How Students Master Financial Modeling and Bridge the CFA Practical Skills Gap with Stephen Horan
In this episode of Financial Modeler’s Corner, host Paul Barnhurst welcomes Dr. Stephen Horan to discuss the fundamentals of financial modeling, the challenges and rewards of teaching finance, and how curiosity and simplicity are central to both education and professional modeling. Dr. Horan draws on his extensive experience as a finance professor and former Managing Director at CFA Institute, offering unique insights into the intersection of academia, practical modeling, and credentialing.
Dr. Stephen is a finance professor at UNC Wilmington and former Managing Director at the CFA Institute. He has over 30 years of experience in academia and industry, has authored award-winning research, and co-wrote Strategic Value Investing, featured on Warren Buffett’s reading list. His work bridges theory and practice in finance education. Dr. Horan is also a sought-after speaker and serves on editorial boards for leading finance journals.
Expect to Learn
What makes a model readable and useful and why fundamentals matter.
How to teach financial modeling in a way that’s active and practical.
The difference between book knowledge and real-world application in finance.
Insights into CFA Institute’s evolution toward practical skills and global relevance.
The mindset and skills students need to transition from learning to doing.
Here are a few quotes from the episode:
"Curiosity is the skill I had to learn and it’s the one that’s helped me most in my career." - Stephen Horan
"Give someone the experience of building a model and solving problems. That’s the real education." - Stephen Horan
"The ability to explain how you built a model is more powerful in an interview than listing courses on a résumé." Stephen Horan
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In today’s episode:
[02:07] - Guest Introduction
[04:19] - Modeling Horror Story
[10:41] - Bridging Theory and Practice
[13:31] - Power of Teaching
[17:55] - Learning by Modeling
[26:23] - CFA Institute Insights
[35:07] - Favorite Excel Shortcut
[39:36] - Rapid Fire Round
[46:02] - Final Thoughts and Contact
Full Show Transcript
[00:01:26] Welcome to Financial Modeler's Corner. I am your host, Paul Barnhurst, aka FP&A guy. In this podcast, we talk all about the art and science of financial modeling with distinguished financial modelers from around the globe. The Financial Modelers Corner podcast is brought to you by the Financial Modeling Institute.FMI offers the most respected accreditations in financial modeling, and that is why I completed the Advanced Financial Modeler. And I'm currently signed up to do the Chartered Financial modeler. This week I'm thrilled to be welcome to the show. Stephen and Stephen , welcome to the show.
[00:02:04] Guest: Stephen Horan: Thanks for having me, Paul. It's great to be here.
[00:02:06] Host: Paul Barnhurst: Yeah, I'm really excited to have you. So let me give a little bit about his background. Stephen is an associate professor of finance at UNC Wilmington. Prior to joining the faculty, he was a managing director at CFA Institute, the global professional association of nearly 200,000 investment and management professionals, where he led the credentialing division, during which time CFA program registrations increased 70% to over 350,000 examinations annually and more than 140 countries and across nearly 200 test centers. He also led the Professional Learning Division, responsible for delivering the members a world class, post charter learning experience that allows CFA Institute members to be the best professionals they can be. Prior to joining. CFA Institute. Dr. Horn was a full professor of finance at Saint Bonaventure University. His diverse, practice oriented and award winning scholarship includes dozens of peer reviewed publications focusing on diverse areas from investment management to university administration, most of which has been reprinted, summarized, or covered in media. His articles have appeared in peer reviewed journals such as the Financial Analyst Journal, Harvard Business Review, Latin America, Journal of Financial Research, and others. He has received several research awards, including the coveted Graham and Dodd Reader's Choice Award and six research grants. He's also offered several books, including Strategic Value Investing, which has been on Warren Buffett's recommended reading lists five years in a row. Doctor Haun currently serves on the editorial boards of the Journal of Wealth Management and the Journal of Impact and ESG. He earned his Ph.D. in finance at the State University of New York, Buffalo, and a b, a degree in finance at Saint Bonaventure University. What did I do? Did I cover up pretty well?
[00:04:08] Guest: Stephen Horan: That's pretty. You did better than I could have.
[00:04:11] Host: Paul Barnhurst: Sometimes they're easier than others, but it's an impressive background. I enjoyed reading it.
[00:04:16] Guest: Stephen Horan: So thanks.
[00:04:17] Host: Paul Barnhurst: We like to start with this question for everybody. It's kind of our fun question because we've all been there. If you've worked in modeling, you've worked in finance, you have that horror story, that kind of worst model you've had to deal with. So what's your story?
[00:04:30] Guest: Stephen Horan: Oh, boy. Yeah. So you know this really it's got to come from a student. Right? So I had this one model that came with I think it had three embedded circular references. You know, in trying to disentangle and diagnose that it's a real challenge, a circular reference. You can always get zeroed in. Pitch it back, fix it. But when they're embedded there's three of them and no assumptions tabs.
[00:05:01] Host: Paul Barnhurst: Were you able to ever get it untangled?
[00:05:03] Guest: Stephen Horan: No, actually that one I was not able to untangle.
[00:05:07] Host: Paul Barnhurst: Oh, yeah, I can believe it. You get some pretty bad stuff, especially. You're always a little more sympathetic. You can understand students as they're trying to learn and the mistakes that happen, but it's still frustrating trying to follow what's going on.
[00:05:21] Guest: Stephen Horan: No doubt, no doubt.
[00:05:22] Host: Paul Barnhurst: So what's the key takeaway from some of those, you know, horror stories or really bad models? What's the takeaway for you as a professor and just as a finance professional?
[00:05:33] Guest: Stephen Horan: You know, I mean, I think a lot of the stuff that we'll probably end up talking about today is going to be informed more from the professor's side of my experience. But I think the way I'm going to answer that is going to apply equally well to industry, and that's that. You know what, the fundamentals are so important. And what do I mean by that? You know the assumptions tab. And you know, not having numbers embedded in cells and things like that is just vitally important because no matter who is going to receive your model, they're going to need to read it. They're going to need to try to understand what you're doing. And, you know, that becomes like writing. It's just that you're writing with a model and you need to allow people to understand what you're thinking was.
[00:06:28] Host: Paul Barnhurst: It's funny how it always comes back to the basics as, uh, engineer, which, you know, Financial Modeling Institute, one of my favorite quotes from him is the number one problem, far and away is design. It always comes back to design if you just design it. I like people to call me, go ahead. I got this problem. I got that problem. He's like, no, you have a design problem. You didn't design the model for what you're trying to accomplish. Redesign it and you'll be fine.
[00:06:53] Guest: Stephen Horan: I think that's absolutely correct. And, you know, keeping it simple is key. Trying to accomplish too much with a single cell or formula is generally not what you want to do. Breaking it down into individual components not only allows you to understand what's going on and make it easier to construct, but when something goes screwy, you can diagnose it a lot better.
[00:07:19] Host: Paul Barnhurst: Yeah, I've been doing some, uh, courses for something I'm working on, and one of the instructors, I love what he says. He goes, Excel has over a million rows and they're free. Yeah. The big fan of vertical models, like, don't be afraid if it goes to 3000, if you've structured it right and you have good schedules and you're grouping things properly. Trust me, they'll appreciate the easy to follow versus putting it in 100 and spending five hours trying to understand that one formula.
[00:07:47] Guest: Stephen Horan: Exactly.
[00:07:48] Host: Paul Barnhurst: So that's one of my new favorite quotes. You know, you got over a million rows and they're all free. Go ahead and use it.
[00:07:53] Guest: Stephen Horan: I'm using that one. You know I am.
[00:07:56] Host: Paul Barnhurst: I figured as much so I'm using it as well. I stole it from my CFI. I'll admit that. All right. So this is the question we started asking recently because I had somebody ask me on the show, you never define in the show what it is. And I just figured it was table stakes. So I'm like, all right, we'll start asking guests. And it's interesting to see how different the answer can be. How would you define what a financial model is like? What do you consider a financial model?
[00:08:19] Guest: Stephen Horan: Probably give it a pretty general definition. I mean, what's a model? A model is a representation of reality. Past, present or future? You're either trying to explain something or predict something. And um, so a financial model is representing something in the real financial world. And you know, if you're forecasting the future, it might be a three statement model that you're trying to project. If you're explaining something in the past, you might be doing academic research, you know, or or trying to find out what kind of investment strategy worked in the past that might work in the future. So or if you're doing it in the present, trying to estimate intrinsic value.
[00:09:08] Host: Paul Barnhurst: It's a great point. I like that. And that's typically what I'm finding is people keep that definition pretty broad. When I taught some basic design principles, I'd start out with what a financial model is. And I first just to show how different they could be, I would take the Fed Reserve's definition of financial model, and you almost have to have a PhD to understand the words they use. You're just like, okay, really, did we have to make it this difficult? Who wrote this from? You know, more general. And then I take a very broad from somebody who had written a book and worked in modeling, and I'm like, I tend to lean toward the broad and let's keep it very general, and there's no reason for it to be highly technical. We do enough of that in finance.
[00:09:49] Guest: Stephen Horan: Exactly, exactly. And in, you know, we'll get into this. But it doesn't have to be complicated either. And that I think is part of the instructional value of having financial models.
[00:10:02] Host: Paul Barnhurst: Well, and I agree and you know a basic three statement model that can be efficient, what, 1015 different functions at most. You know, you can do 90% of what you're doing in a model with ten different functions. Doesn't need to be complex. Now, yes, there are complex models. There are times when you have to do complex formulas. We all love the idea of keeping them all extremely simple, but we all know there are times it gets complex. But if you start simple, like I like to say, build it simple because your business will make it complex for you whether you want it to be or not. So if you start out complex, you're screwed.
[00:10:38] Guest: Stephen Horan: Totally. That's good. That's a good way to think about it.
[00:10:41] Host: Paul Barnhurst: So I know you have a very unique background. You've done a lot of both academic and professional work and experience. How has that combination helped you throughout your career?
[00:10:51] Guest: Stephen Horan: You know, I think it's helped. I'm not helping. It's hurt in some ways, but not in ways I care about. And, you know, I definitely sort of have this practical or, you know, side to my academic research. I have this academic side to my practical stuff. And, you know, so I'm kind of persona non grata to the hardcore academics. And I'm a little bit of a pencil neck to the, you know, hardcore practitioners. All right. But but really, um, I mean, for me, I feel like it's the way I add value to both those worlds and, um, you know, it's very easy to, you know, get steeped in one or the other and, and not see the value in, in the other's world, but, you know, it just. I don't know that it's anything I planned to sort of try to be that bridge builder. It's just where I felt comfortable. I remember, like, my first job as an asset manager, I was on the trading desk, and every day the sales guys would come into the trading desk at the end of the day and say, how do we do today? And they'd be hopping on the Bloomberg machine and hitting up quotes to see how our holdings were doing, frankly, just getting in my way. And so, you know, I was like, you know what I'm going to do, guys, let me build you an index so that you don't have to get in my way. And every day at 415, I'll deliver you how we did in the aggregate with an index. And that was actually a much more difficult job than I thought it was going to be. I never knew anything about building indexes, but I learned and, you know, no one very few people would think to do that or maybe want to do that. But I found that stuff interesting.
[00:12:50] Host: Paul Barnhurst: Great example, and I'm sure they all appreciated it. Once they had it, it's like, oh, I don't gotta go bother. Even at 415 for 20 for my numbers. And I'm sure you appreciated it.
[00:13:02] Guest: Stephen Horan: Yeah. Well yeah, it was definitely self-preservation no doubt.
[00:13:06] Host: Paul Barnhurst: Yeah. I mean, I think that's why probably 95% of people that learn VBA learn it is self preservation. I got to figure out how to do this. I'm tired of doing this manually. I will find a way.
[00:13:18] Guest: Stephen Horan: Mhm.
[00:13:19] Host: Paul Barnhurst: So I know you spent a large portion of your career in academics. You know you worked at Saint Bonaventure, you know CFA which is educating people not necessarily academics but education focused uncW Wilmington. What is it you love about teaching and educating others about, you know, helping others learn?
[00:13:37] Guest: Stephen Horan: It's fun for me. One just to sort of try to explain stuff, but it's really fun when you see the light bulbs go off. And occasionally what happens is kind of what happened to me when I was young, I didn't know I was going to get into finance or investments. It wasn't, you know, I was going to be a sociology major. And I just kind of, you know, you go through college because you don't know what it is you want to do and you explore different things. And I found something that I really enjoyed. And sometimes you just find a student that's like, oh my God, I had no idea this was this is a lot of fun. And when they become passionate, they're going to be successful, whatever that means to them. So, you know, that ends up changing lives and it's difficult not to feel really good about that.
[00:14:29] Host: Paul Barnhurst: 100% agree. I love when, you know, I'm teaching somebody and you mean if I learn this tool, I could save like two days a month and it's not that much work. Yeah. And then you see their face like. Well, maybe I'll actually invest the time now when they realize what it can do for them. Do you have a favorite light bulb moment as you look kind of back at your careers, or maybe 1 or 2 experiences that just really stand out to you?
[00:14:54] Guest: Stephen Horan: I'll give you a recent one I have and I say have right? Right now, a Turkish student who was, um, a dance major of all things. And, you know, she just I don't know how she found her way into one of my classes, but, you know. But she did. And honestly, a little bit over her head, to be honest. But she loves the stuff, and I'm not even quite sure why. But now she's complete. She's doing a 180 and, you know, tooling up and you know, she's found her passion.
[00:15:30] Host: Paul Barnhurst: That's one you don't see often. You don't think from dance, finance and modeling.
[00:15:36] Guest: Stephen Horan: No. She's still. She still has a ways to go. But you can just. You can tell how motivated she is. And, you know, that's awesome. And then, I mean, well, here's another reason why. And I've had a couple now of academic careers because I keep going back and forth in my, my first academic career at Saint Bonaventure University, really just a delightful place to.
[00:16:03] Host: Paul Barnhurst: Um.
[00:16:04] Guest: Stephen Horan: Teach and to be and to develop relationships with students. And, you know, some of them become successful, and one of them is the chief investment officer of a trust company here in North Carolina. And I was teaching a portfolio management course this summer, and they came in as a guest speaker. And so, you know, to sort of see this virtuous circle, you know, take place over time, that's it's quite an arc.
[00:16:32] Host: Paul Barnhurst: Now that that's really rewarding. I mean, the example that came to mind is you shared that when you say seeing it come to pass is I spent years working with youth and scouting boys scouting and stuff. And, you know, now I see some of them with their kids, and it's kind of that moment where they start to appreciate what you did, and you start to see how successful they are and what they've accomplished. And it's been really rewarding. I've got to see a number of them now. They're, you know, married and have kids and similar type things, a little different situation. But that type of moment, we're like, oh wow, it did turn out good. This is rewarding because there's some of them you always wonder about.
[00:17:10] Guest: Stephen Horan: That's exactly right. And, you know, I think, you know, part of that for me, I think and I feel like I need to say this is you're sort of bringing these things up. I mean, I benefited from people that were willing to light fires and spend time with me and my mentors. My biggest mentor, Jeff Peterson, was massively brilliant and an expert in derivatives. Security's not alive anymore. But he's. You know, I like to think that, you know, my life is different because he invested so much in me.
[00:17:46] Host: Paul Barnhurst: Love. That sounds like he was an amazing person. No doubt. We all need those in our lives when we talk about teaching. You know, when you and I chatted, one thing that you mentioned is you talked about how taking concepts and converting them into models often helps people learn better and makes more sense. Why do you think that is? Why have you kind of found that to be the case?
[00:18:10] Guest: Stephen Horan: Yeah. You know, I think it boils down to the fact that it's active. You know, there's not a lot of people that just like to sit there and absorb stuff. And, you know, some learn that way. But most people learn more indelibly when they're actively engaged and models allow them to do that. And when those models and activities are grounded in practice, then it becomes very experiential and very motivating because now they're like, okay, you know, I can see how this is going to be relevant. And then, you know, and I see students come back from interviews or whatever. And, you know, you can only say and be so convincing that, hey, you know, I've got this GPA or I took this class, you know, but when you say I built this model, that's a completely different thing. And you can talk about how you built that model and how you solve the problems to build that model that's compelling. And that's what industry likes and when? When a student gets kind of the whiff of that. And because most students tend to be very job motivated.
[00:19:39] Host: Paul Barnhurst: For good reason.
[00:19:41] Guest: Stephen Horan: You know, then now they're invested in it. Now, now they'll listen.
[00:19:46] Host: Paul Barnhurst: While my background is in FP&A. I am also passionate about financial modeling. Like many financial Modelers, I was self-taught. Then I discovered the Financial Modeling Institute, the organization that offers the advanced financial modeling program. I am a proud holder of the AFM. Preparing for the AFM exam made me a better modeler. If you want to improve your modeling skills, I recommend the AFM program. Podcast listeners. Save 15% on the AFM program. Just use Code Podcast.
[00:20:26] Host: Paul Barnhurst: You know, that's one of the reasons I'm such a big proponent of what the Financial Modeling Institute is doing is right. That entire program is to demonstrate. You can build a model. It's something you can show an employer. Look, I passed the advanced financial modeler. I'm comfortable building a three statement model so everybody can put their model on their resume. But if I pull ten models from those ten people, I doubt all ten of them are going to be well designed. In fact, maybe 1 or 2, right. Many of them are going to be looking at and going, yes, it's a model. And so I just love that you do it that way because yeah, it is so valuable. I wish when I started my career that somebody had taught me how to model before I went out there and just try to guess in Excel.
[00:21:12] Guest: Stephen Horan: Yeah, no. No doubt. And you know, we get sort of anchored in Excel and I don't mean that pejoratively in any way, but the reality is, I think that what we're actually getting anchored in is spreadsheets and they're visual and you can see stuff. And now, you know, they get better with the, the, the programing and the interface. You know, things can light up and you get different colors and you know that people see stuff and a lot of people are visual learners. And I think that's another answer to your question about why these are effective teaching tools.
[00:21:57] Host: Paul Barnhurst: Yeah, I mean, I think we're right. All the data shows the average person remembers something presented visually much easier than they do a number or, you know, something they read or something they heard. Right. If I tell you a big long number or I show you what it means on a screen, you're much more likely to remember what I showed you.
[00:22:18] Guest: Stephen Horan: No doubt. Where I think sometimes students run into trouble is when they try to backward engineer a model, so they'll take a complete model and try to use it for their situation that it wasn't necessarily built for. And they're like, well, why doesn't it work? And then they get frustrated because they're trying to shortcut it. And so, you know, if you can get them over that hump.
[00:22:48] Host: Paul Barnhurst: Yeah I've been there done that. And that's why like I said, we said earlier, design is so important when you learn how to properly design a model and what goes into your inputs, your outputs, your assumptions, your calculations, your schedules, then you don't need some template that you got to back engineer. There may be times you use one, but you understand the different components, so you're not just trying to force it to get the answer. You're laying it out and you're like, oh, this goes here, and that goes there. And I don't know, there's just so much value. And part of that is just experience, right? You're not going to have all that coming out of school. There's just something to be said when you've built dozens and dozens of models, you just start to understand, oh, I really should do this. Oh, this is why that check's important.
[00:23:31] Guest: Stephen Horan: Absolutely.
[00:23:33] Host: Paul Barnhurst: As much as we'd love for the students to be able to exit and have it all figured out, there's nothing, uh, beats just experience sometimes. And you just got to hit your head against the wall, so to speak.
[00:23:43] Guest: Stephen Horan: So, I guess, you know, to that and to that point, you know, there's no shortcut to, you know, investing some time and, you know, getting your hands dirty. I feel like what we can do is we can shorten the distance from point A to point B, you know, rather than having somebody stare at a blank spreadsheet without understanding how any of the, you know, menus or formulas work, but.
[00:24:10] Host: Paul Barnhurst: No 100% agree. Like, you know, that's kind of when I start. Like I said, when I first built models in a finance role, it was just go figure it out versus if you've taught someone the basics, you shorten that point A to point B a lot.
[00:24:24] Guest: Stephen Horan: I think that's really a key key component. And that is that if you can't you know, it's kind of like giving somebody a fishing pole rather than a fish. Right. And that is if you can give them the experience of one building a model and two figuring some stuff out for themselves. Now they're like, oh my God, I've done that, and I don't have to have the answer. Next time I get to go build a model, I can figure it out. I know how I got the answers to the questions I had before and let me go down similar paths.
[00:25:08] Host: Paul Barnhurst: It's a great point. What do you think? Or what do you think is really the key to helping students be ready when they go into the workplace to be able to to build a basic model? Obviously, like I said, there's a level of experience, but what are the things you think of as a professor that you feel like, okay, I've prepared the students well. What do you think they need to kind of feel comfortable as they go out into the workplace?
[00:25:30] Guest: Stephen Horan: You know, I think we've touched on some of them. And that is, um, no one how you can leverage other models and yeah, you know, it's kind of like object oriented programing where you're like, okay, I'm going to take this piece in, sort of have a way to fill in the gaps and answer the questions, what I need to accomplish this, can I describe that well enough so that I can go find the answer? I mean, whether that's in a Google search, you know, or, you know, in some other way, being able to articulate the need is very important. But they need to have some experience to be able to do that, that which also gives them the confidence to be able to do that.
[00:26:19] Host: Paul Barnhurst: Well, that makes a lot of sense, I appreciate that. So I want to shift gears a little bit. We've talked a lot about the education side, but I also want to talk a little bit about your time at CFA Institute. I know you spent 14 years there before now, you know, kind of going back to academics. What was that experience like? Like maybe talk a little bit about your time at CFA Institute? I'd love to learn a little more there.
[00:26:42] Guest: Stephen Horan: Yeah. It was a great experience. Really loved it. And I and the reason I went there was because I started my first academic career very early. And if you don't do anything else, you're going to be working a long time. And academic careers oftentimes and very, very much the way they began. So it gave me something, gave me a chance to do something different. It definitely scratched the where theory meets practice itch and what was great is that the people there. You know, I worked with wonderful people, you know, highly talented, you know, very wonderful people. And I got to work with a lot of industry luminaries: Bob Letterman, Roger Ibbotson, Zvi Bodie, Bill Sharp. You know, people that, you know, I just really wouldn't have had an opportunity to work with. And so that's a pleasure in itself, but also a lot of practitioners that got me far closer to industry than I ever did, and really kind of got me more focused on, you know, continuing education that has practical application. You know, how is a client going to see the difference in the fact that you've learned this? Right.
[00:28:11] Guest: Stephen Horan: And how are you going to enter? Is your recommendation going to be different? Is the way you're interacting with the client going to be different, that kind of stuff. And so there's a discipline to it because it's, you know, not an academic freedom kind of a thing. It's like you've got a customer who has a need and you need to solve. You know, you need to, you know, satisfy that need. And I think the other thing that was really great about CFA Institute was it's a global enterprise in every sense of the word. And that was so I traveled a lot, which was super enjoyable. Um, and, but just meant a lot of people from around the globe and got a much better sense of both the differences and the similarities across financial markets. So very, you know, mind expanding in that sense. But it was a great experience. And there's not a lot of organizations quite like CFA Institute largely because of that, you know, global remit. Most other professional bodies tend to be regional or national.
[00:29:22] Host: Paul Barnhurst: Yeah. No, they have a year. They've been around for decades and they are global. I remember I uh, I did level one of the CFR, I want to say 2014, 2013 and just realized for me, I wasn't going to go the investment route. It just didn't make sense to continue. So I didn't finish it. But I remember, you know, how many different people there were in that test center. And all the time I put in the experience and it was a good learning experience. I don't regret doing level one at all. And so I yeah, it gave me an appreciation for just the scope and size and the amount of, uh, rigor that's put into that whole process, because it's definitely one of the hardest, I think, credentials out there. It's definitely not easy to earn.
[00:30:02] Guest: Stephen Horan: No, it's and if you're you're right about that. And I, I caution students, you know, encouraging as I'll be to a student if that has the right interest to go pursue a CFA charter. I'm going to be very candid that, you know, you got to be prepared because it's not for the faint of heart.
[00:30:23] Host: Paul Barnhurst: Yeah, well, it's definitely a big commitment. And, you know, I'm curious. I know a few years ago, they made some major changes. They overhauled some of the programs. They added the practicum section, which is financial modeling, in there. I think you could choose a Python path. There were a couple different paths. Kind of. What's your thoughts on the changes? How do you see those?
[00:30:43] Guest: Stephen Horan: Yeah. So that happened after I left and I love it. We were talking about stuff like that though before I left. And that's where I met Ian. And what I like about it is that it complements what the CFA program has to offer, both in terms of its strengths and its weaknesses. Right. CFA program. It's tough to improve upon the book knowledge that it provides. And, you know, and it's very broad based because you're just going to learn about. And that's one of the things I tell students is that, you know, you can sit down for an econ test and that's going to be, you know, on chapters three through seven or whatever, and you can sit down for an investment test on a small set of chapters. But when you do the CFA, you're sitting down for all the chapters in all those courses at the same time.
[00:31:42] Host: Paul Barnhurst: And that's and you got to have all those formulas memorized. And it's yeah.
[00:31:47] Guest: Stephen Horan: It's a big pill. And so it's, you know, it's very academic. But when you're administering an exam back when I was there, 350,000 candidates, today it's about 250,000 candidates, but still a quarter of a million a year. It's very difficult to test and assess hands on what is sometimes called high fidelity learning, you know. And so the practical, uh, what do they call them? Professional modules are awesome for that. And, the FMI module is perfect. I think most CFA candidates should probably choose that path, because it's so foundational in terms of everything that they do. And um, and that's, you know, what Ian and I were talking about is, you know, how can we get this skill set into more CFA charter holders hands because, you know, saying, hey, you know, if, you know, networking capital goes up, what does that do to cash flow? Okay, I can develop a test question on that. But being able to model that stuff is ultimately what employers need. And so on that point that was like that was the bane of CFA Institute's you know, offering. And the critique that employers had is like, you know, great. You're building book smarts for these candidates, but I need them to do stuff. And the professional skills modules get them to do stuff. And FMI is awesome about that.
[00:33:31] Host: Paul Barnhurst: Yeah, no. And that's how I feel. I thought it was a huge benefit when they made that change. I was like, finally, this just feels right because it compliments what's going on there. Like you said, the practical with the book is smart because you need both. Definitely.
[00:33:48] Host: Paul Barnhurst: Bad financial models can lead to bad decisions or worse. So, how do you minimize the risk of a bad model? You make sure the models you build are great. The Financial Modeling Institute developed the Advanced Financial Modeler accreditation program to help modelers like you. The AFM program offers a step-by-step approach to building world-class financial models. The program ensures that you know the best practices in model design and structure, and will help you brush up on your Excel and accounting skills to be the one on your team to build great models. If you want to impress your boss and your clients, get AFM accredited. Podcast listeners. Save 15% on the AFM program. Just use Code Podcast at www.FMInstitute.com/podcast.
[00:34:53] Host: Paul Barnhurst: All right. So we're going to switch gears here a little bit. We have some standard questions. We ask every guest designed to have a little bit of fun here. The first you know it's a modeling podcast which means we all use Excel or Google Sheets sometimes, but we all use a spreadsheet. It's generally Excel. So do you have a favorite Excel shortcut? Is there one that's just kind of stuck out to you?
[00:35:12] Guest: Stephen Horan: So yeah, I'm basically Excel. I like control. What is it? Bracket left bracket control. Left square bracket which takes you to the precedent cell. So when I'm trying to understand a model in grade students just going down the pipeline, where do they get this from? Critical. Critical.
[00:35:35] Host: Paul Barnhurst: Yeah, I know that that's a favorite of a number of people. If you're doing any kind of auditing or trying to trace things out, control the left bracket, a lot of people then be F5 to go back. That combo is huge. So if you look back over your career, what's the number one lesson you've learned that's helped you the most in your career?
[00:35:54] Guest: Stephen Horan: I like that you use the word learn, and I would call it curiosity because sometimes, you know, we don't think about curiosity as something that you learn. But I had to learn it. You know, I was one of those guys. Is this going to be on the test? Because if it's not, I really don't have time for it. And I was the least curious kid of the lot. But once I learned to be curious, I realized that, you know, that's what helps you solve people's problems. You know, if you're curious about your customer, if you're curious about what your boss really wants, you're going to be able to use your skills to satisfy their needs. And now all of a sudden, you're adding value and the world just opens up.
[00:36:40] Host: Paul Barnhurst: I love the way you explain that, and I love the emphasis that being curious can be learned.
[00:36:46] Guest: Stephen Horan: No doubt I had to be. I had to be pretty conscious about doing it as well.
[00:36:51] Host: Paul Barnhurst: And I appreciate that, because I'm sure you're much more of a curious person now.
[00:36:56] Guest: Stephen Horan: Definitely. It's definitely more of a reflex. So, you know. And, you know, you build muscles like anything, right? You know, you're modeling muscle. It'll weaken if you don't exercise it all the time. But once it's exercised. It's just. It's a reflex.
[00:37:11] Host: Paul Barnhurst: Yeah. No, it's so true. It's like anything. If you don't. If you don't do it, you lose it. But if you continue to do it, it just becomes stronger and stronger. All right. So this is a fun one. We like to ask everyone what's the most unique, most fun thing you've created a model for in your personal life?
[00:37:28] Guest: Stephen Horan: You know, so this is an interesting one. And it actually goes back to this thing. You know, we're trying to tie together theory and practice. I had a very special person in my life, a father figure in my life who had retired and, um, pretty wealthy, started to take money out of his retirement accounts. And I'm like, why are you doing that? Because. Because I'm retired. I'm like, but you got all this cash in taxable accounts And, you know, I just I'm like, I just don't make. Why don't you keep that stuff tucked away in your tax deferred vehicles, let that, you know, grow and all that. And psychologically, it just wasn't what he wanted to do. And I was like, I've got to figure out a way to show him and others that there's an optimal way to get money out of retirement accounts. And that just started down. It started an entire line of research that, um, a large part of my academic career ended up being built on.
[00:38:39] Host: Paul Barnhurst: Yeah. And so did you end up building a model to show the amounts? He liked the benefit. And what was his response when he thought the number I did, what was his response when he saw it?
[00:38:51] Guest: Stephen Horan: And I got to show him the paper after it got published. No, it didn't matter to him.
[00:38:59] Host: Paul Barnhurst: Yeah. There's some people who like. This is the way I want to do it, I don't care, I'm rich or, you know, rich enough that I can do it either way. And I'm going to be fine.
[00:39:08] Guest: Stephen Horan: No, I think I think that's right. And then the other thing I learned is, you know what? You can't get wrapped up in those discussions with family, especially parents, that my mom would never listen to anything I had to say when it came to investments.
[00:39:25] Host: Paul Barnhurst: Yeah. No, I, I hear you, there's definitely some areas or family. You're just like, you're going to do what you do. I'm just going to step back and let you learn.
[00:39:33] Guest: Stephen Horan: Yeah. That's that's exactly right.
[00:39:35] Host: Paul Barnhurst: All right. So we're moving into what we call the rapid fire section of this. So here's how it works. I know I shared some of the ground rules, but we'll lay them out. The idea here is you can't say it depends because you could probably say it depends on almost every single one of these. You have to pick a side and then you can elaborate on the end of 1 or 2 of them you're most passionate about, like, hey, here's the nuance, here's why I picked what I did, but here's the exceptions. Also, we've added a new element. Somebody asked for this recently. They go, can I have a plead the fifth on one question. So if there's one question you don't want to answer for whatever reason, you can just say, I plead the fifth and we'll let you off the hook instead of saying, it depends. So are you ready?
[00:40:13] Guest: Stephen Horan: I'm ready. Let's do it.
[00:40:14] Host: Paul Barnhurst: It. All right. Circular references and models. Yes or no? Yes, VBA.
[00:40:21] Guest: Stephen Horan: No.
[00:40:22] Host: Paul Barnhurst: Horizontal or vertical? Do you want lots of sheets or all on one sheet?
[00:40:26] Guest: Stephen Horan: Horizontal.
[00:40:27] Host: Paul Barnhurst: Alrighty. Dynamic arrays and models. Yes or no?
[00:40:31] Guest: Stephen Horan: Yes.
[00:40:32] Host: Paul Barnhurst: What about fully dynamic models like using dynamic arrays for the entire model?
[00:40:37] Guest: Stephen Horan: No.
[00:40:38] Host: Paul Barnhurst: All right. External workbook links. Yes or no.
[00:40:42] Guest: Stephen Horan: Yes. These are hard.
[00:40:45] Host: Paul Barnhurst: They are. And it's fun because I'm getting a few different answers from you than we typically get. We'll discuss that at the end. Named ranges. Yes or no. Yes. Alrighty. Do you follow formal standards like, you know, fast or smarter are one of those when you're modeling.
[00:41:01] Guest: Stephen Horan: No.
[00:41:02] Host: Paul Barnhurst: Alrighty. Do you think financial modelers should learn Python in Excel? No. What about Power Query? Power BI? No. All right. We'll excel every day.
[00:41:16] Guest: Stephen Horan: No.
[00:41:18] Host: Paul Barnhurst: I either get no or yes, but I hope it's not in my lifetime. Do you think I will build the models for us in the future?
[00:41:28] Guest: Stephen Horan: No.
[00:41:29] Host: Paul Barnhurst: Okay. Do you believe financial models are the number one corporate decision making tool?
[00:41:35] Guest: Stephen Horan: Yes.
[00:41:36] Host: Paul Barnhurst: Alrighty. And what is your lookup function of choice? Do you have a favorite?
[00:41:41] Guest: Stephen Horan: Yeah. It's, It's index.
[00:41:44] Host: Paul Barnhurst: Alrighty. You're you're you're an index fan I like it. All right. So I'll give you an opportunity. Is there 1 or 2 of those you want to elaborate on?
[00:41:51] Guest: Stephen Horan: Yeah. So which one do I want to elaborate the VBA. So I said no. And I think largely that's an artifact of more of my academic teacher thing is because I actually, you know, want students to struggle a little bit with building the models. I think that's part of the learning. I mean, one of the things about Excel, which makes it awesome, is that it's not a black box. And so if I'm asking them to build an efficient frontier, right, they have to go through. And it's not just, oh, what's my expected return. What are my what's my variance covariance matrix? And throw that in. They got to know what to do with them. They liked getting those things calculated. And then they've got to go figure out how to maximize things subject to constraints. And I love that they have to struggle a little. I love that. And that's not efficient from a commercial perspective, but it's effective from a learning perspective.
[00:43:03] Host: Paul Barnhurst: And I would agree with that. Yeah. When you have to struggle, you learn more. But your time with your boss is like you've struggled enough, get it done, so to speak, in the real world.
[00:43:13] Guest: Stephen Horan: Mhm.
[00:43:14] Host: Paul Barnhurst: Is there one other you'd like to elaborate on your answer.
[00:43:17] Guest: Stephen Horan: You know the, the, the Power Query. And in power BI. Power BI is a nice commercial tool. And, I do think it's valuable. But there's, there's two distinct skill sets that I think are valuable. And that one is financial modeling as we sort of think about it. And then the other is dealing with relational databases. And Excel's not great as a platform for relational databases. Yeah. And there's there's other platforms that are better for that. And that's where you should be using those tools in those platforms.
[00:44:01] Host: Paul Barnhurst: Okay, I know I got it. There's definitely. Understanding relational databases can provide a lot of value when you're dealing with data all the time.
[00:44:09] Guest: Stephen Horan: Yeah. And that's and that's where I think you want to be doing your querying and your reporting and and all that. Because I feel like if the tool and this is kind of like where AI comes into play, you know, I hallucinates so much that on technical things that, you know, unless you can, you know, dig down and audit it, I'm not sure I want to make a whole lot of decisions, important decisions on it, because I don't really know how it did what it did. If it's writing a poem that's delightful, I got. I don't need to audit that.
[00:44:52] Host: Paul Barnhurst: Who cares if he uses this word or that word in a poem?
[00:44:55] Guest: Stephen Horan: Exactly. Exactly. But, you know, I'm just. I'm, you know, they say, yeah, they'll solve all these problems, but I think we're running up to some limits about what I am able to accomplish. So we'll see where it goes. But you know, I don't, I saw somebody through like a bunch of financial statements and do a tool and say, you know, give me a ratio analysis of these financial statements, okay. And it gave me what looked like a ratio analysis. But I have no idea if those numbers were correct.
[00:45:28] Host: Paul Barnhurst: Yeah. You always have to be able to validate things that nothing you know, nothing takes that away as you need to have a high level of confidence. It's right now there are times where tools say they've been used by thousands. You know, all the numbers are there. You could feel comfortable, like a Bloomberg terminal pulling back for certain ratios or stuff. There's a level where you should be able to just get comfortable, but you need to make sure you have that comfort so that you know it's right, because the last thing you want to do is throw something that's wrong in front of people.
[00:45:55] Guest: Stephen Horan: Mhm. No doubt.
[00:45:57] Host: Paul Barnhurst: Oh I've unfortunately done that more than once in my career. It's never fun. So if you could offer one piece of advice to our audience to be a better financial modeler, what would be your one piece of advice.
[00:46:12] Guest: Stephen Horan: To be a better financial model or not learn it for the first time?
[00:46:16] Host: Paul Barnhurst: Well, it's actually let's do it. Learn it for the first time. I'd love your advice on that because we don't get that often. You're a professor. I think that's a good one. What would you give as advice for those first learning to model?
[00:46:26] Guest: Stephen Horan: I think if you're first learning to model, you just got to be willing to get your hands dirty, you know? And then the basics are hyper important. You know, use cell references and don't embed numbers into your formulas, that kind of stuff. And then, you know, I think even for the experienced ones is, you know, study other people's models, you know, and I think both those things fall under the heading of getting your hands dirty and you can't be afraid to make a mistake. You know, you can always audit it. You can always check it, you know, but just try something, you know, it's not glass in, you know, a crystal shop or anything like that. We can break stuff. It's not a problem.
[00:47:11] Host: Paul Barnhurst: I like that. So be willing to experiment, be willing to break. Make sure you learn. Right. So if our audience wants to learn more about you or potentially get in touch with you, what's the best way for them to do that?
[00:47:22] Guest: Stephen Horan: Probably. You know, anyone's able to reach out to me via email. It's Horan at UNC Edu. My personal email is Stephen at gmail. So follow me on LinkedIn for sure. And Ax, those are my two more active platforms.
[00:47:45] Host: Paul Barnhurst: Took me a second. I still think in Twitter terms like X. That's right. That's Twitter.
[00:47:50] Guest: Stephen Horan: Exactly.
[00:47:52] Host: Paul Barnhurst: So thank you so much for joining us, Stephen. I really enjoyed chatting with you and getting to learn a little bit more about you, and I'm confident our audience will enjoy it as well. So thank you for carving out some time for us.
[00:48:04] Guest: Stephen Horan: Oh, David, thanks for having me. It's been a real pleasure.
[00:48:06] Host: Paul Barnhurst: Financial Modeler's Corner was brought to you by the Financial Modeling Institute. This year, I completed the Advanced Financial Modeler certification and it made me a better financial modeler. What are you waiting for? Visit FMI at www.FMInstitute.com/podcast and use Code Podcast to save 15% when you enroll in one of the accreditations today.