Caution: Investing in Growth Stocks May Cause Serious Injury

When an exam question implies that investing in growth stocks is riskier than investing in value stocks, it's not necessarily saying that growth stocks are issued by companies likely to melt down. The real risk of investing in growth stocks is that they are priced for perfection and, therefore, super-sensitive to any tidbit of bad news. For example, I'm holding a few hundred shares of KKD, which is trading at what seems a crazy-high PE ratio of about 80! The other day the company announced that it had met Wall Street analysts' expectations, had increased their earnings-per-share by 33% compared to last year, with sales/revenue up 6.7%. What happened to the stock? It dropped about 25%.
Huh?
Yes. If a stock is already pumped up with such a high earnings multiple, even a lack of awesome news can cause a sudden and significant drop in market price. Luckily, I already knew this and used a sell-stop to take a $13,000 profit during the previous earnings announcement.
But, with value stocks--Pfizer and GM--I never think about sell-stop orders. I just follow the company and hold the stock unless there is clearly disaster up ahead.
And, that's the difference between investing in growth stocks versus value stocks. With growth stocks, if the news isn't really good, the share price can plummet. That's because good news has already been baked into the inflated stock price.
With value stocks, as long as the news isn't terrible, the market price usually hangs tough--since bad news has already been priced into the stocks.Pass your Series 65 or 66 exam

Test World vs. Real World for Series 65 and Series 66

One of the most frequently heard sayings in the securities test prep industry is, "there is the test world . . . and then there is the real world." While it's also one of the most universally accepted truths about the Series 65 and Series 66 license exams, upon closer look, there's not much there there. In fact, after teaching this material for around 10 years now, I still cannot come up with a good example of something you learn for the Series 65 or 66 that is not also true in the so-called "real world." The fact that a candidate might know something about financial planning issues does not make an answer like "$10,000 indexed for inflation" incorrect when he or she was really looking for the more precise and up-to-date number of $14,000 for the annual gift tax exclusion. If you know the precise number for the lifetime estate credit, that does not make an answer like "$5 million indexed for inflation" wrong. In fact, it makes it a lot more workable than some precise number that goes up at some point during the year--exactly when, no one really knows.

Some folks seem to take comfort in assuming that the test is stupid, stupid, stupid. However, I've taken the 65 four times and the 66 once, and I can tell you there is nothing stupid about these exams. These exams expect you to know the vocabulary terms inside out, and understand important concepts about fraud, registration, securities risk, and economics . . . all of which relate to the so-called "real world." My impression is simply that you have to study and do some critical thinking in real-time at the testing center. That's it.
So, complain about the test if you must, put it down if it makes you feel better, but if you study with due diligence and avoid a meltdown at the testing center, you will pass the Series 65 or Series 66 exam. Pass your Series 65 exam

Series 65 and Series 65 Live Online Classes Starting Soon

Even though some customers are fine with the whole self-study approach to the Series 65 and Series 66 exams, we've received enough requests from those who want a live class to go ahead and launch one starting September 10th.

How would you like to take in the Series 65/66 material in 90-minute online sessions that allow you to ask the author questions? Miss a session--no problem, just watch the recording when it's convenient.

To get on the bus, please click this link:
http://www.examzone.com/ezQuickCalendar

Hope to see you online . . . soon.

What do Series 65 and Series 66 exam questions look like?

Having taken the Series 65 exam just two days ago, I am only able to remember the topics that my particular randomly-generated batch of 130 questions brought up. I can't remember any question verbatim, and I'm not sure how much it would help, even if I could. What I can do is tell you that the following represents the kind of topic, level of difficulty, and attitude of a challenging Series 65 or Series 66 exam question:

Which of the following investment advisers must indicate that it maintains custody of client assets on Form ADV Part 1?
A. An adviser that receives quarterly management fees directly from the custodian with client consent
B. An adviser who provides a list of unaffiliated custodial firms to its advisory clients free of charge
C. An adviser that is affiliated with a bank, savings institution, or trust company
D. None because advisers indicate such information on Form ADV Part 2 only as a result of Dodd-Frank

Rather than provide the answer right away, let's see if any of you anonymous readers are brave enough to give your answer AND your explanation for choosing it first. Time to make this blog interactive, people.
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What is the Series 65 or Series 66 exam really like?

Your Series 65 or Series 66 exam will cover many different topics in many different ways. While it's not possible to say for sure whether CAPM or  Sharpe ratio will show up on your exam, we know FOR SURE that certain types of questions are all over this thing. I just took the Series 65 exam yesterday and saw around 27 questions from the Uniform Securities Act and business practices under the NASAA model rule on unethical business practices for RIAs, IARs, etc. That's a large chunk of questions, many of which look like the following:

Which of the following statements is accurate concerning registration issues for agents under
the Uniform Securities Act?

A. If the individual represents the issuer of the securities involved in the transaction, he is not an agent
B. If the individual represents the issuer of exempt securities, he is not an agent
C. If the individual is not regularly employed by the issuer, he is not an agent
D. If the individual represents the issuer in any exempt transaction, he is not an agent


EXPLANATION: if the individual represents the issuer of the securities in the transaction, he MIGHT have an exemption available. But, it certainly isn't based on the fact that he represents an "issuer." An "issuer" is any person who issues or proposes to issue any security. Could be a well-known-seasoned-issuer like SBUX or just some sleazy dude sitting at the booth talking about investment opportunities in his uncle's oil and gas wells. You represent that guy and, trust me, there is no exemption available and also nothing good for your career up ahead. However, if the issuer is the United States Treasury, or the State of Iowa, or a bank, savings institution, or trust company, then the individual is representing the issuer of exempt securities. So, as long as the security is exempt, he's not an agent? Not quite--the Uniform Securities Act says he's exempt if we're talking about five specific types of exempt securities, not all of them. The Act says that if the transaction is exempt, he's not an agent, period. So, the answer--which many would think is B--is actually . . . D

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Viatical Investments

The exam could ask a question or two about viatical investments, so let's see what NASAA has to say about them:

This seems like the most testable points right here:
It is the position of NASAA that VIATICAL INVESTMENTs, commonly known as investments in viatical, senior, or life settlement contracts, are securities and must be registered with a state securities division as required by state law. Further, those persons and/or entities selling them must be registered as required by state law.

And this also seems important:

VIATICAL INVESTMENTs, in general, may not be suitable for many investors. There are risks associated with VIATICAL INVESTMENTs that individual investors may not recognize, and which unscrupulous promoters may misrepresent or fail to disclose. Funds invested in VIATICAL INVESTMENTs are not accessible on the demand of the investor. These factors and others render this type of investment unsuitable for the financial needs and interests of the average individual investor.

What IS a "viatical investment," you ask?

Typically, a VIATICAL INVESTMENT involves the purchase by a VIATICAL INVESTOR of an interest in an insurance policy covering the life of an individual. The purchase may be for a whole or
fractional interest in the policy. Some interests may be in a pool of policies insuring the lives of several people. The INSURED receives an amount of money less than the expected death benefit of the policy, while the VIATICAL INVESTOR in turn receives the right to some portion of the face amount of the policy upon the death of the INSURED. Help with Series 65 Exam

For the complete NASAA guide: http://www.nasaa.org/wpcontent/uploads/2011/07/12NASAA_Guidelines_Regarding_Viatical_Investments.pdf.

Series 65 and Series 66 practice question

This one will make you think. First, it's a topic most people are not comfortable with. Second, the way it's written is intentionally confusing. Let's take a swing at it:

Which of the following statements is accurate?
A. A security registered by coordination is registered with both the SEC and one or more state securities Administrators
B. Securities registered with the states must also be registered with the SEC
C. Securities registered with the SEC must also be registered with the states
D. Investment company shares are registered both with the SEC and the states

EXPLANATION: what you have to do with these questions is take each answer choice and try to eliminate it. Don't worry about whether you've ever seen something like this; just use what you know to see which answer choices can be eliminated to improve your odds dramatically on the "hard questions." Choice A looks pretty good, so you might have to just put it aside and keep looking for chess pieces to knock off the board. Choice B looks right at first, so you have to see if you can argue against it--can an issuer register with just a state Administrator? Yes, under qualification, when doing an intrastate offer. B is eliminated. You know that federal covered securities by definition are not registered with the states, so Choice C is eliminated. Choice D is really tempting, but before you pick it, ask yourself if a notice filing and a registration are the same thing? Not sure--look at Choice A again. If my company offers shares in several states, we have to register with the SEC under the Securities Act of 1933, and if we're not federal covered, we will also register with the states, and we will use registration by coordination. So, I see nothing wrong with Choice A, while Choice D is over-stating what a notice filing is--it is not a registration but merely a filing of notice. The answer is Choice A. And, if you're willing to think through questions in this way, you will arrive at answers that you know are correct. Trust me, that helps you focus on the next question on your screen. Get Series 66 Questions Here

Updated Series 65 and Series 66 Materials

Just a quick word on how we keep our series 65 and series 66 exam materials current/up-to-date:

1. Pass the 65 and Pass the 66 ExamCram Online Test Prep updated throughout the year, as-needed.
2. Pass the 65 and Pass the 66 textbooks updated each year.
3. Pass the 65 and 66 DVD for 2013 will be released in the next two weeks.
4. Pass the 65 and 66 audio CD lectures were just updated for 2013.

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How does the fiscal cliff affect the Series 65 exam or Series 66 exam?

I've received many concerned emails asking how the Series 65 exam and Series 66 exam will change due to the "debt ceiling" or the "fiscal cliff." First, it's unlikely the exam expects anyone to know the exact tax brackets currently in use. However, the exam might want you to know that ordinary income rates are usually higher for investors compared to the tax rates on qualified dividends and/or long-term capital gains. None of that changed with the new legislation Congress passed. The new legislation keeps the 10%, 15%, 25%, 33%, and 35% brackets, then it adds a 39.6% bracket on the income above $400,000 or so. I can't see how that leads to a test question. Qualified dividends and long-term capital gains are still taxed at just 15% . . . except for folks who hit that top 39.6% tax bracket--they have to pay 20%. Which stinks for them, but also means the testable point remains the same--their long-term cap gains and qualified dividend tax rates are only about 1/2 their marginal rate. Of course, I wouldn't say that to their face or anything.
What's really wild is that the maximum contribution to a Coverdell account would have dropped to just $500 if Congress had not acted, proving they do get a lot of things right on Capitol Hill, in spite of appearances. That remains at a whopping $2,000 per-child per-year. So, even that factoid did not change.Bottom line--the recent shenanigans on Capitol Hill do not appear to impact your exam much. They may, however, impact your tax situation, which is, of course, not our department. Pass the 65 Now!