Topics in undergrad NOT covered by CFA? (that help in finance jobs)

I’m very curious about what people with finance related undergrads have knowledge of, that the CFA program doesn’t cover - or at least touch on.

I’m an engineer, with an option in management science. A fraction of my undergrad would be highly relevant/complimentary, to certain jobs in finance. However, I can’t even put my finger on a finance related topic that the CFA program doesn’t at least touch on.

Correct me if I’m wrong, but I’d estimate 85% of the CFA program is new material for an engineer who has never worked in Finance. I’d speculate that less than 20% of the CFA program is new material for somebody with a finance related undergrad. Is this accurate? Or am I out to lunch and drastically out of touch? Forgive me if it’s the later, just trying to get some color here.

How about soft skills:

a) personality

b) persuasiveness

c) writing skills

d) hygiene

e) drinking ability (more important than you might realize)

f) leadership

By the time you get through CFA L3, you get to stuff that’s much more in depth than most finance undergrads will know.

I’ve often thought of L1 as a comprehensive exam covering what goes on in a finance undergrad program. Finance undergrads may get to parts of L2 and even bits of L3, but most of that exam will either be new or in substantially greater depth than all but the best undergrad programs.

I say this having taught an undergraduate investments course, although I myself was not a finance undergrad.

There’s a lot of client-based skills and marketing stuff that experienced finance professionals (even with just a few years) will know about. Things like how talking in terms of non-risk-adjusted returs can get a client to switch to you fund, etc… These kinds of things aren’t in the CFA curriculum. Also the networks with information sources, potential clients, etc.

For me, Level 1 was pretty much covered through my masters program. Very little of it was covered in my undergrad, but I went to a liberal arts type school without a very deep business department. Level 2…jeez. School doesn’t even begin to teach you what I learned in school.

But this really is a moot comparison. What one person learns in one school might be very different from somebody else.

All finance related quantitative topics. For instance, CFA tells you that something called a “binomial tree” exists, but you cannot program such a model using CFA knowledge.

so isn’t CFA syllabus regarded as an intermediate intro to all things finance??

The CFA program is woefully inadequate on the accounting. Not even close to what you would get in an undergrad business program, which in itself is not even close to what you would need to know in a professional analyst job. I think the valuation stuff is pretty lacking as well – there is a lot of valuation material in the CFA exams, but they teach the wrong stuff. DDM, H-model, FCFE etc. is not very relevant to actually valuing equities.

Yes, I agree that undegraduate accounting is probably more in-depth than CFA accounting. I’ve never taught that (and wouldn’t want to), but I think that since accounting is more immediately sellable after graduation, it makes sense for undergraduate programs to drill that in more.

The CFA exams can’t cover everything, obviously, but my beef with the accounting is that the tests focus on some pretty obscure stuff. Percentage of completion accounting? I’ve used that like twice in six years. I think the curriculum should focus on some of the more core elements of accounting (basics and intermediate) – we don’t really need to know how currency translation impacts the balance sheet, for example. But it would be really helpful to 95% of candidates to know how the three statements connect and what some of the major issues in GAAP accounting are. The only part of the entire curriculum I found really useful was the treatment of straight line vs. double declining depreciation.

my background: I passed level 1 and am taking level 2 in June and I graduated from Finance undergrad 2 years ago.

The core classes in undergrad are very similar to the CFA for L1 & 2, but the electives are areas the CFA does not cover. The only difference would be that undergrad went much deeper into accounting, but I assume the CFAI left that to individuals pursuing the CPA designation.

However, not all of the finance electives in undergrad are covered in the CFA program. For example, I took an elective on how to run a bank (netting interest rate exposure, maintaining basel requirements, etc) and an elective on entreprenurial finance.

Agree there is a lot of useless BS in the accounting section of the exams. However, when I went through the CFA gauntlet I remember there being a good amount of questions focusing on linking the three statements. It wasn’t as in depth as an accounting program, but there were certainly questions relating to if receivables go up what happens to CF statement, what is the effect of a share buyback on each of the statements, etc.

Anyway, I think the biggest thing not covered is how to forumulate a comprehensive investment thesis. There is an opportunity to do this in L3, but the exam focuses on describing investment risk tolerances, return requirements, etc. for individuals. I think an investment thesis is at most as subjective as a risk tolerance/return objective derived from a brief narrative about a fictional person.

Bromion and the other fundamental analysts here,

If the CFA accounting stuff isn’t enough what did you guys study to make up the gap? I imagine a lot of GAAP specific stuff. Did you actually think about doing something like the CPA or are there better advanced fundamental textbooks/info available that you used?

/Obviously we don’t have access to your proprietary on the job training, but anything else wouldbe cool to know about.


I just bought some accounting books off of Amazon and then drilled them. I don’t know if there is a best set of books, it’s pretty much all the same. You have to be really fluent in the impacts of various transactions / actions on the three statements and how that flows, as well as some of the common themes in investing – NAV vs book, hidden catalysts on the P&L, economic value added (or lack thereof). This stuff should be automatic. It seems like most people in the industry are content to forecast EPS or EBITDA and apply a multiple (often arbitrary based on historical multiples), and that can be effective, but anything obvious tends to get arb’d out of the market very quickly, e.g., “Wow, this is a very low multiple stock with a growing stream of earnings from a fantastic business.” You probably will not find stuff like that unless you are looking in a post-Lehman type of scenario.

I thought about doing the CPA but I don’t have any experience in audit, so I am not eligible to earn the letters. I think you can do the same thing for less money by just reading the books.

Every investor has his / her own style. My style is finding the inflection – the change is the opportunity. Stock prices tend to trend in one direction until the trend is broken, either by excessive valuation or some catalyst. My best calls have all come by looking at something very quickly (20 minutes maybe) and determining that the valuation looks wrong from a high level, and then figuring out why everyone else is wrong. I have been particularly good at this on the short side because for lots of reasons, supposed “winning” stocks tend to get ahead of themselves (everyone loves a winner) and become irrationally priced. You can do it on the long side as well, but personally, I like betting against things more than for them (I guess that is a personality defect – I love pissing in martinis).

Generally, on the short side, I try to find things that don’t have a “reason to exist” despite their excessive valuation and love from the Street. One example is American Superconductor (AMSC). I glanced at the stock for 15 minutes and it jumped out as a good opportunity, so I started to dig. The company makes commodity hardware and software that goes into Chinese wind turbines (sketchy) and had one customer accounting for 80% of revenue (very sketchy). The Street loved it because they had a huge backlog from this one customer, and people thought the realization of the backlog should account for a 50x+ EPS multiple.

But it didn’t really make sense – why would this customer want to buy commodity widgets for a 40% gross margin when they could get the same stuff from Hitachi and ABB at a 20% margin? In other words, why did AMSC exist at all? The reason is because they bought a company that had a contract with this one customer. Back of the envelope math suggested their customer could save $100M on their cost of goods line by switching suppliers, and the contract was about to expire. When it did expire, the customer refused to take any more shipments from AMSC, and the stock dropped from $30 to $3. I really have no idea what other people were looking at that they did not see this about to play out. I guess they were buried in some arbitrary earnings model that said the company would earn X, but apparently people really didn’t know what they were modeling at all (I think that is pretty common, btw).

So basically, it’s really hard to beat the market over time by being 2% better at forecasting EPS in some model. You have to go deeper than that. On the long side, this means buying companies where results are going to get better (or at least less bad) that have a reason to exist and some demonstrated value proposition that allows them to earn economic returns, and on the short side it means betting against fad stocks or stuff that doesn’t need to exist.

A handful of things that I would recommend anyone be fluent in:

  • Accounting (GAAP, linking the three statements, general principles like operating leverage and “valuation leverage” (particularly relevant for companies with debt – forecasting EV, etc.).

  • Porter’s 5 Forces

  • Basic valuation stuff (DCF, multiples approach)

After that, it’s just critical thinking (liberal arts education FTW).

Edit: I don’t know if that answered your question, but hopefully it gives some useful context.

amazing stuff.

bromion – awesome post

you have some good insights

i just read the annual/quarterly statements…you get the hang of it once you go thruogh them…most of the accounting stuff is very well covered in the notes to consolidated statement section…

the thing about top undergrad programs is that exams are not multiple choice…

also cover things like Marketing/ and Business Law