Triple Crown of Finance; For MBA, CFA, CAIA, and FRM/PRM Professional Practitioners

Article 0: The Investment Industry

Welcome to our first article of CFA Corner’s publication on Medium, with a series of articles titled “Triple Crown of Finance”. The Triple Crown of Finance refers to the top three most sought after and recognised finance credentials and designations, which are the CFA (Chartered Financial Analyst) recognised as the Gold Standard of Finance, the CAIA (Chartered Alternative Investment Analyst) Designation the second top investment executive qualification, and the PRM (Professional Risk Manager) credential or FRM (Financial Risk Manager), the last two PRM and FRM are recognised to be equivalent to each other.

If you have an MBA or one of the aforementioned professional qualifications, well,… congratulations you have did a great job and cut a significant milestone, any of these three letters (four in case of CAIA) after your name shall have a tremendous effect on your career and expertise as well.

If you are lucky enough you will remember about 5% of what you have learned over the couple of years studying for the MBA, CFA, CAIA, or FRM/PRM, or any other rigorous professional qualification, that is why The Triple Crown of Finance series of articles is here to revamp the whole experience on steroids, providing a fast forward guide to the best practices of the mentioned credentials as well as a desk manual for executive professionals and practitioners.

If you don’t have an MBA, the CFA for Financial Analysis and Investment, or CPA for Accounting and Auditing are great alternatives if not better, but if you don’t have the budget for an MBA or don’t have the time to dedicate yourself fully for the study of the CFA, CAIA, or PRM/FRM (These certificates are way more affordable than an MBA but require no less than an MBA in terms of time and effort to achieve), or you don’t have both time and money, well,… The CFA Corner’s Triple Crown of Finance is here to bring you an entire MBA/CFA/CAIA/FRM in one publication, saving you time and money.

To give you a true advice, neither an MBA nor a CFA or any other credential will make you better unless you have the passion for finance and investment professionalism.

So, lets begin our journey with an investment overview of what will be covered in this series of articles along the way. As a holder of one of the designations we mentioned or any other investment and finance credential this will be a refresher and an “Aha” moment for the topics and subjects you just passed them without really grasping what lies within, and if you are currently working towards your MBA or CFA or considering doing one, this series of articles will be very helpful and useful as well.

We hope you enjoy the ride, please fasten your commitment & passion seat belts.

The Financial System and the Financial Services Industry

The Financial System helps bridge the gap and connect savers or providers of capital who are willing to save or invest with spenders or users of capital.

those who are willing to save or invest, with excess of cash/funds/capital might be individuals/households, companies, or governments, and they might be spenders as well not just users of capital, for example to pay for houses, education, and expenses in case of individuals/households, and invest in land, buildings, and machinery in the case of companies, or to meet spending plans due to insufficient tax receipts in the case of governments.

Thus, whoever who has accumulated savings can provide such savings and become a lender or investor, and those who receive such capital/funds/cash become borrowers or users of capital.

Assets and Asset Classes

Investment can be made in a wide range of assets. An asset is simply anything that has a market value.

The broadest two categories of assets are financial assets and real assets, financial assets are claims on real or other financial assets, for example; a share or a stock in a company which gives the holder/shareholder a claim to the company’s assets and earnings respective to her/his percentage of holdings in the total amount of shares/stocks outstanding of the company, when such shares can be traded, they are called securities and they come in two broad categories; equity securities, and debt securities, which are commonly referred to as Traditional Investments.

In contrast to financial assets we have real assets or physical assets which among other assets (some of those other assets are financial assets but with specific characteristics) constitute what is commonly called Alternative Investments (i.e. alternatives to traditional investments).

Physical/real assets include land, timberland, timber, farmland, agriculture products, property, real estate (buildings, machinery, cattle, gold, among others), commodities, energy, metals, antiques, collectibles, art, etc, and they sometimes represent the factors or means of production of companies. Such real/physical assets along with some other specially structured financial assets form the broad range of alternative investments.

An investor portfolio may contain either financial assets or real assets, or both financial and real assets.

Financial Markets and Intermediaries

Lets now discuss markets (financial markets) where buyers and sellers meet to trade securities, such markets function through facilitating issuance, buying, and selling of securities, within such a financial system the financial services industry helps in channeling funds between savers/providers of capital/investors and spenders/users of capital. Through financial intermediaries and financial markets savers/investors and borrowers/users of capital can interact together through movement of funds, when investors or providers of capital or savers invest directly in financial markets, they are making direct finance, for example an owner of shares of a company has a direct claim on the company which is the user of capital, when savers/investors/providers of capital rely on intermediaries such as banks and insurance companies, they are making indirect finance, because the intermediaries act as middlemen between both sides; providers of capital and users of capital, in this case investors/savers/providers of capital don’t have a direct claim on the users of capital/borrowers, rather they have a direct claim on the intermediary which in turn has a direct claim on the borrower or user of capital.

Because many investors and savers don’t have the time, skills, and the cost effectiveness to manage, identify, and pick investments or saving products, nor the resources to monitor the bahviour and financial health of borrowers or users of capital (companies, and in some cases governments), financial intermediaries play an important role in matching both sides’ requirements more efficiently and cost effectively.

In our next article we will be starting a heavy weight break down of equity investments, and along the way during our Triple Crown of Finance journey we will be tackling alternative investments (Real Estate, Private Equity, Venture capital and even Blockchain VCs, Cryptocurrencies, and Coin economy or tokenomic modeling, commodities and many more), Risk Management, and even Technical Investing and Trading.

We will also cover models for individual investors and institutional & HNWIs High Net Worth Individuals (and UHNWIs Ultra High Net Worth Individuals), and Institutional Investors (Sovereign Wealth Funds, Family Offices, Endowments, Pension Funds, and more).

Till we meet in our next article, don’t forget to share the love and passion with your friends and network.

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