Friday Article Pick for CFA Candidates and CFA Charterholders: Daniel Kahneman, Amos Tversky (Econometrica, 1979) – Prospect Theory: An Analysis of Decision under Risk


Following on the article pick from 20 May “Judgment under Uncertainty: Heuristics and Biases (1974)”, “Prospect Theory: An Analysis of Decision under Risk” is the second groundbreaking and most famous academic paper of Kahneman and Tversky. This text is in fact among the most cited academic papers of all time laying core foundations of behavioral economics, having integrated insights from cognitive psychology into economic science.
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The Success Equation - Untangling Skill and Luck in Business, Sports, and Investing by Michael J. Mauboussin (CFA Institute, 2013)



Michael J. Mauboussin - Head of Global Financial Strategies at Credit Suisse in New York - holds a strong view that demonstrating investment skill by investment managers requires persistent and predictable performance. Expectations investing is a process for identifying attractively priced stocks by first estimating the market’s expectations of key value drivers and then determining the likelihood that the company can or cannot meet those expectations.

This paper is a transcript of Michael's presentation at the Equity Research and Valuation Conference 2012 held in Philadelphia on 6–7 December 2012 in partnership with CFA Society Philadelphia.
For more, please see this link: http://www.cfapubs.org/doi/pdf/10.2469/cp.v30.n3.1
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McKinsey on Finance Quarterly Magazine - Winter 2016


McKinsey published a new issue of its legendary quarterly "McKinsey on Finance" several weeks ago with the following four thought-provoking articles: Valuing high-tech companies; M&A 2015: New highs, and a new tone; How the best acquirers excel at integration and Pharma M&A: Agile shouldn’t mean ad hoc. It is a superb study source, which can help you integrate your knowledge from the CFA Curriculum to real business world. On top of that, the charts included might be an interesting inspiration source for your own analysis and presentations.


http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/mckinsey-on-finance/mckinsey-on-finance-number-57
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Speculative Half-Cycles Tend To Be Completed Badly by John Hussman, (22 February 2016)


http://www.hussmanfunds.com/wmc/wmc160222.htm

Excerpt from the article: „Last week, the Cleveland Fed Financial Stress Index climbed to 1.92 (measured as standard deviations from the mean); a level associated with severe financial distress, and previously observed only during the 2011 market retreat, the 2008-2009 financial crisis, and the Asian crisis of 1998. This spike has been driven by widening credit spreads and other measures of systemic market-perceived risk. In 1998, a similar spike shortly preceded the collapse of Long Term Capital Management. In 2008, the spike shortly preceded the failure of Bear Stearns and Lehman Brothers. In 2011, the spike was followed by the failure and restructuring of Greek government debt… Presently, a further 40-50% collapse in the S&P 500 over the completion of this market cycle would not represent a worst-case scenario, but rather a run-of-the-mill outcome from current valuations. That prospect is coupled with an expectation of a U.S. recession, and the likelihood that Fed easing will be wholly ineffective in preventing either…. 
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Game Theory Primer for Macro Investors written by Brian Singer, CFA, the key-note speaker at the CFA Society Forecasting Dinner 2016 on 16 February


This Tuesday we had a pleasure to host Brian Singer, CFA, the Partner and Head of Dynamic Allocation Strategies Team at William Blair & Company, L.L.C, as the key-note speaker at the CFA Society Forecasting Dinner 2016. His thought-provoking lecture with the title "The Macro Asset Allocation "Game" - Is Game Theory Overtaking Finance?"unequivocally confirmed once again that economics is a social science as he was stressing many themes and key words which are not the prime focus for the great majority of finance and investment professionals, such as complex adaptive systems, geopolitics, strategic negotiations, game theory or time-series cointegration. Based on Brian's lecture it is totally obvious that to become a successful economist, investor or financial advisor in the long-term perspective it is by no means enough to be a master of Excel spread sheets. On the contrary you must abound also with a solid background in history, geopolitics, sociology and international relations. In his short paper from March 2013 Brian summarizes the game theory framework applied within the investment process of his Dynamic Allocation Strategies (DAS) team. 


Enjoy the reading and let us know your comments! We wish you a nice weekend. 

https://www.williamblair.com/~/media/Downloads/Insights/DAS-Assets/Game-Theory-Primer-April-2013.pdf
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Do you like a simple P/E ratio?


If you do, then according to the valuation and corporate finance guru Aswath Damodaran you should beware in case of high net cash companies in particular. 

Read more at: http://aswathdamodaran.blogspot.cz/2015/06/debt-cash-and-pe-why-cash-is-upper-and.html?m=1 

Today we kick off a regular weekly post "Friday Article Pick for CFA Candidates and CFA Charterholders". Hope you will appreciate this initiative and become our regular readers. We will appreciate a lot your comments, thoughts and feedback below the articles. 
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