The Power of Financial Analysis

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Zigzag

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Hello everyone,
Today I was thinking what powers do financial analysts have and I found the answer to be pretty depressing. For example, an engineer can make gadgets or plants, a doctor can help people heal, a writer can write, a programmer can create softwares, a garderner can grow stuff… etc. However, for finance I feel its pretty vague. Yes we can save money here and there and create nice estimates, models and strategies, but I think that anyone with some math background and some intelligence can almost do everything we can do. Not only that, but what we do is really unnecassary; its all a self-affirming illusion. It’s like we are really important, but not really.
What are your thoughts on this? Do you, proffesional people here, feel that you have some power or can create real value just like an engineer or a carpenter can? Or, do you feel like the whole thing is an act and the finance theory is a house of cards and every financial analyst is really hollow?
I am novice in the field and I don’t know ****, enlighten me.
 
Give up your CFA journey, now, and become a carpenter.
#LikeJesusChrist
 
Zigzag,
You are so right. Financial Analyst does not create much of a ‘visible’ value. The whole idea is to make funds available to entrepreneurs, research companies, projects, home buyers etc. You hope that they succeed. And, you make money if they succeed.
So, what value did you bring?
You helped them succeed.
Some homework for ya - Read the article - How to win friends and influence people- Page 21-The Economist - 9 April 2016. Carefully observe the chart given on page 22.
Perhaps, you will get the answer.
Phil
 
Phil,
I have just finished reading the article, however, I failed to indentify the chart you’re talking about. Anyway, I failed to understand how the article helps me in finding the visible value of finance.
Raising funds does not require the financial analysis we learn how to do in finance, right? Investors might need to look at a financial feasibility study, for example, but I think those studies and analyses is similar to looking at the statistics of a soccer player when you want to invest in one. You can just look at how he plays soccer, and envision whether he will succeed or not. That’s probably the best analysis you can make of him. Think about the show shark tank; neither the investors nor the entreprenuers need financial analysis for the entreprenuers to raise money.
The reason I am raising this question is that I’ve stumbled upon Robert Greene’s book Mastery. I thought: if I go through the relentless rigor “mastering” the field of finance, what will I have in the end? The answer was vague, unlike when you envision putting such effort in almost any other field. If I put such effort, for example, in engineering, programming, cooking, a music instrument, in almost anything else, the reward at the end of the road seems more satisfying and sensible than the one you get in finance, which could be because finance is, ultimately, hollow.
And again, I am novice in the field and I don’t know ****, enlighten me.
 
OP, your analysis is completely overlooking the fact that we exist in an increasingly services-driven economy, where ultimately much of the value is not derived from tangible manufactured goods.
It’s interesting you mentioned a software programmer as definitively in the “value additive” camp. I would argue that a program is nothing other than an intangible path of decision trees crafted by the programmer out of intangible zeroes and ones for the end user to achieve some task. If you make a financial model, the goal is to integrate possible futures into a best-guess outcome do so that a decision can be made. The decision can be which stock to buy, how much to allocate to Fund X vs. Fund Y, or how many long barrels of oil are needed to hedge production costs. But ultimately, if you have any skin in the game at all and are involved in making these decisions, and you are not some student on the outside looking in and scratching your head, you will realize that since these types of decisions are impossible to do by simply pulling a random number out of your @$$, the value that financial analysis brings to the world is how people can make reasonable decisions of this type under astoundingly complex uncertainty.
 
Finance jobs are near the top in ROI based on costs to obtain necessary degree and general difficulty (IMO STEM is much harder).
People don’t get into Finance out of virtue. If this is how you truly feel, youre probably going to have an identity crisis if you stick down this path.
 
In defense of finance jobs: (and for that matter accounting corporate law etc.) It is tempting to think about a world without money, simply because all of the time and effort people spend on money related tasks could be used to create things. While many people would agree that money has value, as a tool to motivate and a tool to determine needs, could those benefits possibly outweight the “lost” time that people spend on money-related matter? I would say yes. If money is going to run the world it is better to have some people specialize in it, like any other type of specialization. You can make arguments that there are too many people or too much brainpower in it, or that these industries don’t act ethnically, but it’s very hard for me to say the world would be a better place without financial professionals.
Of course it’s not the same thing as joining Doctors Without Borders or something else like that, but you are certainly not a leech. (In general at least, obviously there are things you can do in any kind of job that are unethical and finance probably has more than its fair share of this)
 
OP, I’m not convinced it is important if working in finance produces anything or gives back. To me that is irrelevant. Like said above, if it is a service society has a need for, that gives rise for the existence of the job (arguable point, but for simplicity let’s assume it to be true). You should ask yourself if being the person who knows how all the parts of the puzzle fit together is fulfilling enough for you. I know for myself, that is reward enough. Will you and I contibute to society??………. I have come to this conclusion: one of the best things a citizen can do is be self sufficient and support the industry, economy, and community around them. This gives rise to a society that can support the development of those things that push mankind forward.
 
I started writing an answer but i had two problems while doing so:
1- i know from reading many..many threads in here that most participants on this forum are waaay more experienced and knowledgable than i am and should give you a much better answer.
2- each time i write something it seems to me that you should be aware of it given that you are an LII candidate.

So my question to YOU is, how did you manage to keep studying for LII while thinking that financial analysts are mostly hollow, produce no or little value and “anyone with some math background and some intelligence can almost do everything” they do?

For me, the only thing that kept me going was that i truly believe that the not only the Charter but the knowledge too would payoff for me.
There is no way a high payoff=no real value produced
 
hashtag wrote:
Give up your CFA journey, now, and become a carpenter.
#LikeJesusChrist
Click to expand...
Never knew Jesus was a failed CFA candidate. #BecameASocialist
 
Zigzag wrote:
Hello everyone,
Today I was thinking what powers do financial analysts have and I found the answer to be pretty depressing. For example, an engineer can make gadgets or plants, a doctor can help people heal, a writer can write, a programmer can create softwares, a garderner can grow stuff… etc. However, for finance I feel its pretty vague. Yes we can save money here and there and create nice estimates, models and strategies, but I think that anyone with some math background and some intelligence can almost do everything we can do. Not only that, but what we do is really unnecassary; its all a self-affirming illusion. It’s like we are really important, but not really.
What are your thoughts on this? Do you, proffesional people here, feel that you have some power or can create real value just like an engineer or a carpenter can? Or, do you feel like the whole thing is an act and the finance theory is a house of cards and every financial analyst is really hollow?
I am novice in the field and I don’t know ****, enlighten me.
Click to expand...
youve reached the enlightenment yourself. The finance you’re describing is strictly back office which will be automated and irrelevant in 5 years. See Pershing Squares recent terminations. You need to move to more front office where you’re proposing strategies and determining test minus control (T-C) results and have actionable solutions. People who directly contribute to the P&L l, read front office, are those that make big bucks and get promoted.
 
OP.. Its a good thought. But where does the money come for the engineer, carpenter, doctor, math guy or whoever? That’s finance. If you’re any of the above as an independent professional, well and good - you are your own financial analyst. If you’re any of those working under an organization then some financial analyst is behind your getting a salary.
Where do these people you mentioned stay? A home - possibly mortgages - borrowing - FINANCE and financial analysts basically. Somewhere in the historical chain there was a financial analyst for sure.
How many math guys waste time running organizations? They’re busy ding the technical stuff and the managers etc boss over them. This is more of management not finance vs mathematicians.
The other way to look at it is: see the people who have little to no knowledge in finance. Don’t you see the power to educate them about what to do with their money - that there are productive ways to use it etc. They could do that on their own but are too occupied in their own work to devote time for these things.
 
simple.. financial analyst help make decisions to better allocate resources - (so you can buy more gadgets/medicine/save more lives)
 
In regards to your programmer argument, tangible vs. tangible is not the issue here. When you spend 10000 learning programming, you can make sick programs and hacks which you can see a clear benefit (heck, you can make a financial analyst jobless), while in finance if you spend 10000 hours learning how to do analysis, you can make sick analyses where, however, their benefits are questionable.
By addressing the benefits of finance to society, you guys are missing the point I am trying to make. Finance, or the financial industry as a whole, is beneficial; and therefore its contributers are beneficial to the society in the end. It is hard to argue against that.
However, what I am addressing here is not the benefits of finance, I am adressing the benefits of “mastering” finance. I say the benefits of finance is limited. So let’s say you put in 10000 hours learning it, you will only benefit from the first 1000 hours, which about 80% of you can figure out if you have some math knowledge. The other 9000 is as useless and rewarding as studying bugs in depth. For example, given that you can’t beat the market, learning about put-call parity and how to make synthetics is just show off and is like saying 3+1 is the same as 1+3 and if you see somewhere where the two are different you can make money! Look at the CFA curriculum, most of the stuff we learn ends up with: if markets are efficient, the last chapter you read is useless. So this will only be useful if you can make a time machine and go back in time where markets were inefficient. A huge chunk of finance is like that. When it comes to making estimates and predictions, that’s not finance, thats math and statistics. Wana use economics to argue for finance? Okay, but nothing will change. Go read economics in the curriculum and come back to me and tell me what you can DO after you’ve learned the topic. Nothing more than what you can do learning about bugs.
I have a year and a half experience in corporate finance, and I can see what we do from two lenses: one that says it’s all BS so that we all get paid, and one that says that we are doing something important. But both lenses tells me: “Oh you know all that shit in the CFA 2 curriculum? Good for you. Anyway, there might be some use for what you’ve learned, you might be able to show off with it sometime.”
 
Zigzag wrote:
In regards to your programmer argument, tangible vs. tangible is not the issue here. When you spend 10000 learning programming, you can make sick programs and hacks which you can see a clear benefit (heck, you can make a financial analyst jobless), while in finance if you spend 10000 hours learning how to do analysis, you can make sick analyses where, however, their benefits are questionable.
Click to expand...
You hit the hammer on the head here. I don’t know where being in tech is considered so much more worthy than finance. There has been no bigger killer of jobs than Bill Gates. Remember file clerks, typists, messengers? They are mostly gone. Not blaming Gates, but to act like tech is more noble than finance is silly.
Maybe I’m wrong, but I don’t really judge my existence on how noble my job is. I do on how I take care of my family – like pay the electricity bills, keep a roof over our heads, clothes on our backs, and food in our stomachs. I’m a black man that came from poverty, so maybe my perspective is different than the average CFA charterholder/candidate. How I see it is if you’re worried about the world (as I am), you can improve it by donating your earned money to charity or by mentoring the less fortunate (as I do).
You live in Kuwait, right? Until last year migrant workers had no legal rights and were essentially one step away from slaves. A good first place to start working toward being noble is ensuring this underclass is treated fairly.
 
Zigzag wrote:
In regards to your programmer argument, tangible vs. tangible is not the issue here. When you spend 10000 learning programming, you can make sick programs and hacks which you can see a clear benefit (heck, you can make a financial analyst jobless), while in finance if you spend 10000 hours learning how to do analysis, you can make sick analyses where, however, their benefits are questionable.
By addressing the benefits of finance to society, you guys are missing the point I am trying to make. Finance, or the financial industry as a whole, is beneficial; and therefore its contributers are beneficial to the society in the end. It is hard to argue against that.
However, what I am addressing here is not the benefits of finance, I am adressing the benefits of “mastering” finance. I say the benefits of finance is limited. So let’s say you put in 10000 hours learning it, you will only benefit from the first 1000 hours, which about 80% of you can figure out if you have some math knowledge. The other 9000 is as useless and rewarding as studying bugs in depth. For example, given that you can’t beat the market, learning about put-call parity and how to make synthetics is just show off and is like saying 3+1 is the same as 1+3 and if you see somewhere where the two are different you can make money! Look at the CFA curriculum, most of the stuff we learn ends up with: if markets are efficient, the last chapter you read is useless. So this will only be useful if you can make a time machine and go back in time where markets were inefficient. A huge chunk of finance is like that. When it comes to making estimates and predictions, that’s not finance, thats math and statistics. Wana use economics to argue for finance? Okay, but nothing will change. Go read economics in the curriculum and come back to me and tell me what you can DO after you’ve learned the topic. Nothing more than what you can do learning about bugs.
I have a year and a half experience in corporate finance, and I can see what we do from two lenses: one that says it’s all BS so that we all get paid, and one that says that we are doing something important. But both lenses tells me: “Oh you know all that shit in the CFA 2 curriculum? Good for you. Anyway, there might be some use for what you’ve learned, you might be able to show off with it sometime.”
Click to expand...
Methinks that if we dig a little under the surface, what we find here is not a reasoned analysis of the societal benefits of finance, but rather, frustration at not being good enough to break out of that dead-end corporate finance job.
And my programmer analogy is spot-on. You mean to tell me that, hypothetically, some bozo learns iOS, programs some baloney app that records bowel movements and gives it a cutesy name like “Poopsy” or whatever, is adding value? Millions of examples out there of where these people are adding questionable value.
 
Destroyer of Worlds wrote:
…some bozo learns iOS, programs some baloney app that records bowel movements and gives it a cutesy name like “Poopsy” or whatever, is adding value?
Click to expand...
You didn’t like my app!!? :( I thought it was “the ****”!
 
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