Understand that the idea of purchasing common stock as an investment—as opposed to casino speculation—was only a couple of decades old at most. We were only 10 years past the creation of the U.S. Securities and Exchange Commission and laws that attempted to level the playing field after robber baron and stock market panic episodes.

In January 1945, in what is today CFA Institute Financial Analysts Journal , a fundamentally driven professor and practitioner from Columbia University and Graham-Newman Corporation wrote an article making the case that people who research and manage portfolios should have some sort of credential to demonstrate competence and ethical behavior. This person was none other than Benjamin Graham, the father of security analysis and future mentor to a well-known modern investor, Warren Buffett.

The idea of creating a credential took a mere 16 years to drive to execution but by 1963, 284 brave souls, all over the age of 45, took an exam and launched the CFA credential. What many do not fully understand was that this effort had at its root a desire to create a profession where its practitioners were professionals who provided investing services to individuals in need. In so doing, a fairer and more productive capital market would result.

A profession—whether it be medicine, law, or other—has certain hallmark characteristics. These characteristics are part of what attracts serious individuals to devote the energy of their life’s work to the investment endeavor. First, and tightly connected to this Series, there must be a body of knowledge. Second, there needs to be some entry requirements such as those required to achieve the CFA credential. Third, there must be a commitment to continuing education. Fourth, a profession must serve a purpose beyond one’s direct selfish interest. In this case, by properly conducting one’s affairs and putting client interests first, the investment professional can work as a fair-minded cog in the wheel of the incredibly productive global capital markets. This encourages the citizenry to part with their hard-earned savings to be redeployed in fair and productive pursuit.

As C. Stewart Sheppard, founding executive director of the Institute of Chartered Financial Analysts said, “Society demands more from a profession and its members than it does from a professional craftsman in trade, arts, or business. In return for status, prestige, and autonomy, a profession extends a public warranty that it has established and maintains conditions of entry, standards of fair practice, disciplinary procedures, and continuing education for its particular constituency. Much is expected from members of a profession, but over time, more is given.”

“The Standards for Educational and Psychological Testing,” put forth by the American Psychological Association, the American Educational Research Association, and the National Council on Measurement in Education, state that the validity of professional credentialing examinations should be demonstrated primarily by verifying that the content of the examination accurately represents professional practice. In addition, a practice analysis study, which confirms the knowledge and skills required for the competent professional, should be the basis for establishing content validity.

For more than 40 years, hundreds upon hundreds of practitioners and academics have served on CFA Institute curriculum committees sifting through and winnowing all the many investment concepts and ideas to create a body of knowledge and the CFA curriculum. One of the hallmarks of curriculum development at CFA Institute is its extensive use of practitioners in all phases of the process.

CFA Institute has followed a formal practice analysis process since 1995. The effort involves special practice analysis forums held, most recently, at 20 locations around the world. Results of the forums were put forth to 70,000 CFA charterholders for verification and confirmation of the body of knowledge so derived.

What this means for the reader is that the concepts contained in these texts were driven by practicing professionals in the field who understand the responsibilities and knowledge that practitioners in the industry need to be successful. We are pleased to put this extensive effort to work for the benefit of the readers of the Investment Series.

For the new student, the essential concepts that any investment professional needs to master are presented in a time-tested fashion. This material, in addition to university study and reading the financial press, will help you better understand the investment field. I believe that the general public seriously underestimates the disciplined processes needed for the best investment firms and individuals to prosper. These texts lay the basic groundwork for many of the processes that successful firms use. Without this base level of understanding and an appreciation for how the capital markets work to properly price securities, you may not find competitive success. Furthermore, the concepts herein give a genuine sense of the kind of work that is to be found day to day managing portfolios, doing research, or related endeavors.

The investment profession, despite its relatively lucrative compensation, is not for everyone. It takes a special kind of individual to fundamentally understand and absorb the teachings from this body of work and then convert that into application in the practitioner world. In fact, most individuals who enter the field do not survive in the longer run. The aspiring professional should think long and hard about whether this is the field for him- or herself. There is no better way to make such a critical decision than to be prepared by reading and evaluating the gospel of the profession.

The more experienced professional understands that the nature of the capital markets requires a commitment to continuous learning. Markets evolve as quickly as smart minds can find new ways to create an exposure, to attract capital, or to manage risk. A number of the concepts in these pages were not present a decade or two ago when many of us were starting out in the business. Hedge funds, derivatives, alternative investment concepts, and behavioral finance are examples of new applications and concepts that have altered the capital markets in recent years. As markets invent and reinvent themselves, a best-in-class foundation investment series is of great value.

Those of us who have been at this business for a while know that we must continuously hone our skills and knowledge if we are to compete with the young talent that constantly emerges. In fact, as we talk to major employers about their training needs, we are often told that one of the biggest challenges they face is how to help the experienced professional, laboring under heavy time pressure, keep up with the state of the art and the more recently educated associates. This series can be part of that answer.

When I first entered this industry in the mid-1970s, conventional wisdom held that the concepts examined in these texts were a bit too academic to be heavily employed in the competitive marketplace. Many of those considered to be the best investment firms at the time were led by men who had an eclectic style, an intuitive sense of markets, and a great track record. In the rough-and-tumble world of the practitioner, some of these concepts were considered to be of no use. Could conventional wisdom have been more wrong? If so, I’m not sure when.

During the years of my tenure in the profession, the practitioner investment management firms that evolved successfully were full of determined, intelligent, intellectually curious investment professionals who endeavored to apply these concepts in a serious and disciplined manner. Today, the best firms are run by those who carefully form investment hypotheses and test them rigorously in the marketplace, whether it be in a quant strategy, in comparative shopping for stocks within an industry, or in many hedge fund strategies. Their goal is to create investment processes that can be replicated with some statistical reliability. I believe those who embraced the so-called academic side of the learning equation have been much more successful as real-world investment managers.

One of the most prominent texts over the years in the investment management industry has been Maginn and Tuttle’s Managing Investment Portfolios: A Dynamic Process. The third edition updates key concepts from the 1990 second edition. Some of the more experienced members of our community, like myself, own the prior two editions and will add this to our library. Not only does this tome take the concepts from the other readings and put them in a portfolio context, it also updates the concepts of alternative investments, performance presentation standards, portfolio execution and, very importantly, managing individual investor portfolios. To direct attention, long focused on institutional portfolios, toward the individual will make this edition an important improvement over the past.

Quantitative Investment Analysis focuses on some key tools that are needed for today’s professional investor. In addition to classic time value of money, discounted cash flow applications, and probability material, there are two aspects that can be of value over traditional thinking.

First are the chapters dealing with correlation and regression that ultimately figure into the formation of hypotheses for purposes of testing. This gets to a critical skill that many professionals are challenged by: the ability to sift out the wheat from the chaff. For most investment researchers and managers, their analysis is not solely the result of newly created data and tests that they perform. Rather, they synthesize and analyze primary research done by others. Without a rigorous manner by which to understand quality research, not only can you not understand good research, you really have no basis by which to evaluate less rigorous research. What is often put forth in the applied world as good quantitative research lacks rigor and validity.

Second, the last chapter on portfolio concepts moves the reader beyond the traditional capital asset pricing model (CAPM) type of tools and into the more practical world of multifactor models and to arbitrage pricing theory. Many have felt that there has been a CAPM bias to the work put forth in the past, and this chapter helps move beyond that point.

Equity Asset Valuation is a particularly cogent and important read for anyone involved in estimating the value of securities and understanding security pricing. A well-informed professional would know that the common forms of equity valuation—dividend discount modeling, free cash flow modeling, price/earnings models, and residual income models (often known by trade names)—can all be reconciled to one another under certain assumptions. With a deep understanding of the underlying assumptions, the professional investor can better understand what other investors assume when calculating their valuation estimates. In my prior life as the head of an equity investment team, this knowledge would give us an edge over other investors.

Fixed Income Analysis has been at the frontier of new concepts in recent years, greatly expanding horizons over the past. This text is probably the one with the most new material for the seasoned professional who is not a fixed-income specialist. The application of option and derivative technology to the once staid province of fixed income has helped contribute to an explosion of thought in this area. And not only does that challenge the professional to stay up to speed with credit derivatives, swaptions, collateralized mortgage securities, mortgage backs, and others, but it also puts a strain on the world’s central banks to provide oversight and the risk of a correlated event. Armed with a thorough grasp of the new exposures, the professional investor is much better able to anticipate and understand the challenges our central bankers and markets face.

I hope you find this new series helpful in your efforts to grow your investment knowledge, whether you are a relatively new entrant or a grizzled veteran ethically bound to keep up to date in the ever-changing market environment. CFA Institute, as a long-term committed participant of the investment profession and a not-for-profit association, is pleased to give you this opportunity.