What next?

Hello everyone,

It's been a few months since my last article on CFA studying. now that the results are out, I thought it's time to update the blog with a couple of more tips on what to do next.

Exam strategy 8 - more on practice exams

Hello everyone, it’s been quite some time without an update on this blog, 11 days to be exact. That’s correct, I am counting the days guys. A lot has happened the last week and half for me, mostly work related. The market has been very volatile for this time period, we’ve seen money flow in various directions and it’s been a concern at the company. Nevertheless, CFA clock is still ticking. I want to say thank you to the guys who were concerned about the blog, your comments are much appreciated. You should probably be counting the remaining days now before your exam, with 6.5 weeks left as of this post, I hope you guys have already covered most if not all materials for your exam. Logging your days and hours in the preparation of the exam is recommended. Having a calendar at your desk probably will keep you on track; I would expect your planning is precise now to the day. Make sure to accomplish your plan each and every day from now to the exam day.

The CFA preparation is roughly divided to two stages, the marathon and the sprint. I will not take the credit for this, the concept was widely shared by a few people I know from studying the CFA. The marathon is the many months candidates spend to read through the curriculum, the sprint is the very last few weeks in which candidates reinforce what they have learned in the marathon. As it sounds like, the sprint should be a lot more intensified than the marathon. Today, I want to cover another strategy designed to optimize the sprint – exam practice.

I’ve designed the sequence of my posts slightly ahead of the schedule for the December exam, so if you are not doing practice questions yet don’t worry, just try to wrap up the readings and get ready for the sprint. But if you are ready, proceed to do exam-like sessions, assuming you’ve studied thoroughly all readings and completed all EOC and CFA text EOC questions.  So the sprint will probably take roughly a month (or within 3 - 5 weeks) right before the exam date. The earlier the better, but not too early. Don’t get too hung up on the EOC questions, skip them if you didn’t have time, and just start doing exam questions.

When you start doing exam like questions, it is extremely important to simulate a real exam experience, time at least the morning sessions and maybe afternoon sessions just like the real exam. This way you will get a real feeling of the exam and how you will perform under pressure, although it’s not really the same pressure you will experience.  Keep in mind, the exam is 6 hours long, the level 1 exam has 240 multiple choice questions, which means you have 1.5 minutes for every question. For the Level 2 exam, candidates have 50% fewer questions but taking twice as much time to answer each multiple choice question. 3 minutes per question would also include the reading the question vignettes and formulating the answer. For level 3 people, you will have seen the vignette format already in l2, so practice the morning session as much as you can, timing the morning session is everything in l3. I can expend on this topic in a later post but you get the idea for now. Review each exam you've done will also be crucial; I would specially emphasis on the weak areas over the others.

I think if you do at least 3 - 5 mock exams for each level you are likely in a good position, as long as you can keep your score above 70% for the practice exams. For l1,  I did the first 2 mock tests in the last week before my exam, which is not recommended, my score is between 70% and 73%, and I passed the exam above 70%. In l2 & 3, I did at least 4 exams per level. At the end of the day, try to understand what you are being tested in each question, not just for the sake of getting the right answer. 

Study hard guys and have a productive week.

Exam Strategy 7 - Practice questions

Hello everyone. Hope you are all pressing hard on the readings this weekend. It’s close to mid October, with 7 more weeks before the exam, your readings should be near the finish line in the next 2 to 3 weeks, and last 4 weeks should be only practicing questions no matter what level you are preparing for.

There were some interesting discussions in the comments last week about relationships and CFA preparation, and thanks to all of those who shared your life experience with us. As you all know, this is a tough journey and it takes a lot of time and energy from start to finish, sometime people stop at a certain level because of other priorities, a change of career path, jobs, or other family responsibilities to name a few, sometimes it is okay to put an exam behind for a few months, keep in mind you can always take it 6 months later or next year, certain things in life don’t come around every 6/12 months.

Having said that, my goal here is the same as yours that is to get you guys pass the exam. If you followed my advice so far, and put in the right amount of hours in the last few months, I would think you have completed most of the larger readings in the curriculum, and my advice here is to wrap up the remaining portion of the readings in the next 2 weeks, 3 weeks at the most, and dedicate the 4 remaining weeks to questions. Here's a few things I want to say about doing CFA questions.

For CFA textbook EOC questions: you might have done some of these questions throughout the preparation.  Or you can also take them as you finish reading each topic. What I did was I divided the books into sections, I did EOC questions once I finish reading each section until I went through all the major sections, but whichever way you feel more comfortable should be fine.  My experience with the CFA curriculum is some questions are very wordy in the books, I didn’t think they were representative of the actual exam questions (for l1 anyways), so I only did a selective few per section. If you have enough time, I’d recommend practice as many EOC questions as possible but remember you goal is to get as many done as possible before the exam, so don’t get stuck on the wordy questions too long.

When working on any questions, I created a system to categorize all the questions I have done, for example, questions where I got the answer wrong I marked them with a cross. For questions I needed to revisit (but I got the correct answer), I marked with a circle.  So I know exactly how I felt about each question when I go back and review them in a week. This way it helps me to determine how much time I should put in to review each question. It helps answer questions like: should I ever bother looking at a question again review? Or should I review it very carefully?

For any questions I did, if the question tested something I had not registered in my knowledge base, that means it’s brand new knowledge points, I would go back to my study notes and add the new stuff just next to my original notes in red, or at the end of the study section.  I did this in red ink as I have said before, bright colours help me remember things.

It is extremely important to know your strength and weakness in this process, by keeping a high level record of how many questions you have done and how many you got wrong in each test.  The point is to recognize your average marks in every testable area. You may not know your overall performance until later on in your preparation, that’s perfectly fine.  Overtime, this process will understand how you perform in each section, so you can design your study with a clear target to improve your marks in the weak sections. Once you have a sizable question bank, make sure you review them carefully at least once using the system I described above but with your own elements in it.

Time is of the essence, so you must optimize the expected ‘rate of return’. This is a game where you compete with time, your ‘rate of return’ is the number of ‘smart’ questions you have practiced that will help you pass. Notice here I said ‘optimize’, not ‘maximize’.

Study resource - CFAI study planner

Modern life style these days can be so manipulative without one even noticing it. for example I travel to work on subways both ways to and from work, it’s less than 40 seconds of time for me to come out from home, walk cross the street and hop on the subway trains which take me directly to the basement level of where I work. The idea is terrifying, I don’t need to get outside almost at all times and would be just able to live always inside like that, I am sure some of you guys share the same life style to certain extent. It bothers me sometimes and I have to make a point to go outside and walk a bit sometimes even though the air is not that fresh at the centre of an industrialized city. But, the advantage of it is artificial lighting takes away or at least moderated the psychological ‘downside potential’ on this gloomy Tuesday morning.

So here’s what I got today, a study planner! This tool is offered by the CFA Institute where you can log in and figure out how many days you need to study each session, this is pure golden. Candidates should take full advantage of this tool, and use it on an ad hoc basis to keep track of what you have left in terms of number of days. I don’t have access to this tool, but I encourage you, if you have registered for an exam, to go online and take a look at it. In the old days, I had to draw things out on a calendar book and allocate my time over to each study session, or I had to pay hundreds of dollars to purchase a study package with this sort of planning tools, nowadays they did it for you.

A few words before you use it though. Any type of generic study planner should serve one purpose, that is to provide you with some guidance and guidance only, it’s not a personalized study plan. I think you can use their tracking feature to log your time on it to calculate a more accurate schedule for the remaining months, but without using it myself, I would imagine this should be used as a guidance, not a personalized agenda. The point is that an estimate alone is already a great thing to know, so you might want to play around with it and find out where you want to allocate the most of your time and ‘re-balance’ your ‘portfolio’ of time remaining to optimize rate of returns on your time, in this case, you want to outperform 55% to 60% of the CFA candidates on exam day.

Simply log on to your candidate resource centre to access the CFA Program Study Planner. Have a great Tuesday afternoon.

Exam strategy - 6

Late September is supposed to be already cold here, but it feels like summer this week. The temperature is a bit odd in a season where leaves are changing colours. The short fall is one of the two seasons I like in a year; it’s short and sweet.  I am sure everyone is full on CFA and having a productive weekend so far. 2 more months to go, it’s getting REALLY close.

To continue the topic yesterday, I will list a few things you absolutely must clear out for passing the level 2 exam. The l2 exam built on the foundation of l1 is a test of your understanding of the application of securities valuation tools. I always believe L1 is a test for your knowledge base, you will pass the l1 exam if you simply have a knowledge base. L2, however, requires candidates to apply the knowledge base, especially focus on security valuations. So the key here is to know what tools/techniques are available to you, and know how to apply these tools.

• Securities valuation is key in l2, so logically, you need to make sure the sections on securities are well covered, that is equity (SS10, 11, 12), fixed income (SS14, 15), derivatives (16, 17), and least importantly alternatives (SS13). Here I would focus my study on chapters where the application of models is discussed and practice questions on those topics. For equity, SS11 and SS12 focus on the application, the DCF models, multiple models and private company valuation will be key to any valuation modeling. For fixed income, it’s a short chapter, there’s only two readings but weighted from 10 to 20%, so don’t miss out on that. I personally struggled when I was studying for l2 Derivatives, topics like forward contracts i.e. FRA, currency forwards took me a lot of time, you will need to practice a few questions at least on each type of forwards before the exam, you just never know what will be on the exam. And of course there are alternatives, which I’m not too worried about.

• FRA (SS5, 6, 7): the good old FRA is also key in l2 because that’s what’s driving the valuation engine. Financial ratios and their implications will be important throughout this topic, the employee compensation and pension sections were also very important when I took the exam 2 years ago.

•  Corporate finance (SS8, 9): this section is weighted 5-15% of the exam, where the key topic highlights will be related to optimizing capital projects, capital budget analysis, capital structure of a company, and dividend/repurchase analysis.

At this point, your strategy should shift from studying the materials to focusing on what will make you pass the exam. The above sections in total will count for 70% of the exam, large enough to determine your exam score, remember you will need (and only need) 70% to pass any of the 3 exams. I didn’t mention other topics because they are either not the main component of the l2 exam (this doesn’t mean you should not study them), or candidates have seen enough of them in level 1. Topics like quant, economics, I would expect l2 candidates to have a solid knowledge base on those topics when they pass l1, and only need to review in l2 and practice more questions. Stuff like portfolio management is nice to have, but it only worth 5-10% of the exam, plus PM is the main theme in l3, not l2. And lastly, there’s the ethics, like I mentioned in previous post, you should be reading the code and standards during your commute, or whenever you are waiting for something, focus on the examples they provided in the books, understand how they positioned each scenario, this section probably has the highest reward for the number of hours you put in.

One last note, remember level 2 is an entirely different beast than level 1 in that you are no longer answering an individual questions, so you can’t use the same exam taking techniques you exceled in l1, you must adapt to the new dynamic on exam day. Closer to the exam I will write my strategy on exam day and how I approached each individual question in l1, and each question set in l2 and l3.

Still warm out, but it’s time to do more readings or practice questions. For me, I need to get back to work too. Have a productive Sunday. 

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.