Friday, March 30, 2012

RIMM, Research In Motion, BlackBerry

I've been tutoring series 65/66 exam candidates a LOT lately, and one area most seem to struggle with is fundamental analysis. Not sure why so many people are intimidated by the income statement, balance sheet, or statement of cash flows. If you're a business owner, pull up Quickbooks and print your financial statments--how did you do last quarter or last year in terms of sales and profits? That's your income statement. What's your current financial condition in terms of assets and liabilities? That's your balance sheet. If you took a lot of depreciation expenses on your income statement, you might want to see how much cash you generated on the statement of cash flows; or, you can just take your net income after tax on the income statement and add back the depreciation you took on equipment, real estate or other fixed asset.
What's any of this got to do with RIMM/Research In Motion/BlackBerry? Take a look at this scary snippet from a recent headline on the company: "Following quarter after quarter of slashed financial outlooks and missed targets, the company made the ominous choice to discontinue making future predictions about its BlackBerry sales or profit." Huh? What IS a share of common stock? As your exam might say, it's merely a claim on any earnings/profits/dividends the company might have. Well, at RIM right now, there's none of that going on. Last year they made a profit of $934 million; this year they LOST $125 million. So, a share of RIMM right now is a share of a profit that comes in just south of ZERO. Will the company turn around? Here's another snippet: The new CEO said the next several quarters will be difficult ones as the company transitions to a new, bet-the-house platform called BlackBerry 10. That is still on track to become available at the end of the year -- far later than RIM initally planned." Oh, great--so it all comes down to this new platform, and that platform is already suffering release delays. Even if the thing does work out, there will almost certainly be negative news items pushing this stock down indefinitely. Then again, maybe you're a value investor, and you see hidden assets on the balance sheet. Maybe you just feel that sales will improve again, that this "loss" is really due to a one-time event, and as the news drags the stock price down, you load up your shopping cart and just wait for the inevitable turnaround that inconveniently hasn't taken place yet.
Or, you care NOTHING about the COMPANY called Research In Motion because you use technical analysis. Regardless of what the company does, you just trade the stock RIMM based on its price patterns, volume levels, 200-day moving average, what have you. Whatever the case, try to use the financial news to help clarify what you're studying. If you go into the testing center with no real-world understanding whatsoever .. . well, try not to do that. The passing score on the Series 65 exam is 72%; the passing score on the Series 66 exam is 75%. Overstudy?

Thursday, March 29, 2012

How do I set up my own RIA?

Most people taking the Series 65 exam are going to work for an investment adviser, but some are actually setting up their own RIA/registered investment advisory firm. Either way, first understand that passing the Series 65 exam is just a pre-requisite. If you pass the Series 65, you can then apply for a license from your state. IARs (investment adviser reps) register with a Form U4; investment advisers register via Form ADV. Criminal and regulatory disclosure is provided on both forms, and this is where it all goes wrong for a handful of people, as you might have seen from other blog posts. For example, some people pass the exam with flying colors but then have to answer "yes" they were convicted of a felony, or convicted of a misdemeanor involving money or dishonesty. For some, this is a game-over.
Of course, most of you have no criminal or regulatory issues, so you can go ahead and take the Series 65 exam all on your own, knowing that the test is really the only issue. Use a U10, pay your money, buy your materials and study, then schedule your exam and pass it.
That would be Step 1.
If setting up your own RIA, you should also be focusing on all of that, and many people choose to use compliance consultants to do so. RIA Registrar includes our materials in their package to folks setting up RIAs. Google them if interested. Our exam materials, btw, are at