Archive for September, 2006

Chartered F***in’ Analyst on Material Non-Public Information

We have updated our site to include a history of all our past CFA Exam prep questions and study guides.

Material Non-Public Information Sample Question

Couric Noriega, CFA, is a citizen of Emerging Market Country (EMC) with no securities laws which govern the use of insider information. Ms. Noriega has clients in both Emerging Market Country and Neighboring Market Country, the latter of which has liberal securities laws with respect to the use of material non-public information. Should Couric Noriega come into the possession of material non-public information, she should:

A) Inform all her clients to assure she maintains the standard of Fair Dealing and then treat them all to a gratis meal from the Hamburguesa stand.
B) Trade on her personal account to lock down some sweet gains, and then inform all her clients of the information and guarantee them a rate of return of “Really High.” The Priority of Transactions states that a CFA holder should always put their own gains before their clients’ gains, and their clients’ gains before the law.
C) All of the above.
D) Only B.

Answer: D. While on past tests the appropriate answer would have B, and D would have made no sense or been at best redundant, the CFA institute has changed the bylaws so that when answering a question with two equally right answers, one of the two equally right answers will be arbitrarily chosen as the “correct answer.” In this case, it should have been apparent that it was D.

A is a misleading correct answer because while Couric Noriega upholds the correct standard of Fair Dealing, the distribution of hamburguesas could be seen as being used to unduly influence her clients and must be disclosed in writing to her employer, her employer’s employer and any relevenant regulatory bodies.

Working with Patricia Dunn is the 7th Level of Hell

Forget the whole pretexting, spying on other HPQ board members and related nonsense. Can you imagine working with a woman like this?

Perkins, the venture capitalist, thought in broad strategic strokes, preferring to leave the details to others. Dunn thought the core of her job was to dot the I’s and cross the T’s–to keep her board process-driven rather than personality-driven. It drove Perkins nuts. It kept making him think of that helicopter. He recalls a meeting in his office with her in which he wanted to discuss how to compete better with Dell, IBM and others. According to Perkins, she was fixated instead on her discovery that there were inconsistencies between HP’s bylaws and the Corporate Directors Handbook. Those inconsistencies then occupied hours of discussion at subsequent board meetings. “Intel might be kicking the crap out of us,” Perkins says, “but that didn’t seem to matter.”

Long or Short Presents Strategic Craps fka Dice Wars

Strategic Craps

We rebranded Dice Wars as Strategic Craps and released it directly to you, available on our website, for eternity. Gratis. Ignore the title, we rebranded it, we assure you. A permalink to the game will reside in the top left of our site.

Game created by Game Design.

GOOG VP of Engineering has an FYI to IT Mouth Breathers

Following on the report from two weeks ago, on HR vs IT, Mister Juggles uncovered some choice quotes on Google’s (NASDAQ: GOOG) approach to IT.

[Douglas Merrill, VP of engineering and Google’s de facto CIO] is evasive when asked what kinds of commercial PC software are used at Google. “More important than what we put on each desktop is how we think about what to put on each desktop,” he says obliquely. “Google’s philosophy is that choice is always better than control. Tightly centralized control gets in the way of innovation.”

He then takes a jab at CIOs –which he describes as a title used by “old-world companies”– at other companies. “Most people in my job try to control. ‘Here are the three things you can buy.'” Merrill explains. “I try to control as a little as I possibly can but make it easy to work within parameters that I know how to work with.”

Merrill sees a distinction between tools that tell you something and tools that stop you from doing something. For example, he observes that some financial services institutions block instant messaging because of they way they interpret regulations. “We don’t think that’s the right approach here,” he says.

The right approach, as Merrill sees it: Talk a lot; use data, not intuition; automate wherever you can.

Basically Google aligns itself to allow technology as a tool to leverage their human capital as much as possible. That is the focus. Compared to the sentiment expressed by a reader and IT professional in the comments of our previous article:

September 4th, 2006 | 5:30 am
I’m an IT guy. And no, I’m not a skinny white guy. Do what you want with your pc at home. The company dosn’t give you one for your own personal entertainment, it’s to do the job they pay you to do. Since when do you need google search to do your job? Get back to work.

It’s a constant battle to keep the donkeys (otherwise known as users) from screwing up their computers. Just because you possibly haven’t screwed yours up yet is more due to luck than anything else.

The commenter sees his job in IT as being a virtual prison warden, keeping everything orderly and not letting anything get out of hand.

Translating Corporate Speak: Hewlett-Packard Board

Executives and companies love to obfuscate (see related research Translating Corporate Speak: Auto OEM’s and Translating Corporate Speak: MOVI & BBI). Since it’s hard to understand the real meaning of their statements, we have provided a handy translation. Here are the words of the Hewlett-Packard (NYSE: HPQ) Board of Directors run through our propietary translation algorithm.

Corporate speak:

HP used an unidentified private investigator, who in turn hired a contractor who used pretexting to obtain directors’ and reporters’ phone records.

-HP’s Board hired a 3rd party to “pretext” a fellow Board member and reporters to whom they believed he was speaking. And by “pretext” they meant falsely impersonate. The 3rd party was hired to offload risk.
-The 3rd party firm, which was hired to falsely impersonate a Board member and reporters, wisely hired a 3rd party to perform this illegal task. This 3rd party (6th party?) was hired to offload risk.

Corporate speak:

[Patricia Dunn, Chairman of HP’s Board] said she only found out Wednesday night that investigators hired by HP had also used pretexting to gain access to reporters’ phone records.

She only meant to illegally access the accounts of her fellow Board member and never intended to anger reporters for large, national newspapers who could end up forcing her resignation.

Corporate speak:

HP said a board committee investigating the matter was ‘advised by the committee’s outside counsel that the use of pretexting at the time of the investigation was not generally unlawful (except with respect to financial institutions), but such counsel could not confirm that the techniques’ of outside investigators ‘complied in all respects with applicable law.’

Damn, that was definitely illegal. Let’s start blaming outside counsel.

Quotes Entirely Relevant to Investing

Even if you’re on the right track, you’ll get run over if you just sit there.

-Will Rogers

Past Quotes Entirely Relevant to Investing

Please Put Dice Wars on my Blackberry

Crackdictive and fun, Dice Wars needs to be played on my Blackberry by me. I do not how to do it but there must be a way. Please help and email me at And if you can’t help me, spend your Friday afternoon playing this game, and by doing so let the financial markets fall apart so my short position on “Financial Markets” can start ripping. Edit: We have added Dice Wars to our site, but we will only refer to it as “Strategic Craps“.

“Enjoy Your Next Airline Delay” From Amex

I got this email from Amex today advertising their new Travel Delay Protection product:

To: Me
Subject: Enjoy Your Next Airline Delay

Enjoy my next delay? You sarcastic mother******. File this under bad marketing, as it made me too anxious. The best advertising is the kind that seeks to make you just anxious enough, and not one ounce more. Like how seeing hot women in beer ads instills men with a sense of inadequacy that forces them to drink away their self-loathing fattening early-thirtysomething waste of a life…but does not push them to hate the beer commercial for rendering the facade of contentment they had been living.

The Gmail Account of a Mini-Baller

I was looking for an email I recently sent to the other LoS writers where I attached a 42-page white paper that explicitly lays out the spending habits needed to achieve baller status, it’s entitled “A Psychographic Analysis of Luxury Spending” and if you’re serious about becoming a baller I highly recommend you read it.

I knew I must have used the word “baller” in the email so I searched for “baller, not mini” and gmail displayed messages “1-20 of 37”.  37 seemed like a respectable number of times to have talked about being a baller over email but was a little below what I might have hoped.  Luckily I was reassured of my priorities after the following searches:

get it done –  1-20 of 50
I searched for the phrase in “quotes” so it only picked up usage of the whole phrase and I think 50 is a respectable number of times to have told people to get it done over email.

mini-baller –  1-20 of “about 80”
Again searching in quotes, this was interesting as apparently I’ve used mini-baller 116% more often than baller by itself.  This clearly shows how far I have to go before becoming a baller given that one of the requirements of being a baller is not knowing what a mini-baller is.

LGA      –       1-20 of  “hundreds”
Now I’m getting somewhere.  The only emails where these three letters showed up in this order are 1) itineraries for my jet set lifetyle flights out of Laguardia and 2) email exchanges between me and a tight guatemalen chick I know named oLGA.  In either case the fact that there are hundreds of these emails is a huge win for me.

Below balance alert –        1-20 of “hundreds”
I have a “Below balance alert” from Chase set up that notifies me daily anytime my checking account balance is below $100, I set the alert in March 2005 so given that there’s only 545 days which I could have received this notice, I think “hundreds” is a pretty mini-baller outcome.

I loaded up the E and created this “Pie of a Pie” chart to represent the results clearly.

Chartered F***in’ Analyst

As an aid to prospective Chartered Financial Analysts who seek to take the CFA Exam for Level I, Level II or Level III this December or next May or next Never-ever, Long or Short has designed a series of review questions to further your edification and help you get an A++ on a pass/fail exam.

Ethics Example Scenario:

Alfonso Gonchar is a trust investment officer at a bank in a Richpersonsburg. He enjoys lunching every day with friends at Richpersonsburg’s The Country Club, where his clients have observed him having numerous drinks. Back at work after lunch, he is clearly intoxicated while making investment decisions. His colleagues make a point of handling any business with Alfonso in the morning because they distrust his judgement after lunch.


Past exams would have stressed how Alfonso is violating ethical standards by acting unprofessionally, raising questions about his competence and misrepresenting his firm and his entire profession in front of clients. This is incorrect.

This is actually a scenario designed to demonstrate the importance of teamwork as set out in Standard VII (c(a)) Appendix Y. The last line gives this away by showing the floor of what colleagues should do to help a coworker out, e.g. scheduling the work day around their colleague’s expected level of net intoxication (ELNI). The formula for this is:

(# of beers divided by body weight) divided by duration of drinking in hours

This formula should be memorized and used according to this schedule of recommended actions:

  • An ELNI of 0.15-0.30 suggests a recommended course of business as usual and covering the fact that Alfonso is wearing sunglasses in the office by saying he has “glaucoma.”
  • An ELNI of 0.30-0.40 would be a situation where 1) it is appropriate to schedule around the Alfonso’s level of intoxication and/or 2) to begin doing firmwide shots of Jaegermeister so that Alfonso’s ELNI stands out less. Remember the core CFA tenant — “We work as one, thus we must drink as one.”
  • An ELNI of 0.40+ requires everyone to 1) drink heavily and more importanly, immediately and to 2) clear the schedule and go out and play mini-baller roulette.

Quotes Entirely Relevant to Investing

Scene from the 1st episode of the 1st season of The Wire (HBO).

McNulty: Let me undertand you. Every Friday night you and your boys, you shoot craps right? And every Friday night your pal Snot-Boogie, he’d wait ’til there was cash on the ground and then he’d grab the money and run away. You’d let him do that?

Baltimore Youth: We’d catch him and beat his ass. But ain’t nobody ever go past that.

McNulty: I gotta ask you, if every time Snot-Boogie would grab the money and run away. Why’d you even let him in the game?

BY: What? (perplexed)

McNulty: If Snot-Boogie always stole the money, why’d you let him play?

BY: You got to. It’s America man.

Past Quotes Entirely Relevant to Investing

Satan’s Portfolio: PAX Funds Going Bad?

Since last January, we have put forth the Satan’s Portfolio theory of investing (see related series of articles Satan’s Portfolio), which follows this:

Ethical and socially responsible investing has made a lot of buzz as a way of dollar voting for a better world. My instinct as an investor says that those fund flows are going the wrong way and their returns since inception back up my argument.

The more profitable questions to answer are: What does Satan invest in? How does he fund evil? Satan’s Portfolio will track the perfomance of the stocks which Mephistocles is proud to put his money into, namely, companies who benefit from suffering, death, war, tobacco, nutrasweet and fraud.

Today’s WSJ has an article (Sub required) which states that the PAX fund, the negative model for Satan’s Portfolio, is going to look to put more sin into its sinvesting:

Now, Pax wants to tone down that objective. Shareholders in August were sent a proxy statement to vote on whether to eliminate a zero-tolerance policy specifically against alcohol and gambling. The change would enable Pax to selectively invest in these industries based on a company’s “entire social-responsibility profile.”

But in other areas, the fund is trying to add new ways to screen out companies it might disapprove of. Shareholders will also vote on whether fund managers should consider a company’s record on environmental issues, for instance.

These shifts illustrate how SRI funds are trying to tweak their strategies amid sagging returns. SRI investors are sometimes willing to exchange a few points of returns for socially conscious stock picking.

By contrast, funds like Vice Fund — which actively seeks out sin stocks — have handily beaten most SRI funds recently. In the past three years, Vice Fund has posted a 20% average annual return.

A host of other SRI funds are also fiddling with their approaches. In December, Domini Social Investments LLC will abandon its traditional approach of passively tracking an index of socially responsible companies in its Domini Social Equity Fund, and instead will become an actively managed fund, picking its own stocks to invest in. Last year, it launched a new fund, Domini European Social Equity Fund, which was actively managed from the start. In May TIAA-CREF, the teacher’s-pension giant, announced the formation of a new social and community investing department, and Ariel Capital Management LLC started Ariel Focus Fund last year.

Recommendation: We expect Socially Responsible Investment funds to continue to be forced by their meager returns to invite more and more sin into their portfolio, but at that point, what’s the point of social investing? It either is or is not socially responsible. “Kinda” Socially Responsible Investment funds just leaves a fund with poor returns and doesn’t have the value of making your Democrat friends applaud your refined sense of social responsibility.

Hat tip to

If you are reading this at work…

…Short yourself. No one else is at work right now but you. It’s time to get out and yacht/golf/sail/scuba dive. Or kill yourself.

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