Post exam comments December 2014

As I am creating my personal study notes package today, the level 1 candidates are writing their exams. Personally, I have a few good friends who are also writing this exam today, and I wish all of you guys the best. It's a tough day considering you must get up early and go through a 6 hour exam, it literally can take 12 hours from beginning to end, but it will be worthwhile afterall as I've repeatedly heard from my friends that they have learned so much from their studies and a lot of it will be great resources for their jobs, not to mention I have done this myself.

If you are reading this post after your exam, give yourself a pat on the shoulder because you deserve it. no matter what the result will be in a month, you have done something exordinary that most people will not even consider doing, so congratulations on completing the exam!

You have about a month or so to not think about this exam, enjoy it and don't think about it : ) I remember the huge relief and all the free time i had not having to study for some time. After such a long and difficult few months, try take your loved one out for dinner, greet your kids again, and say hello to your colleagues at work, relax and enjoy everything you have fought for.

I'd love to hear from you guys about the exam day and your experience, when you leave your comment, please keep in mind do not discuss exam questions. Finally, I wish all of you guys the best today and enjoy your weekend!

Good luck to all level 1 candidates

Hello everyone, the big day is coming up next week. I hope you have already had a couple of timed mock exams by now and had a chance to identify your strength and weakness in mock. With one week left before the level 1 exam, there’s pretty much only one thing you need to do, that is to practice more exam questions.

Exam strategy 10 - level 1 final prep

Good evening everyone. Up to this point, I’ve introduced quite a number of study strategies, 10 to be exact. These strategies I’ve talked about range from how to study the entire CFA curriculum to how to prepare for the sprint. If you had used some of them consistently throughout the past few months, with the time left, you have a chance to improve your performance by quite a bit. If you can use your time time effectively, a lot can be done in 12 days. You won’t be able to go through the books again but you can easily do at least 3 to 5 full mock exams, make sure you can answer multiple choice questions quickly and correctly, and review all questions afterwards, even if you just do that I guarantee you your performance on the exam day will be elevated more than you would imagine.

Today I’d like to write about things you should watch for before the exam and on the exam day. First things first, here’s what I think you should pay attention to from now to the exam day:

• Make sure you go through at least 4 mock exams – timed and reviewed, do more if you can
• Don’t burn yourself out in this 2 weeks, a little aerobic conditioning or weight lifting may help
• Don’t get distracted – this time is ALL about you and the CFA exam. When I took the exam, I had no contact with work, limited contact with family and friends, it’s just me and my mock exams
• Take a deep breath and pause for a second when you are anxious about the exam, then continue with questions.

The day before the exam, prepare the following:

• Your exam ticket, passport, financial calculator, No.2 or HB pencils, an eraser (no paper cover), ear plugs, I also bring my own lunch, energy bars, chocolate, red bull (never needed them), and of course my notes.
• Many people have said to me to not study the day before, just relax, and so on, I treated the day just as another study day.
•  Go visit the exam centre the day before and map out two alternative routes to get there; believe it or not, the exam can generate a huge traffic jam on the highway. If you are late they will not let you in until the exam starts, it happened to me before.
•  Eat an early dinner and Get a good night sleep before the exam – I say that but never did, I studied until 2 AM, but it’s not recommended, so eat early and get a good sleep.

 On exam day:

• Take a few minutes to read this link Exam Day Schedule, review the outlined schedule
• Wear comfortable clothes, sweat pants are my personal favourite
• Arrive early and give yourself enough time before the exam
• Go to wash room before exam starts and limit your washroom breaks
• Manage your time during the exam. If you get stuck, just skip to the next question, remember 1.5 minutes per question
• There will be distractions during the exam, use ear plugs, don’t get distracted and keep calm
•  It is said the afternoon session maybe harder, but I think it’s mostly because candidates are depleted in the morning session
• Leave sometime to check if the answer sheet is completed, and review the exam if time permits

This last 2 weeks will be very hard, but looking on the bright side, you cann’t really do anything if you were not studying right, it’s freezing outside with the big snowstorm just a few days ago. And come June, you will be finished with level 2 and be able to get a long break for the summer.

I am hoping to write another post next weekend, meanwhile keep calm and practice more exam questions. Have a productive Sunday evening!

Three more weeks until Level 1 exam day

Hello! Hope this week was productive for everyone. Thanks as always for the comments. As some of you pointed out everyone is fully devoted to the studies, it reminded me when I took the exam a few years ago. This is a difficult experience to go through, you must have sacrificed many of the important things in your lives in this process in order to get here today. It’s a long haul in the CFA journey, but it might take less than 3 weeks to cut a deal with the exam. I often admire the confidence of those who walking out of the exam centre know they passed, it actually intimidates me a little as I never had such confidence, I come across more often though with people who had doubts during the exam but most ended up passing, so until the exam result is released, everyone in the room has a fair chance.

With 3 weeks to go until the December 6^th CFA level 1 exam, its final crunch time! I had created a post for level 2 candidates on the second half of the summary but I thought I’d delay level 2 post given the fast approaching level 1 exam and take some extra electronic ink here on level 1 related issues as promised earlier.

Timing

For full time students, you are probably in the best position to take this exam. For those of you who are working full time, I hope you have booked at least 1 week off before the exam day to prepare for this exam.  Speaking from my person experience, I’ve always taken the exams while I had a full time job, and I’ve always taken two weeks off right before the exam day for all three levels. From my conversations with various people, there seems to be a 50/50 divide in terms of how people like to allocate their time for the big “cram”. I heard 2 weeks off a lot, but also know quite a few people who only took a week or 1.5 weeks depending on their comfort level with the exam. My personal experience for level 1 was that two weeks was more than enough, I would probably take more time off for level 2 and level 3.

Material

Your study time is over! If you are still studying new materials at this time, I hope it’s your last study session on alternatives or one of these that had less than 5% of the exam weight. In any case, I recommend dropping all new material at this time and focus only on questions. You can review the material when you practice but there is no time for studying. If you still have more readings, it doesn’t mean you have done a poor job in the last few months, so don’t panic, simply wrap up and start practicing for next 3 weeks.

Practice exams

As a CFA candidate you have access to their online resources, where you can probably purchase online mock exams. The year I took level 1, 2 mock exams were available for $40 each. I was poor and cheap (am still cheap) so I didn’t purchase, had I done this one more time, I will not hesitate to buy their questions as no one, I mean no one, out there is able to come up with questions so close as theirs to mimic the real exam. In more recent years their website went through a series of upgrades, everything seems to be online driven, so take a look at their mock exams.

You would also have access to other exam like materials, I would also recommend that too. Look for practice exams that allocate questions following the exam weights, there are plenty of them out there.

For the coming 3 weeks, these practice exams are your best friend. There is absolutely NO ONE ELSE who can help you pass the exam more than the practice exams. So use them to simulate the real exam, 6 hours in total, 3 in the morning, 3 in the afternoon. Correct your answers in the evening or the next day. Mark my words here, the probability of passing this exam by doing what I said in this paragraph is increase by at least 10% or more.

If you can get a hold of past year exams, it is important to do as many as possible of these exams from recent years, because these are the only questions you will get from CFAI exam writers, and no one knows the exam better than the CFAI.

With this, next couple of weeks should be quite a corrective experience, you will be able to go through questions and find out where you are still weak and what topics you are doing well. Go through all the questions you did the day before and learn from it. Remember to review ethics from time to time, don’t leave it to the last minute.

Don’t panic

Don’t panic! 3 weeks is long enough to pull you back on track if you had properly studied the materials in the past few months. Sometimes it's easy to let people influence you at this time. I get these emails from people who want to sell their stuff which makes me think they can help me pass. Remember YOU are the only person who can make you pass this exam, believe in yourself and the hard work you have put in so far. Follow a rigorous practice schedule for the next 3 weeks, make sure you understand each question you didn’t get right, time the practice exam, keep calm and practice more!

A few words on level 2 - 1

Good afternoon everyone! I'd like to write a few things on level 2 this week, but before I get to today’s post, I’d like to say a few words for these of you who are writing the December l1 exam, I hope you have made it through all reading materials by this weekend without experiencing too much frustration; so next 4 weeks will just be practice, practice and practice. I hope everyone is ready to do timed exams by now. It is absolutely key to go through timed exams, at least once a week now before the exam. So you get 4 exams out of the way to prepare for the exam day. I’ve introduced the key weights for l1 earlier, use that as a guideline when you are doing practice exams, keep in mind how much time you should allocate to each question and try to improve the accuracy while strictly following the time schedule to simulate the actual exam. Only 4 weeks to go guys, we are almost getting there, this is time for the sprint, prioritize your tasks and the heavily weighted sections, start practice these sections as soon as possible.

Now back to level 2. For l2 candidates out there, I’ve tried to consolidate some thoughts here on the l2 exam, the list started to get bigger and bigger so I am going to write two separate posts on this topic. So here we go.

In quant section, if you are struggling, try to focus on the basics to start, for example, interpretation of the regression line, t-test for the significance of the slope coefficients, the definition and impact of assumption violations, trend models, and the basics of AR(1) models.  As always, focus on the LOS to keep from getting overwhelmed by the concepts. This section will likely be integrated with material from other topic areas, so interpretation is the key. There are lots of concepts in quant, but since you got past L1, you can certainly get on top of the L2 quant material.

The economics material is somewhat less intense than quant, but the challenge remains the volume of material. Watch out for topics relating to foreign exchange and international economics and focus on how the economic concepts presented affect the value. For example, economic growth has value implications, as does the regulatory structure of an economy. And, the key in the study session is foreign exchange rates: be sure you know your way around the “FX triangle”. The l2 exam not only requires you to know the material, but also to be able to apply it, most of this stuff are best learned through practice questions.

Level 2 is really about accounting to many candidates. The key to being successful on FR&A is to remember that you are being tested on your skills as a user of financial statements, not a preparer of financial statements, so don’t get lost in the details of the accounting rules. Instead, focus on how the choice of accounting method affects reported financial results and especially financial ratios. This should be somewhat a guide line in next few weeks when you are doing questions.

In FR&A, the differences between accounting treatments under IFRS and US GAAP remain important for the exam. It is imperative that you devote the time necessary to understand this topic. At 15 to 25% of the Level II exam, it is almost impossible to achieve a passing score without passing the FR&A section.

What separates l2 from l1 is partially due to pensions and multinational currency translation, it is important to practice this section and master this material. Pension accounting is particularly challenging because you are expected to know the IFRS standards and the new standards under U.S. GAAP. Remember that the income statements are the same under both methods, but the balance sheets treatment of the net pension asset is substantially different. Under U.S. GAAP, the net pension asset reflects the true (economic) funded status, while under IFRS there are “unrecognized items” that cause the pension asset or liability recorded on the balance sheet to be different from the true economic position of the plan. The big-picture analytical issues are the adjustments required to reflect economic reality and to enable you to compare balance sheets prepared using different pension accounting methods. While accounting rules may seem tedious to some, focus first on how PBO and fair value of plan assets are calculated. Then you will know how changes in assumptions affect financial statements.  Then look at economic reality vs. accounting values (economic pension expense) and finally the cash flows associated with post-retirement benefits.   

This material is not that bad to comprehend if you can: a) understand the big picture, b) view pension plans as a time value of money problem, and c) are familiar with the terminology. For stock options and grants, the current treatment is straightforward. As long as the terms of the grant or options are known on the date they are granted, they are just valued as of the grant date and spread the expense over the service period necessary for the share-based compensation to be fully vested. Currency translation is a difficult topic at best and will require some work. You’ll know when you have a good understanding when you can explain the foreign currency exposure for entities based on the appropriate translation method and how the choice of accounting method affects the financial ratios.

If you are overwhelmed by pension accounting and foreign currency translation adjustments, remember that these are two of the most challenging topics in the curriculum. Also, keep in mind that the exam weight on FR&A make it worthwhile to spend the extra time to master this material.

Have a productive Sunday guys, more on l2 is on the way!

A fews words on Level 1

Good evening everyone! It’s 5 weeks before the exam, time to grind out all reading material and start doing practice questions. This week marks the ending of many companies fiscal year end, busy earning seasons and market news flying across screens. As a passive investor myself, I made a few trades and exited my positions just before market took off later the week, if only I knew… oh well, market timing is not for everyone. 

Hope the studying for everyone is going well. In light of the fast approaching exam day and a few requests before, I will make the next couple of post focusing around the key concepts for level 1 and 2. Keep in mind I took the first two levels a few years ago, there may be some changes to the curriculum but the key concepts should still be relevant. I won’t attempt to cover everything in the curriculum but list what I’ve remembered in my review. 

First of all, I can stress more on the LOS command words, so you don’t get overwhelmed with all the stuff included. Don’t let where you are in your studying or the amount of material remaining frustrate you or make you feel hopelessly buried. Know what you are required to know, nothing more nothing less. 

In Macroeconomics you should be aware of how important an understanding of macroeconomics is to successful investment management, portfolio construction, country allocations, and the relative attractiveness of equities vs. bonds vs. cash vs. physical assets.  Relating to recent world economic growth which is slowing down, aggregate demand and incomes are down and monetary policy has been eased to reduce short-term interest rates to very low levels (injection ended this month, creates more pressure on rates). It’s easy to say low interest rates are driving to restore aggregate demand to full employment levels, it is not the only factor. As the world has seen Japan’s effort to add stimulus, the US market has reacted positively, but this is also backed by the improved GDP and a strong dollar.

Financial Reporting and Analysis will be 20% of the exam, that translates to 48 questions, it’s make or break type of deal. Practice this stuff inside-out, it will be tested extensively and you will need it for Level 2 and 3. Try to relate this stuff to a financial analyst to understand financial statements and to know where to look for company information and how to analyze it. A financial analyst should be able to read and understand financial statements. You will not find it easy in securities analysis and portfolio management if you don’t understand financial statements really well. The materials will come together for you now as you complete the readings. Try to get through the income statement, the balance sheet and the cash flow statement, but more importantly understand how it all links to each other and use them to analyze a security. At the end of the day, this part counts for most of the FA (financial analyst) in CFA.

With respect to ratios in accounting, make sure you know whether higher or lower ratios are generally preferred, what types of changes would change the ratios, and finally how differences in accounting methods and estimates affect the ratios.  This last part is important when doing many types of financial analysis. Review and practice capital (finance) leases, on income taxes, on capitalization, depreciation, and impairment, and on ratio analysis. For income tax accounting, it may help to keep these two key concepts in mind: 1) At any point in time, accumulated asset depreciation for tax minus the accumulated depreciation on financials, times the expected tax rate, is the DTL. 2) Expenses that are accrued on the financial statements, but not yet actually incurred so they have not reduced taxes, increase DTAs.

In the year I wrote my l1, IFRS/U.S. GAAP differences were a big deal. The curriculum focus on IFRS has been getting stronger each year. With respect to income tax, memorize that “tax expense = taxes payable + the change in DTL – the change in DTA” and build on that.  You need to know how accelerated depreciation for tax creates a DTL and how accrual accounting for warranty expense creates a DTA.  Once you are really clear on those points, pick up a few of the details and you’ll be in good shape.  You will also be able to pick up the rest of the details when you do practice exams.

First make sure you can do any calculations required by the LOS (the ones with the word calculate in them), then focus on the conceptual stuff, and finally do the Corporate Governance stuff.  Don’t be surprised if this Governance material is tested out of proportion to its content.  More concepts to review include Capital Budgeting and Cost of Capital, Cash conversion cycle, liquidity ratios, yield calculations, and sales-based forecasts, Operating cycle and evaluation of working capital performance. 

In Equity Investments, which includes securities markets and equity analysis and valuation. This topic takes around 24 questions. The securities markets reading is basic knowledge you should have, particularly types of orders, short sale details, stock indexes, and the concept of informationally efficient market prices. The market efficiency analysis is very likely to be tested, so I would review and practice on that. The material on anomalies is also worth to review where it covers the types of things equities managers must consider when evaluating research results, investment strategies based on those results, and the possible returns to such strategies.

As part of the valuation of equities, the dividend discount model is the backbone of financial analysis and you should learn it well enough to be comfortable with any questions you get on it. Other important aspects of stock selection, including the different types of equity (common vs. preferred, domestic vs. foreign, public vs. private); industry and company analysis (industry and peer groups, competitive forces, industry life cycle, impact of structural changes in the economy); and valuation models based on price multiples, enterprise value, and firm assets. The difference between absolute and relative valuation methods is a key point here.  You will also need to master equities terminology, indexes, and equities valuation.  For Debt Securities (around 24 questions), with the news on MBS, ABS, CMOs, and CDOs this last few years, they will test this stuff and it won’t be just calculations; it will be the terminology, the concepts, and how the concepts all tie together. In your review and practices, pay attention to the bond basics and terminology, and on bond valuation, yield calculations, and spreads.

Derivatives can be confusing, especially if you haven’t worked with them at all.  The good news is that, for l1, you just have to know the terminology and basic characteristics of options, swaps, forward contracts, and listed futures, and how to value them at expiration or settlement.  For each derivative security you should first focus on what must happen for the long to have gains (if the opposite happens the short position will have gains).  Same old l1 story, nothing too terribly complex, but it takes a lot of practice. 

 

For Portfolio Management and Alternative Investments, while both study sessions are short, Portfolio will be 5-7% of the CFA Exam and Alternative will be 4% of the exam.  I would not spending too much time on these topics if I am short on time, but definitely do questions and cover the characteristics of hedge funds, mutual funds, and ETFs, along with a bit of real estate valuation and a few words on the valuation of closely-held companies and commodities as an investment. At this point, you need to prioritize and clear out the most heavily tested areas like FRS, ethics, quant, equity/fixed income etc.  

Be sure to focus on the Learning Outcome Statements and to not get bogged down in small points to the extent you miss the big ones.  And remember which topics have the big weights: 20% for FR&A, 15% for Ethics, 12% for Quant, 10% for Economics, 10% for Fixed income, 10% for Equities, and 7% for Corporate Finance.  

Five weeks to the exam, so I know you are all planning your final study strategies.  I hope they involve lots of practice at answering multiple choice questions quickly and correctly. Once again, you will want to sit through a few real practices before the actual exam. You can time a 6 hour exam on Saturdays and go through all questions on Sunday, you will be able to get through 4,5 exams that way.  

Have a good and productive weekend, stay calm, and enjoy.   

Exam strategy 9 - Study tips for level 2

The content of this post is mainly coming from the CFAI website. As you can notice, on top of my own exam strategies, I am also promoting some of their study tips/tools as I discover them online. The content on CFAI website can be easily overlooked because of the sheer volume of the material candidates are responsible for. I, for one, didn’t pay much attention to their advice at all back in time. However, I’ve realized over the years these are all very useful tips for practice exams. So I will continue to post when I come across more of these. Ideally you will practice these techniques/tips while you are doing practice exams so you are mentally trained and they become part of you on exam day. I’ve added my own comments at the end of each tip to explain what I think is important and why it’s important. So here it is.

1. Know your acronyms. Common acronyms are no longer spelled out in the exam questions. Download and review Level II acronyms you should know. Here you will want to remember the foreign exchange conversion during the exam. They will likely not give you USD/CAD (US$ over CA$) even though it’s the most intuitive. They might give you USD:CAD, which means CAD per USD.
2. Each question addresses a generally accepted concept or principle and can be answered using only the information provided in the question and your knowledge of the curriculum. Don't introduce other information; the exam questions are not designed to trick you or test you on rare exceptions. This one is key, no assumption is allowed in the exam, you will always have sufficient information to answer the questions. There could be rare occasions where a question may have more than one answers, this is extremely rare and you will be fine as long as you answer the question in an acceptable way.
3. Read each question carefully. Incorrect answer choices are designed to appear plausible to an unprepared candidate.  The CFAI has done a great job making answers look alike, especially for qualitative questions such as ethics.
4. You may mark up your exam book. Circle or underline important information in the vignette and write down your equations or logic. However, only your final answers recorded on the answer sheets are graded. Don’t be scared about writing notes or underline key words on the question sets, this helps you identify key information quickly when you need to read the case again. I did this a lot.
5. Expect to go more slowly on the Level II exam than on the Level I exam. You are answering 50% fewer questions, but spending twice as much time thinking about each one (including time for reading and analyzing the vignettes).
6. Manage your time. Don’t spend too much time on any one question or topic area. On average, you should allocate 3 minutes to each multiple choice question about the vignette, including time to record your answer on the answer sheet. Time management is a bigger problem for level 3 which I will explain in a later post.
7. Eliminate obviously incorrect answers. We are all familiar with Process of elimination. If you have to guess, use reasoning and logic. The concepts that you know on one topic often apply to another topic and if you can eliminate one of the responses, your odds of answering the question correctly are much higher.
8. Answer all questions: There is no penalty for incorrect answers.  I recommend candidates to skip a question and come back to it at the end.
9. Mark your answers on the answer sheet as you complete each question. Some candidates write their answers in the exam book and wait until the end of the exam to bubble/fill out the answer sheet. This is not an advisable strategy because you may run out of time before you can complete the answer sheet. I’ve actually done this for level 1 and 2, and indeed this is not advisable, it’s actually very time consuming when you are left with no time to fill out the answer sheet. So try to move through the exam and the answer sheet at the same time.

One last comment, you need to work really hard but you are allowed to take a night off once a while and relax before you burn out, go have dinner at a restaurant you like with people you like. This process takes a lot of hours and diligence but don’t let that take over your life. 

Have a great Thursday night.