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 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 - 5

Hello everyone, it has been a LONG week, my apologies for leaving the site alone and leaving you guys alone this past week. I did visit a few time a day to check if there’s any comments or questions.

Last week/weekend was stressful while I was preparing for one of the best opportunities I ever came across during my career in the investments industry. It is still going on this coming week, so a lot of stuff yet to be done. Work has been intense like always, no complaint though. The last 2 days was quiet, and briefly met with a few friends since CFA has come to an end. I am feeling guilty though not updating the site for a week, so here’s a new post.

Today, I’d like to discuss about prep strategy closer to the exam and topics you must cover by next month. Past this weekend, you will have exactly 2 months to prepare for the exam, that is just over 60 days. 60 days alone can be more than enough for some people to pass this exam. On average though, especially for those who also have full time employment, this is crunching time. Many candidates have asked me how they can best utilize their time closer to the exam. And my general recommendation to everyone is the same, that is you should complete all readings by the end of October 31, and focus the entire month of November to practice. This is the key to passing any level of CFA exams.

Ideally you would have completed all reading, but here’s a list of essential topics I think you must have covered by the end of October.

For level 1 candidate, you should have completed

• Financial Reporting and Analysis (study session 7, 8, 9, 10 – reading 22 to 35): understanding balance sheet, income statement and cash flow statement will be essential for level 1, and you will need it for l2 and 3.  You must fully understand the financial statements, and the applications, which is covered in SS 8 and 10.

• Equity and Fixed income: (SS 13, 14, 15, 16): Market efficiency has been a topic throughout of the CFA curriculum, you will need to understand the different types of markets, this is where quant also comes in where you might be given a type I or type II question. In Equity, you also need to understand and be able to apply valuation tools. In Fixed income, you need to cover the basics first, also understand the risks from an investor point of view. I’ve touch upon the concepts of yield/interest rates and bond prices before, which are all important topics from this reading.

• Economics: (SS 4, 5, 6) I personally find this reading tricky in that only 10% of the marks will come from this section, but CFA institute takes 3 study sessions. The only way I can rationalize and be able to explain is economics is fundamental and so deeply tied into our daily lives, but it’s not the most core function of an financial analyst, so you just need to know it. fortunately l1 economics is no more than a 1^st year econ course, as long as you’ve covered micro and macro in school, you should be equipped to pass it with some preparation and practice.

• Quant: (SS2, 3) CFA quant is all about stats. If you’ve done any type of stats course I wouldn’t imagine it will be difficult to study this session. The good thing is they will not ask you to do any type of regression analysis, or ask you to create a simulation model in any level, so you only need to know the techniques, and be able to apply the techniques in a question. I urge you guys to read the command words again and make sure what they are asking here.

The above is what you must have covered come October, I didn’t mention some sections, such as, ethics, derivatives, alternatives and portfolio management. Ethics is going to be a big deal, like I already mentioned. I wouldn’t write a separately post if ethics was not important, but the studying of it is not as rigid as the other sections, reading the standards and code of conduct on the train to work everyday or going home might help you get most of it, and you will need to do questions.  As to derivatives and the other sections, my recommendation is you can study as much as you can but they only weight less than 10% altogether, if you have the time to study, that’s great. If time is pressing and you only have 2 weeks to study, these are the sections you should not spend too much time on. In my case, I tried to cover EVERYTHING, and when I spend hours and hours 1 week before the exam just to understand some derivative pricing calculation, I had to tell myself to stop doing that, as a result I lost valuable time to solidify areas like FRA, and that’s a mistake.

I’ve been rambling on and on, my key takeaway here is put in as many hours as you can until October 31 to complete all readings, and drop the books in November, start doing questions. You need to start using your notes/flash cards, and practice LOTS of questions, be smart when you review, go back to your notes and make sure you understand why your answer was wrong (or right).  I am sorry I didn’t get to l2 today, I will post something tomorrow on l2. Have a productive evening. 

Exam strategy - 4

Hello guys, hope everyone is having a productive Thursday night and is all pumped for a full weekend study schedule on Saturday and Sunday. I understand many of your guys found my post on studying on weekends quite depressing, sadly true, but if you have a full time job, this is the best opportunity to get through some LOS’s. I know sleeping in would be so nice after a long week at work, just remind yourself there’s 80 more days before exam day, hurry up to maximize your marginal utility in the CFA studies and place your indifference curve tangent to your CFA demand curve, trade off your play time for more study hours :) If you can use my weekend story for motivation, don’t hesitate to do so, just know some people somewhere are studying harder than you.

Assuming an average person takes 5 to 6 months to study for each of the 3 exams, most candidates should have put in about 8 to 10 weeks of work so far. Ideally you have created your own study summary while you go through each LOS in the past few weeks, question remains: did you take the best notes that will put you above the pass rate? If not, with the 2.5 months left, how can you improve?

I can never overstate the importance of the very first point I made on this blog about the LOS command words. Whether you are using the CFAI curriculum or any other providers, always go back to the base and understand what you are expected to do. Same goes for your note taking. Candidates need to not  only take notes on definition and formulas, but also pay special attention on underlying relationships between concepts that occur in different chapters and how each topic is inter-related to other chapters.

For example in l3, you understand personal profiling using key factors such as time, tax, liquidity, legal, unique circumstance. From l1 and l2, you also understand the risk characteristics of bonds and equities securities. The exam, however, will not test these concepts alone. You will need to demonstrate you understand the client financial needs by applying the tools, and recommend an appropriate asset mix based on the risks of different securities classes.

So writing down the knowledge points will help you, but only to a certain extent, in helping you memorize what they mean, you must understand and be able to apply the underlying relationships that support these concepts in a question set.

While you are doing that, leave some space on the sides or between lines, so later on in your review you can add more notes, you can even use your favourite colour pens!  I realized I didn’t truly understand many knowledge points reading for the first time.  It was until I did questions and reviewed these questions, I started to register these concepts, so what I did was I kept adding supplementary notes in red next to the corresponding LOS on my notes.

So by the end of my 5 month studies, I had not only created my study notes, I created a fantastic notebook of CFA proven knowledge network that’s interrelated with one and other. This approach helped me reference back to the LOS/knowledge points every time I encounter new questions of the same topic. It made studying so much easier for me to go back and forth to reference between chapters that are tested in the same question set.

One last note before I leave you to your studies tonight, use a colour pen and be creative!

Have a great Thursday evening.