Rossa O’Reilly, CFA
CFA Charterholder since: 1977
Society member since: 1974

Industry footprint:
Toronto CFA Society Board member
(chair, Member Communications committee)

Chair of CFA Institute (1996-1997)
President of Toronto CFA Society (1984)

First industry job: Investment analyst at Dominion Securities

Welcome back Rossa! What’s brought you back to the Toronto CFA Society’s board?

RO’R: I have missed being involved in the organization and the in-depth issues facing it. The work of the societies and CFA Institute is intellectually so compelling: Trying to identify and formalize the ever-growing investment body of knowledge, to bridge the gap between theory and practice, and to educate ourselves and our members about a field of activity that is so complex and challenging.

Was that also why you became a member of the society in the 1970s?

RO’R: Yes, the investment industry is not just a business; we are entrusted with the responsibility of guiding other people’s savings. Probably no aspect of people’s lives, except their health and freedom, is more vital to their well-being. Clearly, for these important interests to be compromised or damaged by any industry participants–who are only seeking to make a profit for themselves or who are otherwise derelict in their duties–is socially and morally unacceptable.

Isn’t that the role of regulators–to protect investors?

RO’R: True, governments and regulators do their best to address these issues but for the public’s interest to be properly served an investment profession is needed, not merely government regulation. That is widely appreciated today but a couple of generations ago it was not so broadly understood. The founders of CFA Institute (and of the societies that created it as their educational arm decades ago), recognized the need to create a profession and acted on it. All of us who have followed in their footsteps have done so because we agree with the principles they espoused. Without that pro bono contribution by thousands of practitioners over many years, none of what we now know as CFA Institute and the CFA program would exist.

You allude to some investment industry participants or groups failing to appropriately serve the interests of the investing public. What lessons can we take from the financial meltdown? What should we do differently going forward?

RO’R: Some lessons are the same ones that we learn and sadly seem to forget after every financial and economic crisis—the dangers of excessive leverage, of poor credit analysis and lending practices, and of speculative bubbles in commodities, real estate, and stocks. Fortunately these mistakes were not so much in evidence in Canada as in the U.S. and some European countries, but owing to the globalization of trade and capital and commodity markets, the effects have been felt all over the world.

However, other lessons are new, I think: Firstly, the need to regard new financial instruments such as mortgage-backed securities, credit default swaps, collateralized debt obligations, and other derivatives with a greater degree of caution until they have been tried and tested through economic cycles; also the need to place limits on speculative activities in vital commodities and certain securities when such activity becomes destabilizing rather than complementary to normal demand and supply in the marketplace; and importantly the need to regulate more effectively a wider range of financial institutions globally and to ensure that when the public’s economic well-being depends on the health of certain institutions, that those institutions are adequately capitalized and prudently managed.

Are there any areas in our investment body of knowledge that you believe should receive more attention?

RO’R: I think our investment body of knowledge has taken a few body-blows, if you’ll excuse the pun. The notion that markets are always efficient, the assumption that analysis of risks and potential returns will always be rational, and the belief in the supremacy of market prices at all times as a measure of investment values all require further careful examination in light of our experiences with a situation of extreme loss of confidence and illiquidity which, had it not been addressed by unprecedented government actions on a global basis, could have seen the collapse of the world’s financial system. One area that I believe could do with more attention is the broad area of how our environments are affecting our investment decisions.

What would be a specific example?

RO’R: For example, we live in a different investment world today from the one of several decades ago when office computers and wireless hand-held devices were non-existent. Trading then was done in person on trading floors and recorded by hand. Investors had to write to companies or brokers to receive annual reports; unaudited interim financial reports received limited attention on the grounds that they were often not very accurate indicators of full-year audited results and the business news on television was all of two minutes long at the end of a 20-minute newscast and just before the sports.

The media today generates new perceptional biases. We are all wired in to the capital markets globally 24 hours a day and the mass media has permeated the investment world with sound-bite simplifications, exaggerations-for-effect and mesmerizing visuals, creating almost a carnival-like atmosphere to keep the public watching. Through it all, there is a very intense focus on immediate issues to the exclusion of more complex, thoughtful, longer-term considerations. Arguably, partly as a result of this, the volume of trading today is over 50 times what it used to be 30 or more years ago and market volatility is markedly higher. Large numbers of investors appear to be preoccupied with a purportedly urgent and incessant electronic flow of financial news, augmented by comments comparing imperfect accounting figures and statistics to imperfect measures of investors’ expectations, and to be clamouring to secure short-term trading gains. Sound judgment based on long-term fundamentals is all too often a casualty in this process. Marshall McLuhan, if he were alive today, might be inclined to say that the market has become the message and the prudently considered provision of capital to worthy companies and industries has almost become a secondary function!

Broadly speaking, would you conclude that conditions have improved or deteriorated in the investment industry since the 1970s and 1980s?

RO’R: Disclosure, regulation, communications, and access to information are all exponentially better and the openness and fairness of the capital markets to all investors, small and large, are greatly improved. As for Toronto CFA Society, it has become a very much more active and supportive organization. In the 1970s and early 1980s it had a membership of under 1,000 (less than half of whom were CFA charterholders) compared to over 7,000 today (predominantly CFA charterholders and candidates). It catered almost exclusively to equity investors’ interests and produced only a small fraction of the seminars and events that it now runs. Financial resources were much smaller than they are today. It is a great pleasure to join a board and staff today that have never been more active, well informed, effectively managed, and well funded than today.

So it seems there are no excuses now for the board and staff if they fail to deliver the best possible services to members!

RO’R: I’m sure our members will hold us to that statement, but we welcome their advice and assistance, in particular telling us what they need and expect in the way of events, services, and representation, because ultimately the board and staff are here to serve and represent their interests. I know I speak for us all in saying we consider it a great privilege to do so. I encourage members to write in on topics they believe are of importance and we will share their views through The Analyst.

CHARTERHOLDER PROFILE is a regular feature of The Analyst. Do you have suggestions for members that we should profile? Email us with the member’s name and a few sentences about who he/she is and why this person would make an interesting choice for a profile. TheAnalyst@torontocfa.ca