CFALA e-Newsletter: December 2013

Welcome to the CFALA e-newsletter, a periodic publication with stories about noteworthy events and programs sponsored or hosted by the society, guest articles by members, book reviews, and other items of interest to CFALA members. Click on the headlines below to read the full stories. And if you’d like to contribute a story suggestion or, even better, write an article, we’d love to hear from you. Please email Executive Director Laura Carney at

*Please note that the content of this e-newsletter should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of  CFA Society Los Angeles.

In this issue ...

Howard Marks Retrospective and Moderated Q&A

A full house of CFALA members and guests welcomed legendary investor Howard Marks, CFA to the Millennium Biltmore Hotel in downtown Los Angeles on December 17.  Marks is Chairman and Cofounder of Oaktree Capital Management, a Los Angeles-based investment firm with seventy-five billion dollars under management.  He is also author of The Most Important Thing: Uncommon Sense for the Thoughtful Investor, which was published in 2011.  His memos to clients which outline his views on investing have gathered dedicated readers among many types of investors.

The event was moderated by Roger L. Gewecke, Jr., CFA, a member of the CFALA Board of Governors.

Marks began his presentation noting that individuals are not “born” with a philosophy.  One’s philosophy is based on experiences, and then he listed the four things that have done the most to help him develop his investing philosophy.

The first item was the book, Fooled By Randomness, The Hidden Role of Chance in Life and in the Markets, by Nassim Taleb.  The book looks at the role of luck in investing and life.  Marks noted that what should happen is not always what will happen, and that he likes to define risk as recognizing that more things can happen than will happen.  He also noted that so many prognosticators predict a single outcome, yet they should recognize a range of outcomes.

The second event that helped Marks shape his philosophy was reading the book, A Short History of Financial Euphoria by John Kenneth Galbraith.  Marks said this book, like Taleb’s, is thin. This book helped him formulate the idea that one of the most important things is to know what we don’t know and then try to know the knowable.  Marks said, “Our business is filled with people who have been right once in a row.”

The third experience that formed Marks’ emphasis on defensive investing was a 1975 article in The Financial Analysts Journal by Charles Ellis titled The Loser’s Game.  The article used a sports analogy to describe successful investing.  Marks, crediting the article, pointed out that there are two kinds of tennis players:  1) The elite player that wins games by hitting winners; and 2) the rest of us who play a “loser’s game,” with the match going to the player who hits the fewest losers.  The elite player has practiced and perfected his game so much that very little is left to randomness.  However, since the investing world is so full of variables that are largely uncontrollable, the successful investor is better off avoiding the losers as opposed to going for the winners.

Finally, Marks said his meeting Michael Milken in 1978 had a major influence on his philosophy.  Milken said if you buy the bonds of B-rated companies and they survive, all the surprises will be on the upside.  The operative statement being “if they survive.”   Marks said he realized that you could invest in the debt of the worst companies in America and make a lot of money if you were paid an appropriate risk premium. “That’s really a big part of the philosophy, that quality investing is not about buying good things, it’s about buying things well.”

After sharing his four events that helped him form his philosophy, Marks then shared his three favorite quotes.  (“I love quotes,” he said.”) Going in reverse order of importance, Marks said his favorites are:

“Being too far ahead is indistinguishable from being wrong.”

“Never forget the six-foot-tall man who drowned crossing a river that was five-foot-eight on average.”

“What the wise man does in the beginning the fool does in the end.”

He amplified these quotes which led to the moderated Q&A.  During the Q&A he addressed issues ranging from advice to young professionals, to the current market (“Not cheap, but not incredibly rich.  On the high end of fair.  Therefore it is time to be careful”) to any expectation of an increase in crises over time (“I don’t necessarily think so.  But we’ll see.")

The event was also webcast free to CFA Society members throughout California.  For CFALA members who missed the presentation, they will also be able to view the webcast on Friday, December 20th via the CFALA website.  

By Tom Derse, CFA 

CFA Society Los Angeles Initiates a Discussion to Collaborate with CFA Beijing

With CFA Society Los Angeles significant interest in the Asia Pacific region, we are excited to hear the formation of CFA Society of Beijing (“CFABJ”).  The first official CFA society in China was established earlier this year after years of efforts from the local finance community and the CFA Institute.  CFALA’s Asia Pacific Community of Interest group will begin efforts to collaborate with CFABJ.

CFABJ held its inauguration ceremony in April of 2013 after a long journey to its formation.  It is the first and only independent CFA Society in mainland China at this time.  Before the establishment of CFABJ, CFA China, which has over 2,000 registered members, over 5,000 affiliate members and greater than 40,000 candidates, has been administered as a subsidiary of the CFA Society of Hong Kong.  With the formation of CFABJ, a large contingent of CFA China will ultimately become a member of CFABJ with the expectation that the membership will grow to 5,000 in 2015.  The society’s members consist of local portfolio managers, investment advisors, research analysts, investment bankers, risk managers, educators, and other financial professionals from both domestic and international financial institutions, as well as entrepreneurs.  The society aims to build an efficient system to better serve its members as well as to promote development of the domestic and global financial industry.  Under the leadership of its member volunteers, the society has been actively involved in many aspects of the financial world in China and organized various professional and social events such as the China Investment Conference and Beijing Hedge Fund Conference.  CFABJ is currently composed of 15 functional committees and 6 interest groups (including fixed income, stock research, private equity, hedge fund, risk management and corporate governance).  

Similar to CFA Society Los Angeles, CFABJ makes its best effort to facilitate the exchange of information and opinions within the local financial community and between peer investment communities globally.  CFALA believes there is a mutual interest to establish a relationship with CFABJ.  As suggested by Mark Harbour, CFALA’s President, the Asia Pacific community of interest group has a initiated discussion which includes various forms of collaboration that will benefit all our members.  Initial suggestions include:

1.       Introductions between key CFA members in Beijing and Southern California for any society members who will be travelling to each other’s region, whether it be a visiting speaker interested in presenting to the members of the other respective society during their trip or an informal peer discussion between members of each society.  

2.       Resource sharing for programs, career, education and business information.  For instance, CFALA, CFABJ and other societies may wish to consider sharing webinar streams with each other’s membership when available. In addition, relevant career opportunities, educational resources and business cooperation information will be shared with each other through the respective society’s website, newsletter, LinkedIn groups, and other traditional and social media. 

3.       Resource sharing for society infrastructure and volunteer organization.

Spearheading the collaboration between CFA Society Los Angeles and the CFA Society of Beijing is Jessie Huang.  Together with CFALA’s Asia Pacific community of interest group, Ms. Huang will coordinate the collaboration as a representative of CFABJ.  A returning member of CFALA, Ms. Huang is also a founding member of CFABJ. Returning to LA this year, Ms. Huang spent the last three years as investment manager in Beijing at an international private equity firm, China Renaissance Capital Investment (CRCI), a strategic partnership with Credit Suisse.  Prior to CRCI, she worked as an Assistant Vice President in Finance at Bank of America and had served on the board of CFA Society of Orange County for 4 years with multiple leadership positions.  We encourage suggestions for any collaboration efforts with CFABJ, and other societies as well.  In addition, if you have upcoming travel plans to the Asia Pacific region, Ms. Huang may be able to coordinate introductions with finance professionals in that region.  Feel free to email suggestions or requests to Jessie Huang: or the co-chair of CFALA’s Asian Pacific Community of Interest group, Andy Chong:

By Jessie Huang, CFA 

Book Value:  CFALA Book Club Offers Networking and Education

People join book clubs for different reasons.  One very often meets interesting people with similar interests.  Despite the solitary nature of reading, some books are plainly better when discussed.  Book clubs might introduce you to books that you might not otherwise read.  Finally, and maybe most importantly, the food at the meeting may be much better than anything you would whip up at home.  Whatever the reason, CFALA has a book club that provides an excellent resource for networking, education and interaction.

Henry To, CFA started the CFALA book club to bring together two things that every CFA charterholder knows plenty about:  reading finance books and sharing the knowledge gained from that reading with others.  Only this would be a lot more fun than studying for the CFA exam.

“We started the book club as a basis for a more intimate connection between CFALA members where we can exchange thought leadership and views,” To explains.  “In many ways, I believed the book club would give us a forum for a deeper dive into all the appropriate and philosophical issues that are affecting the financial industry and economy today.”

When asked whether it took some time to get the book club rolling, To said, “Surprisingly, it did not take very long.  We piggy-backed off an event held by the Portfolio Management Group (where they brought in Nicholas Wapshott, the author of Keynes Hayek: The Clash that Defined Modern Economics) and we began recruiting book club Members.  There were already dozens of members who wanted to sign up for a book club.”

As To’s day job became busier, he asked Don Brown, CFA if he would take over as chair of the Book Club Community of Interest (COI).  Don accepted the responsibility just a few months ago.

The structure of the membership and meetings is relatively casual.  There is no formal membership list.  When a book is selected, the information - book, author, place and time - is emailed to all CFALA Society contacts.  Anyone can register and attend, and that means attendance varies based on interest in the particular book.  The discussion is also very informal with the host moderating.  Discussion is open.  And no one person is the point person.

Potential members or attendees should not worry about being unprepared for the discussion if they want to attend a meeting about a book that interests them.  Brown notes, “We welcome those who, for whatever reason, come 'unprepared'. Perhaps they'll learn something or provide an insight we might have overlooked.”

From 2012-13, the book club has discussed several  books including, The Black Swan:  Second Edition: The Impact of the Highly Improbable Fragility; The Financial Crisis and the Free Market Cure: Why Pure Capitalism is the World’s Economy Only Hope;  and Deep Freeze: Iceland’s Economic Collapse.  Brown said, “Going forward we hope to expand on this base and increase the number of meetings. “  In addition to the meetings that occur in early evening, the club can sponsor authors to present at the CFALA hosted lunches.

Like most book clubs, there is a social aspect to the group also.  Actual discussion at the meetings is preceded by an informal networking opportunity with some light snacks and beverage - e.g. wine and cheese - provided.  At the December meeting at Biltmore Court, pizza and refreshments were served.  If that is not enough, the event was a qualified CE activity, so attendees received an hour of credit that was automatically recorded in their CE diary.

As the book club matures, they look to new platforms to add members and discussion.  The club just added a group on LinkedIn called CFA Society Los Angeles  Book Club.  Brown said, “The purpose of the group discussion forum is to provide an easier way for interested members to propose or nominate books for future discussion meetings, and also a place to begin the discussion and exchange of views before the meeting and continue it afterward.”

The book club is an example of what a professional organization often seeks to accomplish.  Networking, education, sharing ideas and meeting new people.  Look for the email for the next meeting, check out the LinkedIn site or find more information at

By Tom Derse, CFA 

CFALA President's Letter

CFA Society Los Angeles President Mark Harbour, CFA, provides us with an update on the priorities, activities, and plans for the coming year. Read more...  

Free (Non-Credit) Course on Finance of Retirement Pensions from Stanford GSB

Eight weeks ago, your Curator enrolled in a free, non-credit massive open online course (MOOC) on the finance of retirement and public pensions taught by Stanford Graduate School of Business Professor Joshua Rauh.  The concluding portion of the course was based on Novy-Marx and Rauh's (2010) public pension promises paper, which you can access by clicking on the provided SSRN link. Read more... 

A MOOC that Mocks

The PensionDialog blog's Ady Dewey critiques the Finance of Retirement and Pensions MOOC, and provides the public pension administration perspective regarding the ideas and research findings presented in the course.  PensionDialog was launched as a collaborative effort of the National Association of State Retirement Administrators (NASRA) and the National Council on Teacher Retirement (NCTR). Read more... 

Problems with Scientific Research:  How Science Goes Wrong

In this article for the Economist, the author provides a thoughtful critique of scientific research in general. While the examples cited come from the natural sciences, many of the conclusions pertain to financial and economic research as well. Read more... 

Building a Better Income Statement 

Investment professionals often find it difficult to interpret income and expense items that have been classified according to generally accepted accounting principles (GAAP).  In this McKinsey & Co. Insights article, Ajay Jagannath and Tim Koller outline their recommendation of a non-GAAP income statement approach that's more conducive to investor interpretation. Read more... 

Global Market Sentiment Survey 2014

The latest -- and largely positive -- CFA Institute Global Market Sentiment Survey (GMSS) of members came out just before we went to press. You can access the GMSS web page and report using these links:

Research & Data

Global Market Sentiment Survey































YouTube Facebook Twitter Instagram LinkedIn