, I never expected to learn so much from it. These lessons have come in useful even for my cash account. Also, you do not always need to choose between active and passive investing, or between individual stocks and indices. They can be complementary to each other. For Singapore stocks, I will continue to adopt active investing, but for overseas stocks, I will be adopting passive investing to save the time required to analyse overseas stocks. Similarly, I will invest in index funds whenever there are limited opportunities in individual stocks to maintain an optimal exposure to stocks. I will continue to experiment with investment strategies using my SRS funds. The next experiment will be to compare between a global stock index and a US stock index.


See relate blog posts:

• Review of My SRS Investments
• Different Mentality in Stock and Unit Trust Investing
• Experience with Lifecycle Unit Trusts

Not All Market Indices Are Equal

One of the most popular and time-tested investment strategies is to invest passively in an index fund. I too have adopted this strategy for my Supplementary Retirement Scheme (SRS) account. However, not all markets are equal. If you pick a market index that is performing well, you are well on your way to financial independence. Conversely, if you pick a market index that is underperforming, you will take a longer time to reach there. The chart below shows the performance of 5 more familar stock market indices, namely, Singapore's Straits Times Index (STI), US' Dow Jones Industrial Average (DJIA), UK's FTSE 100, Hong Kong's Hang Seng Index (HSI) and Japan's Nikkei 225.

Performance of Different Market Indices

From the chart above, if you had invested $10,000 in each of the 5 market indices at the start of 1988, the investment would have grown to $95,169 for HSI, $87,033 for DJIA, $36,982 for FTSE100, $36,052 for STI and only $6,847 for Nikkei 225 as at end Sep 2014. These figures represent a compounded annual growth rate of 8.8%, 8.5%, 5.0%, 4.9% and -1.4% respectively, excluding dividends. Thus, not all market indices are the same and it is important to select the right market index for your passive investment strategy.

For unit trust investments, there are 3 indices to choose from, namely, LionGlobal's Infinity Global Stock Index, US 500 Stock Index and European Stock Index. Their performance for the past 10 years are shown in the table below.

Performance of LionGlobal Global/ US/ European Stock Index Funds

For all the holding periods, the best performer is the US Stock Index, followed by the Global Stock Index and the European Stock Index. This is not surprising, given that the US economy has shown signs of recovery while the European economies are still mired in recession.

As mentioned in my previous blog posts, I will be switching from an underperforming unit trust to an index fund in my SRS account. Since I already have the Global Stock Index fund, the target of my switch will be the US Stock Index fund, notwithstanding the fact that DJIA might have peaked and could be going downhill from now on. You may wish to read Possibly The Worst Time to Invest on why I am not worried about a bear market for my SRS investments.

Will I be committing the mistake of chasing the hottest index only to see it underperform its peers in the foreseeable future? It's probable, but 26 years of market history could not be wrong. I still remember around 1995 when DJIA was about 4,200 points, I thought it was dangerously high and might crash like it did in 1987. In late 1996, when DJIA was around 6,500 points, the former Federal Reserves Chairman Alan Greenspan first used the words "irrational exuberance" to describe the US stock market. Yet today, the DJIA is around 16,400 points! And despite the rise of China in the past decade, it has been the US companies that have been the most innovative, introducing us to smartphones and tablets, social media, e-commerce, etc. If there is the next game-changing innovation, it will probably be coming from US. Even Warren Buffett has kept faith with the US "Old Economy" when he bought a railroad in late 2009 for US$44 billion including debt. He personally described the transaction as "an all-in wager on the economic future of the United States". You can read this article on whether the acquisition has been a good one after 4 years. Despite all the talk about the China economy replacing the US economy as the largest one in the world in the next few years, there is something resilient about the US economy that I have missed. So, while the switch to the LionGlobal US 500 Stock Index fund is not an all-in wager on the US economy, I too would not want to miss the train.

See related blog posts:

• Review of My SRS Investments
• Globalisation, Technology and the Home Bias
• Possibly The Worst Time to Invest

Review of My SRS Investments

I have been investing my Supplementary Retirement Scheme (SRS) funds in unit trusts for the past 7 years. Yet, it is amazing that I have never reviewed how my SRS investments have been performing on an annualised basis. I do not know for sure whether the returns have beaten the inflation rate, the CPF Ordinary Account rate or the Special Account rate.

Today, I have finally carried out a review of my SRS investments. They have returned 3.8% on an annualised basis since I first made my initial contribution to the SRS account in Nov 2006. A breakdown of the returns from the various unit trusts I have invested in are as follow.

Fund	Allocation	% Change	% Return
LionGlobal Infinity Global Stock Index	38%	0.67%	7.04%
UOBAM GrowthPath 2040	38%	0.40%	3.11%
Nikko AM Shenton Short Term Bond	15%	2.23%	1.98%
Phillip SGD Money Market Fund	8%	0.51%	0.50%
Cash	1%
Total	100%		3.83%

The 2 main unit trusts are LionGlobal Infinity Global Stock Index and UOBAM GrowthPath 2040. Investments in them are made on a monthly basis using the Dollar Cost Averaging methodology. The Phillip SGD Money Market Fund is used to hold the cash required for the monthly investments into the 2 main unit trusts. The Nikko AM Shenton Short Term Bond Fund is used as a parking facility for excess cash beyond those required for the monthly investments.

The % return in the table above shows the actual annualised return obtained from the unit trusts. The % change shows the annualised change in the price of the unit trust from the time I started investing my SRS funds in Nov 2007 till now. With the exception of Nikko AM Shenton Short Term Bond Fund, most of the unit trusts have not changed much, as shown by the figure below.

Performance of Unit Trusts Since Initial Investment

In fact, both LionGlobal Infinity Global Stock Index and UOBAM GrowthPath 2040 have just recovered to their original prices in Nov 2007. However, through regular investing with Dollar Cost Averaging, the unit trusts have returned 7.0% and 3.1% on an annualised basis respectively. This proves that Dollar Cost Averaging works. In fact, in an earlier blog post, I concluded that Dollar Cost Averaging works best with volatile stocks and unit trusts.

The LionGlobal Infinity Global Stock Index has performed to expectation for a stock index, especially considering the fact that it underwent a severe correction during the Global Financial Crisis. However, the UOBAM GrowthPath 2040 has disappointed for a balanced fund. One of the main reasons for the underperformance is due to the fund manager reducing the allocation to stocks to below that assigned by the original asset allocation model for whatever strategic or tactical reasons. You may wish to read Experience with Lifecycle Unit Trusts for more info. I will probably be selling this fund and switching to an index fund, to be consistent with my risk preference.

As for the other 2 unit trusts, the Nikko AM Shenton Short Term Bond Fund has returned 2.0% on an annualised basis, which is within expectation for a bond fund, while the Phillip SGD Money Market Fund has returned 0.5%, which is also within expectation for a money market fund. The key objective of these 2 unit trusts is to preserve the capital required for monthly investments into the 2 main unit trusts, which they have done reasonably well. I will be keeping these 2 unit trusts as a result.

Finally, in my previous blog post, I mentioned that letting unit trust investments run on auto-pilot can have both good and bad effects. The good thing is that investors are able to ignore all the noise and invest for the long run, thus allowing the magic of compounding to happen. The bad thing is that some unit trusts might fly off-course if not monitored regularly. I believe a review on an annual basis should be sufficient to achieve the good results and avoid the bad consequences of unit trust investing on auto-pilot mode.

See related blog posts:

• SRS Exit Strategy
• Experimenting with Investment Strategies
• Different Mentality in Stock and Unit Trust Investing

Different Mentality in Stock and Unit Trust Investing

I have investments in both stocks and unit trusts.  However, the investing mentality in both can be quite different. These different mentalities can both be a boon and a bane for successful investing in them.

Before I go into the details, I should mention that I generally adopt a market-timing strategy (for when to buy and sell) and value investing (for what to buy) for my stock investments. Please see Have A Plan for more details. However, for my unit trust investments, I adopt a Dollar Cost Averaging strategy with monthly investments into index and balanced funds. The differences in investment strategies explain some of the differences in the investing mentality in both types of investment.

Market Price

For stocks, as we know, they can be quite volatile. You will never know for sure whether they will go up or come down. When a stock that you own has gone up by quite a bit, you start to worry whether it might come down again. You then wonder whether you should sell it off. You have heard about letting the price runs, but you have also seen and experienced for yourself how some stocks came back down in price after a run-up. This struggle happens regularly as the stock continues its climb, and is especially strong when the price starts to correct. Sometimes, you decide to sell, only to see it resumes its climb upwards. Other times, you decide to hold, only to see it starts to descend. The jittery mentality of stock investments leads many investors to be short-term investors, influenced more by the stock price than the business fundamentals of the company. It is thus difficult for most investors to achieve multi-baggers in their portfolios, which requires long-term investing in good companies.   

In contrast, for unit trusts, when they reach new highs, you hope that they would go higher, without any worry that they might have peaked and are about to decline. Even when the prices correct, you accept that this is part and parcel of investment and are prepared to hold them through the price correction. This steadfast mentality of unit trust investments allows investors to invest for the long run, thus enabling the magic of compounding to happen. 

Information

There is always a lot of real-time information about stocks, including company announcements, stock analyst recommendations, kopitiam talks and even rumours. Investors readily take in such information, analysing them thoroughly to estimate the impact to the stock price. The vast amount of real-time information allows investors to constantly evaluate their investments and make the necessary buy and sell decisions to improve the performance of their portfolios. 

In contrast, for unit trusts, there is generally not much real-time information, except for economic and industry news that impact both stocks and unit trusts alike. Information about the performance of unit trusts are published by fund managers on a monthly basis (factsheet) and 6-month basis (performance report). Yet, seldom anyone reads these factsheets and reports. I understand there are investors who regularly switch between unit trusts, discarding the laggards in their portfolios in exchange for the top performing funds in the performance tables. For me, I generally stick to the same unit trusts and let them run on auto-pilot, not realising that the underlying investment strategies of the unit trust could have changed, until the performance of the unit trust starts to deviate from expectations. This is the reason why I had stuck with an under-performing unit trust for 2 years, as mentioned in Experience with Lifecycle Unit Trusts. 

Conclusion

There are both good and bad traits in the investing mentality in stocks and unit trusts. If we are conscious about the bad traits of the respective investing mentality, we can avoid them and improve the performance of our investments.

See related blog posts:

• Experimenting with Investment Strategies
• Review of My SRS Investments
• Experience with Lifecycle Unit Trusts

Experience with Lifecycle Unit Trusts

When I started investing my Supplementary Retirement Scheme (SRS) funds 7 years ago, it was with several experiments in mind. Firstly, the SRS account adopts a monthly Dollar Cost Averaging investment methodology, as opposed to market-timing for my cash account. Secondly, the SRS funds were invested in an index fund and a balanced fund, as opposed to individual stock selection for the cash account. Thirdly, the monthly investments were split between an index fund and a lifecycle fund, to understand whether lifecycle funds could serve the needs of an investor throughout his lifetime.  

What are lifecycle funds? These are funds whose asset allocations change from aggressive to conservative as time progresses. Using the fund that I bought (UOB GrowthPath (GP) 2040) as an example, the allocation to equities will reduce from an initial 83% (in 2002) to an eventual 20% by 2040. This saves the need for an investor to regularly and consciously adjust his asset allocation as he ages and is less able to take risks. Besides UOB GP2040, there are several other lifecycle funds in this family, namely, GPToday, GP2020 and GP2030. The timeline indicates the year when investors plan to liquidate and withdraw money from the fund. When the timeline is reached, the particular GP fund will be terminated and converted to the GPToday fund, which has an asset allocation of 20% stocks and 80% bonds. The figure below shows the current asset allocation of the various GP funds.

Figure 1: Current Stock Allocation of UOB GP Funds

So, what has been my experience with the UOB GP2040 lifecycle fund? Besides UOB GP2040, I also have invested an equal amount of money in an index fund, the LionGlobal Infinity Global Stock Index Fund, which provides a comparison with UOB GP2040. As you can see from the figure below, UOB GP2040 (blue line) has underperformed the index fund (green line) by some margin, which prompted a review of my unit trust portfolio after 7 years. While some level of underperformance is to be expected as UOB GP2040 does not allocate 100% of its investments to stocks, the level of underperformance have been too much for my liking.

Figure 2: Relative Performance of Index Fund & Life-Cycle Fund

What caused the underperformance of UOB GP2040 compared to the index fund? While part of the reason is due to US stock prices reaching new highs currently, another part of the reason is due to changes to its initial asset allocation. The figure below shows the initial and current asset allocation of the various UOB GP funds.

Figure 3: Initial & Current Asset Allocation of UOB GP Funds

From an initial 83% stock allocation at the time of its inception in 2002, the current stock allocation for UOB GP2040 has fallen to 59% only. Part of it is due to the passage of time as explained earlier. However, another part of the reason is due to the fund manager changing the asset allocation model for whatever strategic or tactical reasons. By right, the asset allocation for GP2040 today should be similar to that of GP2030 10 years ago, since they have the same investment horizon. However, the current stock allocation for GP2040 is even lower than that for GP2030 in 2002, which was around 74%. Thus, the fund manager has moved approximately another 13% from equities into bonds when compared to the initial asset allocation model. Being an aggressive investor, I would have preferred the initial asset allocation model.

What are the lessons to be learnt from this experience? Firstly, the asset allocation of lifecycle funds do not fit all investors who invest in the same fund. Some like myself prefer a more aggressive allocation while others may prefer a more conservative allocation. Secondly, the actual asset allocation may change from the initial asset allocation model. Thus, while lifecycle funds save investors the trouble of having to adjust his asset allocation regularly, they should not be left to run on auto-pilot. There still needs to be some regular monitoring to ensure that the current asset allocation meets the investor's objectives. 

Considering that the current asset allocation of UOB GP2040 no longer meets my objectives, I will probably be selling this fund and switching to an index fund. Despite not being able to accompany me all the way till 2040, investing in this lifecycle fund has allowed me to understand more about lifecycle funds.

See related blog posts:

• Experimenting with Investment Strategies
• Review of My SRS Investments
• Different Mentality in Stock and Unit Trust Investing

The Value of An Education in Investing

Last week, I blogged about the value of a Chartered Financial Analyst (CFA) education to an investor and concluded that while it is useful in providing a basic grounding on the various investment concepts and methods, it does not guide an investor on what he should look out for in investing. See The Value of a CFA Education for more info. Does it mean that investors should not pursue an education in investing? On the contrary, education is important to achieving success in investing.

I have been exposed to the stock market for 28 years and been investing with my own money for the last 16 years. Prior to 2001, my investments were going nowhere, with as many misses as hits. It was not until when I picked up my first investment book titled "Buffettology" did my investments began to show some progress. You may wish to read Investing Is A Life-Long Learning Journey for more info.

The book triggered my thirst for investment knowledge. I became a regular visitor to the investment section of the National Library, reading investment books ranging from time-tested ones like "The Intelligent Investor" to more contemporary ones carrying fascinating titles like "Dow 40,000", "Dow 100,000", etc.

Among the ones that I found useful, I bought them after reading them in the National Library, to serve as an reference in future. Some of the more important ones are desribed as follow.

Buffettology (by Mary Buffett & David Clark) - This book was written by the former daughter-in-law of Warren Buffett and describes the methods Warren Buffett used to analyse stocks. The book describes the mathematical steps involved in estimating the rate of return of a stock and is fairly dry. Nevertheless, it is an important book for me as the methods in the book became the model that I use to analyse stocks to this date. It is also the book that sets me on my path to an education in investing.

Stocks for the Long Run (by Jeremy Siegel) - This book discusses that in the long run, stock investments beat all the other asset classes, notwithstanding the fact that stock market crashes happen every now and then. It also describes the various effects such as calendar effects, small-firm effects, etc. Whenever there is a stock market crash, I would turn to this book to remind myself that in the long run, my investments would turn out well, despite the heavy paper losses sustained at that time.

Common Stocks and Uncommon Profits (by Philip A. Fisher) - Warren Buffett initially started out as a pure value investor, having learnt his trade from Benjamin Graham, the father of value investing. However, over time, he has introduced a growth element to the stocks he purchases. The influence for this change is Philip Fisher and his book. This book discusses that some companies are so good that there is often no good reasons to sell them at all. The book goes on to describe the various ways of identifying such companies. If Warren Buffett could achieve such spectacular returns with his value-cum-growth approach, then there must be something valuable with this approach.

Security Analysis (by Banjamin Graham & David Dodd) - This book is known as the Bible of value investing and is written by none other than Benjamin Graham. It was written in 1934, during the Great Depression period in US. It describes the ways to value stocks, bonds, preference shares and warrants. You can find an application of its valuation method for bonds and preference shares in The Lost Art of Bond Investment. Despite reading it twice, I still have not grasped the essence of the book, probably because the investing conditions then and now are different. For example, it could be discerned from reading the book that the accounting and disclosure standards are different from today's and hence, the book spends a fair amount of time on the interpretation and adjustment of income and balance sheet items. The basis of valuation is also quite different then, when book value takes on a greater importance compared to today.

The above are just some of the books that I found useful and bought for future reference. There are a lot more books that are useful which I never mentioned, such as "The Intelligent Investor" by Benjamin Graham. Generally, the value of these investment books lies in the fact that they contain practical wisdom from market practitioners who, through past experience, have figured out what works for them. By understanding and following their approaches, we are able to shorten our learning curve and start making money sooner from our investments. After all, with a stock market cycle averaging about 7 years, how many market cycles do we have in our lifetime learning and making money from investments?

Education is important to an investor. Without education, investors can only buy and sell on gut feel and/or follow the crowd. As an analogy, if you were to go to battle, would you select a general that has fought many battles, a general who has studied the art of war, or a general who is knowledgeable in both?

See related blog posts:

• The Value of a CFA Education
• Investing Is A Life-Long Learning Journey
• Confessions of a Serious Investor

The Value of a CFA Education

I took a course in Masters in Applied Finance and sat for the Chartered Financial Analyst (CFA) examinations in 2004 - 2006. The purpose of studying and sitting for the CFA exams was to understand the various economics, accounting and investment concepts so as to be a better investor. Hence, the topic of this blog post applies to an investor rather than a person working in the financial industry.

The CFA programme covers very wide topics, as follows:

• Ethical and Professional Standards
• Quantitative Analysis
• Economics
• Financial Statement Analysis
• Corporate Finance
• Portfolio Management
• Equity Analysis
• Fixed Income Analysis
• Derivatives
• Alternative Assets
• Portfolio Performance Measurement & Reporting
• Risk Management

Note that there have been some changes to the curriculum since I sat for the exams. You can find the latest curriculum at CFA Program Study Sessions.

Has the programme been useful to an investor who starts from scratch and has no formal education in investing previously? I describe some of the more relevant topics to investors and their usefuln below.

Financial Statement Analysis (FSA) is by far the most important topic as investors need to read financial statements regularly to understand how the companies are doing. FSA teaches how to understand the various items in the financial statements and the various accounting methods. For example, inventory could be recorded as first-in-first-out, last-in-first-out, or weighted-averaged. The different accounting methods will lead to different values in the balance sheet depending on whether prices are rising or falling. Adjustments will therefore need to be made when comparing companies adopting different inventory accounting methods. Also covered in FSA is how to identify red flags where there could be accounting irregularities. However, although providing the basic grounding necessary for understanding companies, FSA does not discuss what are the important items that investors should look out for when prospecting for a company, such as having low debt, high free cash flow, etc.

Equity Analysis teaches the various valuation methods that you can use to determine the intrinsic value of a stock, such as Discounted Dividend Valuation, Free Cashflow Valuation, Market-Based Valuation (e.g. Price/Earnings, Price/Book multiples, etc.) and Residual Income Valuation. However, it does not advise what kind of input parameters (e.g. dividend growth rate, rate of discount for Discounted Dividend Valuation) you should use for each stock analysis. You need to assume the input parameters and hope that they turn out to be correct. 

Portfolio Management teaches about the Modern Portfolio Theory, which is based on that fact that when 2 risky assets are put together in a portfolio, the combined risk (volatility) is less than that of the individual risky assets. It also discusses the Efficient Market Hypothesis (EMH), on whether the market prices reflect all known (including private) information about the economy, industry and company. Here, it discusses and concludes that the market generally reflects all known information and hence, Technical Analysis should not work. However, there are anomalies running counter to EMH such as the calendar effects and small-sized/ neglected companies producing better returns than larger companies with better analyst coverage. Portfolio Management also discusses the Capital Asset Pricing Model (CAPM), which essentially says that to get better returns, you need to take higher risks (beta). 

Risk Management (which was taught more in-depth during the Masters course) discusses what are the potential risks based on past case studies and teaches how to measure risk exposure using the Value-at-Risk method. 

The above are some of the more relevant topics to a investor. As an investor, I find the following topics to be most useful: 

• Financial Statement Analysis (for finding companies to buy)
• Fixed Income Analysis (for analysing bond prices & understanding bond features) - see Fixed Income blog posts
• Risk Management (for computing risk exposure) - see Risk Management blog posts
• Economics (for understanding how the economy works)
• Derivatives (for understanding the effects of structured warrants) - see Structured Warrant blog post

Due to the short space allocated for each topic above, I cannot completely describe what these topics teach. Generally, the CFA curriculum is useful for providing a basic grounding on the various concepts and methods, but it does not show what an investor should look out for. As an example, after passing my CFA exams in 2006, I still have investments that were completely wiped out. However, there also have been benefits from the programme. I narrowly avoided the Mini-bonds after reading through their prospectus and understood the effects of structured warrants that were prevalent in Singapore just several years ago. See Investing Is A Life-Long Learning Journey for more info.

In conclusion, CFA builds up your foundations, but do not expect the market to give you additional respect simply because you pass your CFA exams.

See related blog posts:

• The Value of An Education in Investing
• Investing Is A Life-Long Learning Journey
• Confessions of a Serious Investor