October 2014

CFALA e-Newsletter: October 2014

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 laura@cfala.org.

*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 ...

Controller Chiang Addresses California's Financial Past, Present and Future

California State Controller John Chiang is a very busy man.  On Monday, October 06, Chiang presented “California’s Financial Future,” an event co-sponsored by the CFA Los Angeles Advocacy & Ethics Committee and the California Municipal Treasurers Association (CMTA). This event was part of the CFA Institute’s Future of Finance Initiative which is a long-term global effort to shape a trustworthy, forward-thinking financial industry that better serves society. Collaboration with key legislators, politicians and persons of influence allows us to become better informed and to provide a meaningful outlet for our views.


How Mr. Chiang found the time to make the presentation is impressive.  To wit, as the State's Chief Fiscal Officer, the Controller serves on 81 boards and commissions including the State Lands Commission, California State Teachers’ Retirement System Board, California Public Employees’ Retirement System Board, Board of Equalization and the Franchise Tax Board.  The controller oversees the eighth-largest economy in the world and makes sure the State’s $100 billion budget is spent properly.  In addition, the Controller is responsible for auditing and processing all personnel and payroll transactions for state employees, for auditing various state and local government programs and issuing warrants in payment of the State’s bills.  Finally, the controller is responsible for informing the public of financial transactions of city, county and district governments.  And, as Mr. Chiang noted, “Communicating with over 30 million people is very difficult.”


Chiang provided some context of where we are now by reviewing where the state was during the fiscal crisis.  In July, 2007, months before the official start of a recession, the state was already in a cash deficit.  And things got worse from there.  2008 saw a continuing real estate meltdown, an increase in fuel and food prices.  2008 also saw the Lehman Brothers collapse, AIG bailout and a California budget that was 85 days late.  In 2009, California, according to Chiang, “was so broke there was only $6 of cash for every $10 in expense.”


Fast forward to today and California ended the most recent fiscal year in the black for the first time in seven years. Revenues as of June 30 exceeded spending by approximately $4.3 billion, which was enough to pay off the $2.4 billion in outstanding loans carried over from the previous fiscal year and leave the state with a positive cash balance of $1.9 billion.  For the total fiscal year, spanning July 1, 2013, through June 30, 2014, overall revenues were about $101.6 billion and exceeded Budget projections by $2.1 billion. Personal income taxes were the principal driver of that overshoot, followed by corporate taxes.

Disbursements for the total fiscal year equaled approximately $99.6 billion and were close to DOF projections issued in January. The cost of state operations and capital outlays were less than expected but were offset by higher-than-anticipated payments to local governments and other spending. Greater outlays for health care represented the primary area where actual spending exceeded DOF estimates. This was largely due to increased state spending for Medi-Cal patients as the Affordable Care Act has increased awareness of the program.

Although there has been dramatic improvement since 2007, Chiang says it is too early to declare victory.  Chiang noted that in previous years “everybody borrowed too much money” and that included California.  California’s future also includes a giant pension liability, although Chiang said that pension reform will help control costs while not affecting current beneficiaries or most current employees.

The luncheon also included a presentation of a website developed by the Controller’s office which offers a mind-numbing amount of detail about the finances of cities and counties across the state.  Want to know the total population and revenue of Sierra County? Go to bythenumbers.sco.ca.gov.  Chiang said offering the detail in an easy-to-use format will hopefully help avoid situations like the City of Bell.  When activists and journalists have  access to detailed information, citizens should become better informed about how much money is collected and spent by various governmental agencies.

Just so you know, the most recent reporting of the total population and revenue of Sierra County was 3,240 and $19 million, respectively.  Unfortunately, the website does not answer the question of why a separate governmental entity exists for 3,240 citizens.

By Thomas A. Derse, CFA

3-Day Behavioral Finance Conference Brings Together Academics and Practitioners

Conventional wisdom teaches us that investors are mostly rational wealth maximizers.  However, behavioral finance (and Level 3) shows us many instances where emotion and psychology play major roles in our decisions.  Those who believe that investing can be done successfully and consistently regardless of how investors behave will likely eschew research findings in behavioral finance. For others, there are many opportunities to learn more.

Certainly there is much to learn about psychology in investing through articles in publications such as the CFA Institute Magazine, CFA Institute blogs, Psychology Today, and the website of the Applied Behavioral Finance Group Los Angeles (ABFGLA), a community of interest within CFA Los Angeles dedicated to the field.

Curious to learn more and directly from researchers in the field, investors attended the 6th Annual Meeting of the Academy of Behavioral Finance & Economics (ABF&E), a three-day Conference that was held in Burbank, California last month.

Over the course of three days, accomplished researchers from across the globe presented their findings, providing insight into how we make choices and investment decisions and allowing the audience – discussants, fellow researchers and practitioners – to provide feedback and suggestions that may further enhance their work. The conference included an academic perspective while including collaboration between researchers and practitioners.  The goal is an increase in understanding by the researchers and the investment community.

In a phone interview following the conference with R. (Russell) Yazdipour, Ph.D, Executive Director of the Academy of Behavioral Finance & Economics, Dr. Yazdipour said, “The main objective of the ABF&E Conference is to help facilitate, encourage, and expand both academic research and applied research in the field.  The Academy does this by offering:

*      ABF&E’s three-day annual meeting which brings together academics and industry professionals from all over the world

*      The Journal of Behavioral Finance & Economics (JBF&E) under the leadership and editorship of Professor Werner DeBondt, a co-founder (along with Richard Thaler) of the field

*      Annual Awards for Best Doctoral Papers in Behavioral Finance and Economics


*      Other related workshops and seminars like the upcoming full-day ‘Applied Friday,’ which is exclusively designed for practitioners and attended by both professionals and academics at the national and international level.”


When asked to share why he thought it is important for investment professionals to collaborate with researchers, Dr. Yazdipour said, “For the same reason that researchers need to collaborate with professionals. That is, we academics supply real-life and cutting-edge findings to professionals and if they help us make our findings and models even more real-life, it is good for both them and us, a win-win situation.”

When asked if the value of research in behavioral finance – in terms of how it can benefit practitioners – can be enhanced if the research is presented in a manner that is tailored to investment professionals rather than academics as the target audience, Dr. Yazdipour replied, “Absolutely. And that is exactly why we have created the ‘Applied Friday’. Going forward, we are dedicating one full day out of our 3-day conference to practitioners.”

As a final point, in Dr. Yazdipour’s view, the three main takeaways from this year’s Conference and research findings were:

*       The increased level of practitioners’ interest who came from across the country and even overseas

*      The start of more new applications this year, like the trust-based model and many other practice-focused presentations

*      Continued international interest in ABF&E, and especially the “new blood” in both academia and practice.


By Sona Shahinian


CFA/CIPM/Claritas Social Profile Guidance

LinkedIn (and Twitter) members, please note:  In September, the CFA Institute released guidelines designed to help us properly display our status as CFA charterholders or CIPM certificate holders -- in accordance with the Code of Ethics and Standards of Professional Conduct -- or as Claritas Investment Certificate holders or candidates of one of the CFA Institute's educational programs.  Read more...   And more... 

Building Los Angeles

We recently discovered this Google/Blogger-hosted blog, which is filled with enthusiastic accounts of planned Los Angeles developments, complete with appealing architectural renderings and links to supporting articles.  One question left unanswered -- who is behind this blog?  Your Curation staff suspects that it may be the pet project of a regular contributor to a more established L.A.-based urban development blog.   Read more...   And more... 

Los Angeles Proposes a Higher Minimum Wage

In this blog post for the Huffington Post, University of Southern California sociology Professor Manuel Pastor discusses the potential impacts of Los Angeles' proposed minimum wage increase.  Pastor provides an overview of research in this area, including a 2013 Center for Economic and Policy Research meta-study (really a meta-meta-study) covering roughly a decade of research since 2000.   Read more...   And more...  

The 4% Rule

In her 10/10/2014 Weekend Reads blog post, CFA Institute Enterprising Investor's Lauren Foster provided a link to this Journal of Financial Planning article which discusses the 4% rule's place in history, in honor of the 20th anniversary of William Bengen's initial groundbreaking article.   Read more...   And more...   

The Southern California Investment Company

UC San Diego released a digital copy of this 1890 prospectus-like document out its Mandeville Special Collections Library.  The document describes an "investment company," headed by Ephraim W. Morse, that "will not get sick, move away, lose its mind, become dissipated, gamble, or get too old for business."  The fate of the company is unclear, but there are some indications that it didn't survive for long after the Panic of 1893.  Read more...    And more...  

Debt Sustainability Analysis

edX and the International Monetary Fund (with financial support from the Government of Belgium) is currently offering a five-week, Massively Open Online Course on "sovereign debt sustainability analysis . . . and a medium-term debt management strategy framework adopted by the IMF and the World Bank."  Like many MOOCs, the course is non-credit and non-certificate; however, it is free.   Read more...   


































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