We have covered strategies and suggestions for level-specific studying in prior posts. Each level has its ‘core’ topics and should be approached in a way to maximize points. With around 50% of candidates failing any given level each year, you can’t afford to let easy points go by not studying as efficiently and effectively as possible.

Fortunately, there are also strategies and suggestions that will carry you through all three CFA exams. Some of these ideas are general ideas for effective studying while others are specific to the CFA curriculum and testing.

Start Early

The CFA Institute candidate survey shows that candidates spend, on average, around 300 hours of studying for each level. The average is fairly close for candidates that pass their exam and those failing. If even unsuccessful candidates are spending 300 hours studying, then you may want to plan on an extra 50-100 hours to be more confident going into the test. This may seem like an overly aggressive plan but it becomes much more manageable if spread over 4-5 months.

Do not plan on being able to stick to your study schedule perfectly. Most candidates with families and a full-time career will have a hard time finding more than 15 hours a week to consistently devote to studying. Things always seem to come up like an extra workload at work or family responsibilities.  There are approximately 22 weeks from the beginning of the year to the exam date. Starting in early January, if not before, should give you enough time to spread your study schedule out in a manageable way. *While this still only leaves about 330 hours at 15 hours per week, many candidates are also able to take a few days off to wrap up their study and augment total time.

Active Learning vs. Passive Learning

One of the hardest things to get through to candidates is the need for active learning techniques. A previous post detailed the effectiveness of active learning over passive. Studies show that active learning techniques are up to 2-3 times more effective for learning. Active learning is any technique where you need to engage in the curriculum, i.e. practice problems and talking about the topic.

Candidates should take advantage of provider test banks and the questions included in the Institute curriculum. The blue box and end-of-chapter questions in the curriculum are the closest in format and difficulty to those on the exams. Test banks provide are a great resource for testing your understanding of all or part of the curriculum and designing mock exams.

Beating Fear

It doesn’t matter how well prepared or how confident you are, there will come a time when you question your ability to pass or to continue with the tests. Understand that this is natural and something you need to work through. An aggressive and organized study schedule will help immensely in beating back the fear of failure. You have chosen a difficult path and put yourself ahead of others in your profession, keep that drive and press on through the exams.

Below is a list of suggestions from a previous post for beating fear and those voices in your head that keep you from accomplishing your goals.

• Surround yourself with a strong support system- Let your friends and family know how difficult the exams are and how important they are to you. When times get tough, their encouragement will help guide you.
• Stay active in study groups and forums- Surrounding yourself with others working toward the same goal helps immensely. There’s strength in numbers!
• Start early- Poor preparation and not having a plan is the quickest way to self doubt. Write down a rigorous study program and stick to it, leaving yourself time for those what-if scenarios.
• Repetition- Knowing that you’ve been through the material a couple of times and can summarize the important points will boost your confidence. While this might be tough to do with the entire curriculum, there are options for condensed versions. FinQuiz offers both a curriculum-based study guide and topic summaries to help you move through the material multiple times and grasp the important stuff.

Keeping it Interesting

The curriculum is a compilation of academic and practical research in the field of investment analysis and asset management. Even condensed study guides can exceed 2000+ pages of material for each level. Some of the material can be extremely dry and monotonous.  To be successful on the exams, you need to cover the curriculum multiple times. A prime hurdle will be avoiding burnout and boredom with your study and the readings.

To avoid burnout and boredom, you need to keep the material and your studying fresh by utilizing different resources and media. Using videos, flash cards, and talking with other candidates is a great supplement to the core resource of Institute curriculum and provider study guides.

Below is a list of different media and resources to keep your exam preparation fresh.

• Videos- Great for visual and kinesthetic learners, and a relatively quick way to get through the curriculum in a different medium but is inefficient passive learning
• Study Groups- Good use of active learning and can provide a good support system, but can be slow and misinformation is possibility
• Reading curriculum- Straight from the horse’s mouth, EVERYTHING on the exams will be here but the books may be better for building muscles than building exam scores
• Reading 3^rd party condensed study notes- My core mode of study. I went through condensed notes at least three times at each level but these are also passive learning so you need to supplement with active learning
• Practice problems & mock exams- Second most useful method of studying for me. You need to read through curriculum/study notes to get a feel for the material but only practice problems and question banks will work it into your head and convert to long-term memory
• Flash cards- These are really an extension of practice problems but are more portable and more easily focused

Practice Problems and Mock Exams

This relates to the idea of active learning mentioned earlier. You will have no idea of your level of preparation until you start practice problems and testing your level of retention. At minimum, you should do a set (20 questions) of problems immediately after reading a study session. Then, complete another set of questions the next day. This will help learn the material studied and then cement it into your memory by reminding yourself. Always read the guideline answer for those questions you missed.

Mock exams, created from provider test banks, are an indispensible way to prepare for the exams. These can be half (3 hour) or full (6 hour) exams constructed from test bank questions in the topic weightings given by the Institute. You should plan on doing at least six full exams to get a good idea of where you need to guide your study time and your overall preparation for the exam. We know that no candidate with a score of 70% has ever failed the exam, so you should be aiming for something above this. I would aim for +80% in the core topics for the exams (Ethics, FRA, Equity, Fixed Income) while looking for at least 70-75% in the other topics. Beginning these mock exams around 7-8 weeks before the exam will allow you to shift your study focus and target weaknesses.

Core Topics

Ethical and Professional Standards is arguably the most important section of the three exams. Many candidates underestimate the topic because they think the questions will be intuitive and simple. Unfortunately, it is not as simple as merely don’t lie, cheat, or steal. First, concentrate on learning the basic idea behind each standard then do the problems in the curriculum multiple times. You need to get comfortable with the Institute’s reasoning and these questions are the best way to do it. The material here does not change much year-to-year or through levels, so spending more time on the first exam will make the second and third exams easier.

Financial Reporting and Analysis is another core topic worth around 20% of each of the first two exams. Much of the curriculum is built around a solid understanding of the three financial statements and analysis of how the 10-Q and 10-K presents a company’s performance. Understand how each line-item on the statements can be manipulated by management and how the statements are related. Again, spending extra time while studying for the first exam will build a strong understanding that can make the other two exams easier.

Equity Investments is also a core topic, more so at Level II but also worth around ten percent of the other two exams. The material is more quantitatively focused than other topics but the math involved is fairly basic. The area lends itself well to practice problems to better focus on the formulas required. Understanding the various inputs to the formulas, what they show and how they are related to analyze performance and valuation will get you many of the exam questions covering conceptual ideas.

Fixed Income is of slightly less importance than the material on equity investments, but still can be considered a core topic worth around 10% of each exam. The material is a mix of conceptual and quantitative, so you will need to divide your time for both. Understand the basics of debt instruments and how they are used in corporate finance and as an investment. Many candidates neglect the topic because they are less familiar with fixed income relative to equity investments.

Conceptual Topics

Corporate Finance and Economics are largely conceptual topic areas. These are sort of in-between in importance because while they do not offer as many points it is fairly easy material to pick up. Understand the basic reasoning behind financial decisions at the corporate and macroeconomic levels and you shouldn’t have a problem.

Portfolio Management is not as important at the first level but then builds in weight until being the focus of the Level III exam. Understanding the basic ideas of risk and return measurement for the first exam will prepare you for some of the more detailed theory in the second exam. You will need to spend a considerable amount of time writing out Investor Policy Statements (IPS) for the Level III exam.

Alternative Investments, though a little more quantitatively intense at the second level, is tested at a conceptual level for most of the exams. Understand the difference in return expectations, liquidity, risk and other characteristics between these alternative investments and other asset classes.

Formula Frenzy

You will be required to learn and use an immense amount of quantitative information and formulas to pass the exams, especially at the second level. Most formulas will be fairly basic in mathematical difficulty while others will be harder and include several steps.

Practice problems and repetition are the most obvious way to handle the equations on the exams. There really is no substitute for hard work, so do not neglect this resource. You should first try to understand the inputs and relationships within the formula and what it is trying to show. This will help to memorize the formula and will get you any points questioning the concept behind the idea.

Flash cards are a good resource for handling the more difficult formulas because they are portable and can be used quickly. While many providers sell flash card sets, building your own will give you additional practice writing out the material. Always write out flash cards as word problems instead of simply a list of inputs. This will more closely match the questions on the exam and help you understand where to find necessary data for an equation.

No Shortcuts

All the tips, tricks and strategies in the world won’t save a lazy candidate. Passing the CFA exams takes a great amount of commitment and drive but it comes with a greater amount of satisfaction and reward. This blog can help put you on the right path and guide you through the exams, but you will still need to do the work. Stay strong, find your motivation and earn your charter!

Good Luck and happy studying!
Joseph Hogue, CFA

Looking through forum posts and talking to a few candidates about timing and planning for the CFA exams provides some interesting stats and might help you assess how well your own preparation is going. The two core issues here are: when to start studying and exactly how much is enough studying.

When to Start

It might be a little simplistic, but I see candidates starting their study plans in one of three categories: really early, about right, and what are you thinking! The actual dates started appear to follow a fairly normal distribution with the median around mid-February. I usually started with the ‘really early’ crowd between October and November, so I’m a little biased toward earlier rather than later.

While pre-January may be earlier than necessary, we see a lot of people waiting until March to begin studying. Biased I may be but 13 weeks to cram approximately 300 hours of studying seems a stretch. There will always be the intellectual giants out there (or at least those that think they are) that will have no problem learning all the material in three months. Then again, while actual pass-fail statistics are not available, I would put good money on the bet that the 50% of candidates in the fail band come disproportionately from these late starters.

Then there are always the (comical) posts in late April and through May asking for opinions whether it is too late to begin studying and still pass the exam. Most of the candidates I have met and talked to were fairly smart, but sometimes I’ve got to wonder.

Like I said, I am probably a little overcautious and biased to starting early. Most candidates have fairly relaxed schedules and can sacrifice a few extra hours for something that is undoubtedly going to change your career prospects and arguably your life (going out with that hot co-ed you met last week or keeping up with this season’s American Idol are not as important as you think). Nothing I could say would get most of you to start before January, but hopefully you will not wait until March.

How Much is Enough

More important than when you start studying is (duh!) how much studying you do. Reading through forums and taking a few polls, I was surprised that the consensus is for reading through the material only once and then working through practice problems and a mock exam. At most, I found that candidates expect to read through study guides once then review a quarter to half of the material again. Most candidates planned on working through all the end-of-chapter questions and doing ‘some’ practice problems from a provider question bank.

Again, I might be a little conservative, but this seems entirely inadequate. Who are all these candidates with eidetic (photographic) memory that can pick everything up that easily? Practice exams taken through question banks will give you a good indication if you have picked up the material but most do not start taking these until late in the season. What happens when you take your first inclusive practice exam in May and find out you are not nearly as prepared as you thought?

The candidates that expressed a higher level of confidence with their preparation were mostly those that had read through all of the material at least twice and had started monitoring their progress through practice exams at least two months before the test date. This leaves time to focus on a few of the weaker topic areas as well as going through the material with a few other media (video, summary sheets, flash cards).

I guess it comes down to being realistic about your abilities and taking a rational look at the statistics. Surveys by the Institute show that candidates (both passing and otherwise) averaged around 300 hours of study time for each exam. We also know that approximately 50% of candidates fail the exam each year. This is one area where being ‘average’ is likely to not be enough.

 I imagine that the absolute number of hours reported belies a fairly large distribution, but we’ll call it 200 hours minimum and maybe 400 maximum needed to pass the exams. Now think about your pre-CFA studying schedule. How many hours per week do you think you can realistically commit to studying? You need to plan conservatively if you are married, have children, or have a job with increasing workload around quarterly reporting. Life happens, don’t expect to be able to study as much as you would like every week.

Next week, we’ll be putting together three blog posts (one for each exam level) to provide a summarized view on how to pass the CFA exams.
‘til next time, happy studyin’
Joseph Hogue, CFA

There are so many variables to figure out a schedule, I hesitate to post this but I’m getting a lot of emails asking about what might work so I’ll try to get the basic idea down. If you have been studying for a few months and are fairly confident of your preparation, you may not need to change anything this last month. Just remember to work those practice exams, preferably at least one per week, to see in which topic areas you need more studying.

Coming down to the wire, it’s easy to let fear get the upper hand and sabotage your chances. We looked at how fear and our own anxiety can sabotage candidates in a previous post. Many candidates get nervous and think they need to change up their schedule this last month and end up getting burned out. If you’ve been studying responsibly, don’t freak out, just stay on the path.

If you haven’t spent as much time studying as you should, you may need to pick it up a bit over the next four weeks. If there is any way you can take time off work, you may want to do so over the last week before the exam. I posted a ‘last week’ schedule about a month ago that describes what I did before each exam.

More than time spent studying, the important measure for exam preparation is practice tests and the number of times you have been through the material. Few people can commit material to long-term memory with just one or two reviews. I always tried to get through the curriculum a minimum of four or five times before the CFA exams. This doesn’t necessarily mean reading the official CFA Institute books or even provider study guides more than a couple of times. Try reading the material at least twice but other ‘reviews’ can be accomplished through videos, flash card construction and practice, and summary sheets.

That said, below I will map out the schedule for my last month of studying for the three years I took the CFA exams. Since I usually started well over six months before the exam, I am going to tweak the schedule a little for someone that may have started later, maybe around February. This would mean an average of around 160 hours studying (assuming 12.5 hours per week for 13 weeks) and enough time to reach that 250 hours of total studying (an amount I consider an absolute minimum of preparation). The schedule below is for about 20-35 hours during the first three weeks and a little over 40 hours during the last week. This would get you a little closer to 300 hours of study time, which is the average reported by candidates. Depending on how quickly you can read or work practice problems, you may need more or less time studying to get through the material a few times.

Week 1-3:

I would try for a minimum of 20 hours each of these three weeks. Each Saturday, I would start the morning with a full practice exam with topic area weighting consistent with the exams. These are going to show you in which areas you need to study. We’ve covered the ‘core’ material for the exams in prior posts. You need to be scoring a minimum of 80% in these to be confident going into the exam. If you are not doing well in areas like Ethics, Financial Reporting & Analysis, and Equities (as well as a few others specific to each level), I would concentrate my time here. Level III candidates absolutely must study and practice the old essay questions, of which we have worked eight on this blog.

Sunday was usually spent reviewing the videos for two or three topic areas, which usually meant around 5 hours. Though videos are a form of passive learning, and not as effective as practice problems, they are a good way to get the material from a different perspective.

Monday through Thursday usually meant studying summary sheets through lunch each day. After work, I would spend another three hours reading the study guides and doing end of chapter problems from the official curriculum. You need to make sure you have worked through all end of chapter and ‘blue-box’ problems in the books. These problems are the most closely related to those you’ll see on the exams. With 18 study sessions, I usually try covering at least three per week (choosing those ‘core’ areas and those in which I scored lower on the practice exams, hopefully having been scoring high enough on at least 6 study sessions that I could put them aside).

Week 4:

This week, I would always take off from work and study approximately 40-50 hours for the week. Each day would start off with a three-hour practice exam. After that I would spend another three hours reviewing study guides and doing practice problems for the respective study session. The last two hours or so was usually spent reviewing flash cards or making new cards if I found a particular area or formula in which I needed help.

Each year, about 50% of candidates do not pass their respective exam and this year will be no different. If you have not prepared sufficiently, you can still avoid showing up in one of those fail bands, but you will need to concentrate and make some sacrifices. An excess of 100 hours spent studying over the last month may seem like a lot, but spending that time now will save you from having to do it next year.

Wednesday, we’ll look at some of the dividend discount models for the level II CFA exam and question #5 from last year’s level III morning section of the exam.

‘til then, happy studyin’
Joseph Hogue, CFA

It’s easy to get burnt out as you enter the final weeks of studying before the CFA exams. Most likely, you’ve already got a few hundred hours of studying under your belt and those voices inside your head are questioning if it will even be worth it.

Sometimes it helps to step back, take a breath and look at the big picture. Ask yourself, why are you taking the exams. Why are you going after a charter where only about 19% of candidates are able to complete? Each of us may have a slightly different motivation for seeking the designation. Many want to earn more money or just be able to get a job. Others want to be able to be better analysts or perform better in their career. For others, it is just a natural progression in continual education.

Then, there are some with entirely too much time on their hands and nothing else to do. To each his own.

Like most, I started studying for the CFA for a combination of the reasons above. I had fairly good experience in corporate finance but less in asset management, which was where I wanted to work. Besides this, I’ve always felt strongly about continuing education and believe that if you are not running faster than the next guy then you’ll be the first one eaten when the lion comes!

Since I passed the exams and earned the charter, I have been amazed at the number of projects I’ve picked up in my consulting business. The reception of the CFA designation by my clients has been extremely positive, especially by those that have tried the exams.

Glenn Buggy of CTPartners called the designation a, “badge of honor,” in a recent article on eFinancial Careers and said that, “To be able to play in the game now, you have to have the most modern financial tool kit that you can.” A recent survey taken by the website found just over 43% of job postings for portfolio manager cited a requirement or preference for the CFA charter or candidacy. Earning your charter alone is not going to get you a six-figure job, but it will certainly get your foot in the door for an interview at many places. The most recent Institute Membership Compensation Survey I could find was from 2007, but both base and bonus compensation compares favorably to even today’s salaries for non-charterholders.

While research is not inconclusive, there is evidence that charterholders perform better in their line of work as well. Research by Fortin and Michelson in 2006 found that, on average, analysts who hold the CFA charter provide 3.78% ‘tighter’ forecast accuracy than non-charterholders.  Research by Franco and Zhou in 2009 found that charterholders score higher on a dimension of timeliness and that performance is higher and statistically significant.

Your charter will put you in good company as well. Professionals like Abby Joseph Cohen, Sir John Marks Templeton, Bill Gross and (of course) Ben Graham all found value in the charter and its principals. While these great investors were not great just because they held the designation, or proposed it in the case of Graham, their determination and work in earning the charter helped them achieve their status.

What is your motivation for the long hours and hard work? Use the comment section below to tell your story. Your motivation may help someone else keeping going.

Just four more weeks. Hang in there! ‘til next time, happy studyin’
Joseph Hogue, CFA