STUDY FOR THE SERIES 66 EXAM

  If you plan to sit for the Series 66 Exam, know in advance that the Series 66 contains questions on Capital Market Theory. How do I know this? I know it because NASAA Series 66 Test Specifications clearly indicate in Section III(C)(2) that questions exist that ask about investment theories, such as Capital Market Theory, Capital Asset Pricing Model, Modern Portfolio Theory, and Efficient Market Hypothesis. Bob Eder in his Study for the Series 66 Exam devotes Chapter 8 to Portfolio Management and discusses Capital Market Theory and Capital Asset Pricing Model (CAPM) in detail. Here is an example of Bob Eder's treatment: Capital Market Theory                                                           ...

   Taking the Series 66 exam? If so, be prepared for questions covering the Sharpe Ratio and various other descriptive statistics that analyze the price action of stocks. How do I know this? NASAA publishes Test Specifications for the Series 66 exam, and Section I (A) (2) covers the Sharpe Ratio and other analytical ratios and concepts. Bob Eder discusses the Sharpe Ratio and stock statistical analysis in his  Study for the Series 66 Exam . Here is an example of Bob Eder's treatment of the Sharpe Ratio: EXAMPLE Jimmy compares shares of ABC Corp. with shares of XYZ Corp. The standard deviation of XYZ's historical returns is 5, but the standard deviation of ABC shares is 3. If both ABC and XYZ generate an annual return of 30 percent above risk-free return, ABC has a Sharpe Ratio of 10 (i.e., 30 percent divided by 3). XYZ stock has a Sharpe Ratio of 6 (i.e., 30 percent divided by 5). ABC's higher Sharpe Ratio indicates ABC's return is less risky than that of XYZ. Jimmy thu...

NASAA publishes a Series 66 Test Specifications and Content Outline that indicates areas that a Series 66 candidate can expect to see on the test. Section IV (H) (4) of the Content Outline lists six lines of conflicts of interest, and prohibited, unethical or criminal acts or behavior. Here is a real-life example of Unethical and/or Prohibited Activity from the Securities and Exchange Commission, SEC Release 2023-33: FOR IMMEDIATE RELEASE 2023-33 Washington D.C., Feb. 16, 2023 — The Securities and Exchange Commission today charged Milan Vinod Patel, of Cumming, Georgia, for spreading more than 100 false rumors about public companies to generate more than $1 million in illicit trading profits. The SEC previously charged  Barton Ross ,  Mark Melnick ,  Anthony Salandra , and  Charles Parrino  for their roles in this scheme. According to the SEC’s complaint, Patel received rumors that he knew to be false from Ross, Salandra, or Parrino about purported market-moving...

Over the years there have been some securities professionals whom the SEC has accused of illegally using inside information to make gains on trading stocks. Don't allow yourself to fall into this trap. It would ruin your career in the securities business, as well as subject you to fines, civil penalties, and even criminal convictions. NASAA specifies in its Test Specifications and Content Outline for the Series 66 exam that you should expect questions about  Trading on Inside Information . See NASAA's Series 66 Test Specifications, Section IV (H) (4). Bob Eder discusses  Trading on Inside Information  in detail in his  Study for the Series 66 Exam . Here is a sample of Bob Eder's treatment of using inside information: EXAMPLE Jason, a hedge fund manager, is managing several billions of client monies. He asks for and receives confidential information about XYZ Corp.’s forthcoming earnings from Bill, a friend, who happens to be on XYZ’s board. Bill tells Jason that XYZ...

Taking the Series 66 exam? Be aware that  NASAA's Test Specifications for the Series 66 include questions on insurance-based products, such as equity indexed annuities. See NASAA's Test Specifications Section II (F) (1). Bob Eder devotes pages 75-81 in his Study for the Series 66 Exam to a discussion of annuities, including equity indexed annuities, including practice questions and examples. Here is a sample of Bob Eder's treatment of annuities: "Equity Indexed Annuities                                                                   II(F)(1) These products are also known as "fixed-indexed annuities." An equity-indexed annuity is a variation of a fixed annuity. An...

NASAA publishes Test Specifications for the Series 66 exam, and it includes in Section II (B) (1-4) Methods of Valuing Equity Securities. These include technical analysis, fundamental analysis, dividend discount, and discounted cash flow. NASAA indicates that the Series 66 exam contains three questions. If you are going to sit for the Series 66, make sure that you know how dividend discount and discounted cash flow work. Bob Eder discusses equity valuation methods on pages 52-53 of  his Series 66 study manual,  Study for the Series 66 Exam . Here is a sample of Bob Eder's treatment of the dividend discount model : EXAMPLE OF DIVIDEND DISCOUNT MODEL ABC Corp. stock paid an annual dividend of $3.30 last year. Today, ABC announces that it will boost its dividend by eight percent for the coming year. Joe tries to earn 12 percent on his money. To find the price based on the dividend discount model, divide this year's expected dividend of $3.56 ($3.30 multiplied by 1.08) by the d...

As a candidate for the Series 66 exam, can you answer the following true/false questions?  Indicate which of the following statements pertaining to the definition of an investment adviser are true and which are false. 1.    Advice about market trends is not advice about securities. 2.    Advice about the selection and retention of other advisers is not advice about securities. 3.    Advice about the advantages of investing in securities versus other types of investments (e.g., coins or real estate) is not advice about securities. 4.    Asset allocation advice is not advice about securities. All of the statements should be marked false.  According to the SEC: Advice about market trends is advice about securities. Advice about the selection and retention of other advisers is advice about securities. Advice about the advantages of investing in securities is advice about securities. Advice about allocation of assets is advice about securiti...

Are you planning to sit for the Series 66?  This is the exam that is required by most states for those wishing to register as investment adviser representatives, provided that the applicant has a valid Series 7 registration (or plans to acquire one in the near future). If so, be aware that the   Series 66 Test Specifications   published by NASAA includes topics such as time-weighted return and dollar-weighted return. Therefore, do not go into the Series 66 exam unless you are adequately prepared how to apply the formulas for the above returns. For example, dollar-weighted return takes into account deposits of cash and withdrawals during the period, i.e., usually for the calendar year. It is  not  correct to simply take the gain (or loss) for the year and divide it by the beginning balance, as of January 1. Dollar-weighted return, a more correct but complex approach, makes adjustment for any withdrawals and for any deposits.  If, for example, a deposit is ma...