Dear Tim,

Were you to set out to become a mathematician — and have in your sights to be at the top of the field someday — you’d chart a course of study that would culminate in a Ph.D.  In his book, Stewart writes, “No one drifts into being a mathematician.”the research puzzle | This series of letters was inspired by Ian Stewart’s Letters to a Young Mathematician; the link takes you to an index of them.

Contrast that with the investment business.  I fell into it, which was common in days gone by.  I recall being at a meeting with Charles Ellis, who said that when he asked how someone got into the business, invariably they would start by saying, “You know, it’s a funny story . . ..”  But that was back when few had heard of portfolio managers or investment strategists, and if you told someone you were a securities analyst they thought you specialized in theft prevention.

The great bull market and the explosion in the business of managing other people’s money changed all of that.  Now there are student investment programs at hundreds of colleges and somewhere around 150,000 people sit for one of the three levels of the CFA exam.  (When I became a Chartered Financial Analyst in 1986, there had been around nine thousand charters awarded.)  And, of course, we know that the top MBA programs seem to have become feeder systems for Wall Street.

With you at the start of your career, for the next few years you are going to face a key question, “Should I get an MBA, a CFA, or neither?”  Unlike academic mathematicians, you have alternatives, and proceeding with no initials behind your name is a possibility.  People do it, in some markedly different ways:  For those who can get their foot in the door of a traditional investment organization, you can succeed simply by virtue of hard work and good decisions — it is a business that rewards results without regard to credentials.  But getting that foot in the door is much tougher than it used to be.

The other approach is entrepreneurial, by investing on your own, starting a firm from scratch, or developing or working with one of the many new online investment applications.  (Other avenues, which require their own set of credentials and a thick layer of “salesmanship” skills, include becoming a registered representative or investment advisor.)

MBA training can give you insight into the workings of a firm and its components (marketing, operations, strategy, human resources, finance, etc.), but there is much of the investment world that is untouched in the standard MBA curriculum.  However, should you want to change careers later on, an MBA is preferable to a CFA.  Of course, as with math or any subject, what you get out of an MBA in terms of learning and the value of it as a currency depends greatly on the school you attend.

If you think you want to stay in the investment world, a CFA is the better choice.  I love the diversity of the subject matter.  When I taught CFA classes, I could tell who in the class worked in equities and who in fixed income by their reactions — but everyone has to pass the same test, which includes those subjects, plus economics, quantitative methods, financial reporting and analysis, portfolio management, etc.  And ethics, thankfully.  You may think that you only need expertise in a couple of those areas, but the more of them you understand, the greater your value as an investment professional.  The business will try to paint you into narrow lanes; those that know when to veer across them to seize an opportunity have a distinct advantage.

Stewart noted that the math of exams does not encompass the math of the real world, and the same is true for investments.  The raw material is valuable, but incomplete.  For those topical areas that are unfamiliar to you, you should find a practitioner who can help you to understand the larger context while you are preparing for the exams.  That will have a two-fold benefit:  The exams will be easier and you’ll carry that understanding into the markets every day from then on.

If you choose to pursue an MBA or a CFA, remember that they are built upon orthodoxy, by and large, which you need to learn and attack at the same time.  There are principles and standards and techniques for you to master, but the business is one that never stands still, no matter the credentials that you earn.

Later,

tom