Quote for the Week

I recently received the CFA study materials for the Level III test this June.  While I am not looking forward to having no life again starting early next year, I did have a sense of "Christmas Morning" as I opened the package containing a stack of six books about a foot high.  Each with pristine and glossy cover pages which will soon be covered in blood and tears.  The excitement came not from the idea of starting the grueling process over again, but from the feeling of being "over the hump" (having 2 out of 3 tests complete)  And also because Level III is predominantly concerned with Portfolio Management, which I presume is the industry many CFA candidates ultimately wish to be in when they start the treacherous journey.

I could not help opening up a couple of the books to thumb through the subject material.  I landed on the section "Monitoring and Rebalancing:  Rebalancing the Portfolio." I then came across a paragraph I couldn't help but to admire.  It was like the CFA Institute had gone forward in time, read my blog ( because it will become wildly popular *sarcasm*), and then implanted my "Crowded Market" Idea into their study material.  

OR more likely I stole the idea which has been around for much longer than I have, and championed by people who are much smarter than I am who actually created these theories that are then put into a certification test that I then study and learn.

Either way, the paragraph went as follows:

"Successful active investors are not swayed by the crowd. The cultures of successful corporations and winning investors are profoundly different.  Corporations, which are cooperative enterprises, prize teamwork and reward triumph while dismissing failure.  The exceptional investor pursues an opposite course, staying far from the crowd and seeking opportunities in overlooked areas while avoiding excesses of the crowd.  Investing in areas that are not popular while refusing to join in trends sets the successful investor apart."

- CFA Institute.  CFA Program Curriculum.  Level III.  Volume 6 pg. 84

I could not have said it better myself, although I have tried.  It is this philosophy that drives the meaning behind the title of my blog.  Yes, it goes against our very nature.  As human beings were are highly emotional and following such strategy can be difficult at times, but being prepared and educated on why this strategy works can help many investors and clients make it through the difficult markets.

On a side note.  I do not know the Institute's meaning by "Active Investor" in this context.  I was just skimming through as I mentioned.  But I can't quote this paragraph without again emphasizing that "active investor" does not equate necessarily to "stock picker."  I believe this is the wrong conclusion in many cases.  There is a case of actively managing passive asset exposure.  Many times this "active" managing simply means systematically rebalancing.

Anyway.  I know this does not really count as a blog article, but I couldn't pass up sharing this quote.  And I am promising to myself I will not actually start studying until January, or maybe December, or maybe November.......