The 5 Biggest Mistakes CFA Candidates Will Make in 2016

I’ve been writing about CFA exam preparation since the beginning of 2012 and was a candidate myself for three years to 2011. One thing I’ve learned about CFA candidates and preparing for the exam is that there are a few major mistakes that almost everyone makes.

Call them the five points to failure, the fatal five or any number of other names but these mistakes account for why less than half of the candidates pass the CFA exams each year. Making sure you don’t commit these five mistakes won’t guarantee you pass the June exam but it will definitely put you ahead of the pack.

Avoid these five biggest mistakes and you’ll be well on your way to passing the 2016 CFA exams in June.

Starting your CFA Study Plan Too Late

This is the most obvious mistake CFA candidates make but also one of the worst. I know, everyone has other responsibilities and it doesn’t make sense to start studying for the CFA months before you think is necessary.

You’ve heard of the 300 hours that most candidates report studying for the exam but you’ve always done well in school and figure you can do it in less, maybe 250 hours. Wrong! Those other candidates aren’t the average student you find in your classes. They’re over-achieving Type-A personalities that have also done well in school. Don’t underestimate the exams or the time it takes to study.

So 300 hours divided by 15 or 20 hours a week means about 17 weeks or about four months of studying. Starting your study schedule in February sounds about right and that’s what many candidates do. The problem is that ‘life’ gets in the way. Things come up and candidates miss their target for weekly study time. Before they know it, it’s already April and they are only a third the way through their study plan.

Start studying for the CFA exams with 25 weeks left to the exam and make a plan that gets you all the way through the material a few times with two or three weeks left to spare. This is going to do two things to help you pass:

  • Give you enough time to cover the material multiple times, a necessity for really remembering something
  • Give you enough time that you can miss a couple of days and not have to worry about falling behind

Avoiding Tough Topics

This is a big one on the CFA Level II exam but affects candidates on all three exams. The CFA curriculum is tough enough but some of the sections just seem impossible…and boring! I never really drank much coffee until I started trying to learn derivatives pricing in the CFA curriculum.

You may not even realize you’re doing it but almost everyone avoids studying a topic or two. Whether something takes you away from studying or you just study another topic instead, avoiding the topics we don’t like happens to everyone.

Stick to your study schedule over the first month or two, doing all the readings and reviewing each one with condensed study notes. Don’t skip any sections or topic areas. Consciously think about your study time and how much time you are spending on each subject.

When you start changing your schedule according to need, take regular question bank tests to gauge your mastery of each topic. Let your score on the tests guide your study time, not whether you’re tired of the topic or not.

Thinking the Next Level is the Same as the Last

Ever wonder why only 43% of Level II candidates pass the exam? With only about 39% of Level 1 candidates passing, you would think that only the best and brightest make it through and should have a better than 50/50 chance at passing the second exam.

The problem is that too many candidates are surprised by the CFA exam every year, no matter which level they are taking. Many candidates study for an exam with the same plan that got them through the previous level. It worked last year, why not this year as well?

Each level is difficult in its own way. The first exam is a mile wide but only an inch deep, you need to understand a vast amount of concepts but really don’t need too much detail in anything. The second exam is a quantitative monster with more formulas than you’ve ever seen. The final CFA exam is a time-consuming nightmare with essays that can go on for pages.

Learn the specific study strategy for each CFA exam and don’t be surprised in June.

Avoiding Practice Problems

This one is a lot like avoiding a specific topic area but I see candidates do it across all topics. One of our first posts on the blog was the difference between active and passive learning and it remains one of the best pieces of advice on the blog.

I know how much easier it is to just sit back and read through the curriculum rather than getting out a pen and paper to work practice problems. You just don’t remember things as well when you’ve only read them. Studies show that we only remember about 10% of what we read but can retain up to 90% of what we say and do.

Force yourself to love practice problems because they are going to be your best chance at passing the CFA exams. I challenge you to do 1,440 practice problems before the next CFA exam. That’s about eight full-length tests and more than 50% above the number of problems the average successful candidate is doing.

Click through to see how to get the most from your CFA mock and practice exams

Too Much Meta-Studying

Ok, so this one is going to come back to haunt me but candidates do way too much meta-studying. Meta-studying is studying about studying and about the exams. This includes reading forum posts on the LinkedIn group, talking to other candidates about how to pass and yes even reading this blog.

I’m not saying you shouldn’t spend time learning how to study and how to approach the exams. Knowing the structure of the exams and the tricks I’ve picked up over almost seven years will definitely help you pass.

But don’t use your study time to learn about studying. Have an hour a week that you use to answer any test questions, visit the blog or refine your study plan. After that hour, spend the rest of your time actually studying the CFA curriculum and mastering the material.

Passing the CFA exams doesn’t have to be difficult. Put in your time and avoid the biggest mistakes made by candidates. Putting together your study plan with these five mistakes in mind will drastically improve your chances and put you on the path to success.

‘til next time, happy studyin’
Joseph Hogue, CFA

Using the CFA to Transition to Finance from another Industry

Our post last week about famous CFA charterholders and their career paths to success was hugely popular but I got an email from one candidate that I wasn’t able to answer. The article highlighted five famous charterholders, all having started early in life in finance. The candidate wanted to know if I had heard of any famous CFA charterholders that had started later in life or had transitioned into finance from another industry.

I’ve got to admit, I couldn’t find any super-success stories within the industry that started later in life. I know they’re out there but just couldn’t find any examples.

Confused by the search, I started researching ways people have transitioned into asset management from other industries and how the path to success might look.

How to Use the CFA to Transition into Finance

Starting a new career in a different industry isn’t easy. Older workers have a family to support and can’t usually take a big pay cut to start at the bottom of the corporate ladder in another field. Besides the cut in pay and benefits, jumping into a new industry means finding the time to learn your new trade.

Getting a job in asset management from another industry can be even more difficult. New analysts are expected to put in extremely long hours at times and sacrifice their personal lives to the job, something that older workers may not be willing to do.

But it is possible to break into finance from another industry and have an extremely successful career no matter what the age you start. Some areas of asset management even aggressively recruit from other industries.

  • Progress through the CFA curriculum is a good start. Passing the exams shows employers two things. First, you’re dedicated enough to put in the work necessary to learn new skills. It also tells potential employers that you have a good base of understanding in the topic areas tested on the exams.
  • You have to find something from your old career that works in your favor. For many, this means a strong insight into the other industry to be used in analyzing companies. It’s especially useful in technical fields like technology and pharmaceuticals where an analyst may need to understand product specifications. Try preparing an equity report of a company in your previous industry to show you have a deep understanding of the business.
  • Make sure you understand what you really want and where you want to go. This is necessary for any job candidate but especially so for older workers. It might look like you’re indecisive if you try to transition into yet another industry after finance, so you need to make sure this is where you want to be. Talk with some CFA charterholders at a local society networking event and get to know the industry before you make the leap.
  • You might try freelancing in the industry before making the full-time transition. There are opportunities available to do analyst projects like equity reports on sites like Freelancer and Upwork. You’ll have to show some previous work to prove your skills so put together a few reports beforehand. Showing that you have what it takes to be a self-starter will go a long way to convincing potential employers.
  • Besides as a way to understand the industry, you’ll want to talk to CFA charterholders in your local society to network. Society members want to help each other and you’ll get a lot of great advice on how to land a new job.
  • Above all, be ready to take advice and understand that you know nothing about this new industry. You might be a leader in your old industry but will need to work your way up in your new job. Be humble and take advice where it’s offered.

Don’t give up and be ready to face rejection. You’re not a traditional job candidate so you’ll have to break through any misconceptions that employers may have about older candidates. With each rejection, focus on addressing any weaknesses uncovered and move on to the next opportunity.

‘til next time, happy studyin’
Joseph Hogue, CFA

5 Famous CFA Charterholders: How they Did It

The global diversity and success of CFA charterholders always surprises me. I’ve written a few times on the blog how the finance industry benefits from having a charter that does not favor the rich or the connected but promotes people for their hard work and skills.

Looking at the profiles and stories behind some of the most famous CFA charterholders has not only been a motivation exercise for me in the past but also a guide for my own career path. Check out these five success stories below of famous CFA charterholders and see if you can find any similarities.

5 Famous CFA Charterholders

Bill Miller, CFA is the former Chairman and Chief Investment Officer of Legg Mason Capital Management and possibly one of the few asset managers to consistently outperform the market. His Legg Mason Value Trust Fund beat the S&P 500 after-fees for 15 consecutive years to 2005.

He graduated with honors in economics from Washington and Lee University and served in the military before getting his doctorate from Johns Hopkins University. He worked in corporate finance as a treasurer for a manufacturing company before joining Legg Mason and has held the CFA charter since 1986.

Ranji H. Nagaswami, CFA was the Chief Investment Advisor to Mayor Bloomberg in New York City and directed the investment policy for New York’s $120 billion Pension and Investments office. She is a senior advisor to Corsair Capital, a private equity firm, and has worked in asset management for AllianceBernstein and UBS Asset Management.

She started as a quantitative analyst for UBS before heading up the U.S. Fixed Income division. In 2015, she was named as one of India’s top 20 successful women in business and arts.

She earned her Bachelor of Commerce from Bombay University in 1984 before completing an MBA from Yale and receiving the CFA designation. She is a member of the Yale University Investments Committee and the CFA Institute Asset Manager Code of Conduct Advisory Panel.

Bernardo Hernandez Gonzalez, CFA is a Spanish technology entrepreneur, founding several companies and has worked at Google and Yahoo. As founder and president of StepOne, he started the first Computer Science talent exchange program between Spain and Silicon Valley.

After working as an investment analyst and manager for Fidelity, BBVA and Putnam Investments, he started idealista.com and built it into one of the leading real estate portals in Spain. He founded and managed several other companies before joining Google in 2005 and worked as head of Flikr at Yahoo until 2015.

He graduated from ICADE, Pontifical University of Comillas in Madrid and earned his Masters in Finance from Boston College. He has held the CFA designation since 2002.

Tan Chin Hwee, CFA is the founding partner in Asia for hedge fund Apollo Global Management. He began his career in 1995 trading Asian equities and fixed-income for the Keppel Corporation before working on the credit portfolio at the Development Bank of Singapore and at various hedge funds.

He graduated with an accounting degree from Nanyang Technological University in Singapore and received his MBA from the Yale School of Management. He is the President of the CFA Society of Singapore and is active on several non-profit boards.

Just 44 years old, Tan has been on several lists of young managers to watch and has a great story. He wasn’t always the best academic student but made up for it in hard work and guts. He provides insight into his success in this story of how he got started.

Abby Joseph Cohen, CFA is a partner and senior U.S. investment strategist at Goldman Sachs, helping to lead the firm’s Global Markets Institute. The daughter of polish immigrants, she graduated with degrees in economics and computer sciences from Cornell University and completed her M.S. in economics from George Washington University.

She started her career as an economist for the Federal Reserve Board and has worked for T. Rowe Price and Drexel Burnham Lambert in economics research and investing roles. She’s held the CFA designation since 1980. She’s most famous for predicting the bull market of the ‘90s and was named one of the 30 most powerful women in America 2001.

Looking through the profiles, it’s striking how dissimilar the paths have been for these famous CFA charterholders. Some have worked traditional career paths, starting as analysts and working up to portfolio manager and directors. Others have struck out on their own at an early age. The one bonding characteristic is their hard work and willingness to take risks to further their careers.

Look for more detail on these or other success stories and plan how their experience can be applied to your own goals.

‘til next time, make your own path,
Joseph Hogue, CFA

Books to Read when You’re Not Studying for the CFA

Studying for the December CFA exam is over and most candidates haven’t yet started studying for the June exams. What does a motivated CFA candidate do to pass the time when there’s nothing to study?

Sure, you could take a month or two off before ramping up your June CFA schedule. It sounds nice but I was never able to just sit around and do nothing. If you’re like me, you’re constantly looking for new opportunities to learn and for self-improvement.

One of the best ways to use your newfound free time is through checking a few books off your reading list. I always tried reading one or two books completely unrelated to the CFA curriculum or finance during my end-of-year downtime but also found time to fit in a couple of books related to my professional goals.

Check out the book ideas below to keep your skills fresh and get ahead of the pack while you’re waiting for the next CFA study season.

Books Related to the CFA Curriculum

I always tried fitting in at least one educational book during the month or two between CFA study plans. These are books that examine different parts of the curriculum but may go into a little more detail or help explain a topic from a different perspective.

The examples below are all written by contributors to the CFA curriculum so you know they are going to stick closely to the same methods and process. This is important because you don’t want to learn something that might be significantly different from what is taught in the curriculum. You can form your own methods and techniques after passing the CFA exams, until then try to stick as closely to the curriculum as possible.

All the books below are available on Amazon. You may have to look for an older edition to get a better price.

Equity Asset Valuation Workbook; Jerald Pinto, Elaine Henry, Thomas Robinson, John Stowe

There are a couple different workbooks available as companion pieces to other books. You might be able to find the textbook at your local library so you’ll only have to buy the workbook. The CFA curriculum is mostly academic and I’ve said a few times that candidates need to supplement their study with some practical application.

Asian Financial Statement Analysis: Detecting Financial Irregularities; Chin Hwee Tan, Thomas R Robinson, Howard Schilit

This has been a big topic over the last few years, especially around some high-profile cases of fraud on Chinese shares. Being able to spot irregularities isn’t yet a common skill and could help make you an asset to potential employers.

The Complete CFO Handbook: From Accounting to Accountability; Frank Fabozzi, Pamela Peterson Drake, Ralph Polimeni

This one is a little expensive but looks interesting. If you’re interested in corporate finance as a career path rather than strictly asset management, it might be something to check out.

Managing a Corporate Bond Portfolio; Leland Crabbe, Frank Fabozzi

Much of the CFA curriculum is based around asset management for individuals. The institutional portfolio management section on the Level 3 exam doesn’t go into much detail on actually managing a portfolio. This one might be an interesting supplement to the curriculum’s material on fixed-income and portfolio management.

Books to Read for Fun

Even when I wasn’t studying for the CFA curriculum or reading curriculum-related textbooks, I would often look for books related to financial topics. These books can still be powerful learning guides while also entertaining and letting you take your mind off the curriculum for a second.

The Ascent of Money: A Financial History of the World; Niall Ferguson

I love reading about history and reading about financial or economic history is a double-bonus. Niall Ferguson is one of the most recognized names in financial history and the book puts a lot of today’s financial concepts into perspective.

The Intelligent Investor: The Definitive Book on Value Investing; Benjamin Graham, Jason Zweig

If you are going to be working with retail investors, this is almost required reading. Even if you use a different investing methodology for your clients, it’s a good idea to know what’s in the book because there’s a good chance your clients will ask about it.

Liar’s Poker; Michael Lewis

I enjoyed some of Michael Lewis’ earlier books like this one but he’s taken a more populist perspective in newer works. Liar’s Poker is an interesting view of the old school trading desk and doesn’t degenerate too much into the ‘Wall Street is evil’ perspective you get from some of Lewis’ newer books.

The links to Amazon don’t mean you have to buy the books online. Look around the internet to get some recommendations that suit your tastes and check out your local library to see if you can borrow the titles. Reading a little every day is a great way to relax between CFA study seasons and can help you expand your professional horizons at the same time.

‘til next time, happy readin’
Joseph Hogue, CFA

Most Popular FinQuiz Blog Posts of 2015

Around this time of year, we love to look back at the posts that have helped CFA candidates the most and the ones most popular with candidates. Some articles are perennial favorites with candidates and a must read if you want to pass the exams. Other posts might not have gotten as much attention but carry some extremely valuable information and need to be highlighted.

The Finquiz CFA Blog had another record year in 2015. Nearly 280,000 candidates and potential candidates read 427,420 posts from January through November. That’s almost 1,300 pages a day of information helping candidates to pass the three CFA exams.

We’re proud to be able to bring this resource to candidates and will continue to get you the best information for CFA exam success for years to come. Check out the most popular posts of 2015 and of all-time below and get ready for a successful 2016!

Top Finquiz CFA Posts of 2015

2016 Level 1 CFA Curriculum Changes – The articles outlining the CFA curriculum changes for the following year are always the most popular and some of the most important information of the year. The CFA curriculum doesn’t change much from year to year but it’s must-know information if you’re going to pass the exam.

The changes to the 2016 CFA curriculum were relatively light this year compared to the changes last year. No topic weights were changed in the exams so that was a big relief. One reading was added to the CFA Level 1 exam and quite a few LOS were modified or changed. If you’re taking the Level 1 exam in June, especially if you’re retaking the exam, this may be the most important post you read all year.

2016 Level 2 CFA Curriculum Changes – The final study session of the CFA Level 2 curriculum (Portfolio Management) was changed for 2016, making it a must-read topic for next year. Click through to the article and download the changes to the curriculum along with Learning Outcome Statements for review.

2016 Level 3 CFA Curriculum Changes – Two readings were removed and one was added to the 2016 CFA curriculum so make sure you’re up-to-date if you want to pass the final level of the designation.

Top 9 Formulas for the CFA Level 1 Exam – New CFA candidates always get information overload when they first see the CFA curriculum, especially when it comes to formulas. The books are massive and mastering the entire curriculum seems impossible. Focus on the most important material first like these nine critical formulas and you’ll be well on your way to passing the exam.

2015 CFA Study Schedule – We updated our CFA study schedule this year given the changes in CFA topic weights across the three exams. The post includes a great daily blueprint for your study schedule as well as how to use some of the new resources available through technology. Of course, using condensed CFA study notes to complement the curriculum is still a core part of the schedule to save time and get the most critical information.

Top Finquiz CFA Posts of All Time

These next posts have stood the test of time and are some of the most popular on the blog. They cover some of the most common questions we get from CFA candidates and how to really make your study time productive.

The Passing Score on the CFA Exams and How to Use It (2013) – Even though the CFA Institute doesn’t release the minimum passing score (MPS) for the CFA exams, that doesn’t mean there isn’t some very important information you can use. Learn what has been said about the passing score and how to use the information to plan your study schedule.

The #1 Reason Candidates do not Pass the CFA Exams (2012) – This is one of my favorite articles. It covers one of the biggest hurdles for CFA candidates and three ways to overcome it. It’s a short post but one that every candidate should read before beginning their CFA study plan.

How to Pass the CFA Level 2 Exam (2012) – The Level 2 CFA exam is likely the most difficult of the three exams. A few candidates will tell you the first exam was difficult for how the massive amount of material surprises new candidates or that the third CFA exam was most difficult for its essay section. Most candidates agree though that the Level 2 exam is a quantitative monster. You will get into the most minute detail of financial statements and be expected to master a mountain of formulas.

I Passed the CFA Level 1 Exam, Why don’t I Have a Job? (2013) – Using the CFA exams and designation to get a job is one of the most frequent questions we get. Passing the exams will not get you a job but you can use your CFA progress to get your foot in the door. Check out the post to see how to use the CFA to land your dream job and how to get ahead.

There were quite a few great articles that didn’t make the cut. Check out the menu on the right of popular posts and make sure to use the search box above for any questions you have. The Finquiz CFA blog features more than 328 posts on passing the CFA exams and how to get the most from the CFA designation. Don’t miss your chance to get out in front of the rest and jumpstart your career!

‘til next time, happy studyin’
Joseph Hogue, CFA

Staying Focused on your CFA Schedule without Burning Out

It’s a big week for Level 1 CFA Candidates. Saturday is the big day and many of you will be using this last week for an intensive review of the curriculum.

Studying for eight to 12 hours a day can get you those last few points you need to pass but you’ll need to use your time effectively and avoid burning out. You’ve spent the last few months studying the curriculum and it can be easy to zone out if you stare at it for too much time before taking a break.

The MIT Center for Academic Excellence recommends planning your schedule around one-hour blocks with 50 minutes of studying and a ten minute break. This helps you stay focused without zoning out and getting tired during those long days of studying for the CFA exam.

But there’s more to managing your time than just planning for your ten minute breaks. Make sure you avoid the biggest risks in your hourly breaks and plan activities that will help you succeed.

Avoid these Study Break Nightmares

There are two problems that come up when CFA candidates try to take a break from studying

  • Too many breaks go into overtime. You plan on stopping for just 10 minutes but then find yourself an hour later still not back on your study schedule.
  • Some activities affect your studying well after you’ve returned to the curriculum. It might seem like it’s only taken 10 minutes but the after-effects last for hours.

Avoid these bad study break ideas:

  • Don’t turn on the television thinking you are going to watch just ten minutes of TV. You’ll end up watching an entire movie and wasting the whole day.
  • Anything online is going to be a recipe for disaster. This includes checking email, news, the stock market and just about anything else on the World Wide Web. There are two problems with getting online for your study breaks. First, there is just too much temptation to go over your break time. You’ll also carry the distraction back with you to your studying. You’ll find yourself thinking about where the market is going or an important email instead of thinking about the CFA curriculum.
  • Don’t check in on CFA-related websites or study groups during your break. That’s not really a break from studying for the CFA exam. You need something that is unrelated and that will take your mind off the curriculum for a moment to relax.
  • Don’t start any conversations during your study break. You might not be able to wrap it up within the allotted time and any messages you leave might be returned when you’re trying to study.

Ideally, you want to take short breaks every hour or two that can take your mind off studying but that won’t keep you from getting off track.

Avoid foods as a CFA study distraction. Catching a snack every hour or two could mean some serious kilograms put on over the last week before the exam. Besides the extra weight, it’s too easy to be tempted to cook a bigger meal than you planned. You’ll spend valuable study time cooking and a big meal could make you drowsy when you finally get back to studying.

Instead, schedule regular meals around the day. Avoid foods high in fat that will sit in your stomach, making you feel sluggish, and don’t overeat.

Stretching or light exercise is a great way to use your study breaks. Do some quick calisthenics in the study room or stretch for about 10 minutes. It will improve circulation and wake you up. The idea isn’t to exercise vigorously but just to get a quick pickup. You’ll love the energy but won’t generally be tempted to extend the break for more than scheduled.

While you generally don’t want to do too much snacking or cooking during your study breaks, having a cup of tea can be a great alternative. It won’t take more than a few minutes to prepare your tea and another five or six minutes to drink. A cup of green tea will refocus your brain and improve your memory without hopping you up on too much caffeine.

If your study area is a disaster area, take a few minutes to organize your things and tidy up a little. Putting everything in its place can help you stay focused and can lead to less distractions while you’re studying. We’re not talking about taking an hour to deep clean the house, just a few minutes to pick up some stuff and make your study area more professional.

Whatever you decide to do for your regular study breaks, don’t do it every time you break. You’ll take upwards of ten breaks a day. Try exercising during every break and you’re going to start getting extremely tired. Doing the same thing each break will also get boring and won’t be much of a break at all.

Plan out your study schedule with effective breaks and use this last week for all that its worth.

‘til next time, good luck!
Joseph Hogue, CFA

A Last Week CFA Schedule and Checklist for Success

There’s just two weeks before the December CFA exam and there’s finally some light at the end of the tunnel. For a lot of CFA Level 1 candidates, the intensity of studying for the CFA exams is something entirely different.

You’ve come a very long way but resist the temptation to glide easily to the test. Using your last week wisely can mean the difference between passing on to the second exam or having to repeat your efforts in June.

Your Last Week CFA Study Plan

Long-time readers of the blog will know I’m a big believer in an intensive study schedule the final week before the exam. Not only can making the CFA exam your job that last week score you a lot of points it can actually be a lot of fun as well.

Think I’m exaggerating that your last week studying for the CFA exam can be fun?

Take next week off from work and commit to an intense study schedule around the CFA curriculum. I always stayed home during the week but I know a lot of candidates that have traveled somewhere for the week as well. Staying in another city not only makes the week more enjoyable but it also gets you away from all the distractions you’ll face at home.

Plan on studying between 10 and 12 hours a day from Sunday through Thursday. This can still leave you plenty of time to relax and take in a few sites around town. I wouldn’t plan on traveling too far from home and your test site, only as far as you can drive in a few hours. That way, you can spend Friday getting back home and relaxing before Saturday’s exam.

If you do stay home for the last week before the CFA exam, try studying in a private location. Reserve a study room at the library and turn off your cellphone. You might want to disable internet browsing if you are studying the CFA curriculum or notes on a tablet, just so you aren’t tempted to waste time.

Set a strict schedule for each day’s studying. Try reviewing at least two study sessions and working as many practice problems as possible. Do at least one full-length practice exam at the beginning of the week to find your problem topics and where you might need to focus.

Make sure you formally limit non-CFA study activities in your schedule. It may seem like only a few minutes but those constant bathroom breaks, walks to stretch out, snack breaks and checking your email can really add up.

Your Last Week CFA Materials Checklist

I usually leave this last-minute CFA checklist for a separate post. I wanted to include it here to give you more time to work on this administration and logistics-type problems this week so you can focus only on studying next week.

Put together your exam-day preparation kit now so you won’t be scrambling to find things just before the Saturday exam. Get a clear plastic bag to hold everything and store it in a safe place where you will be able to find it.

  • Passport identification
  • Your printed admission ticket – I usually printed two just to be safe
  • An approved calculator
  • An extra calculator battery and a small screwdriver – if you want to avoid having to change out your calculator battery, just take an extra calculator instead
  • At least three pencils
  • An eraser and a pencil sharpener
  • Ear plugs
  • Wristwatch

The CFA Institute Program Policy page has all the resource links you need to confirm what you can take to the exam. You will need to visit the page to print out your admission ticket.

You should know where your exam center is located but check out the CFA Institute December Test Center Locations for any updates. If you do not live nearby, it is a good idea to talk to someone that lives near the exam site to ask if there is any road construction or other potential travel problems. If you live more than a few hours from the exam site, you may want to consider staying in a nearby hotel the night before to avoid any problems and get a good night’s rest.

The Institute has published a brief schedule of the CFA Exam Day with recommendations on when to arrive and what to expect. The policy on leaving the exam room after completing one of the sessions has been changed. You are no longer allowed to leave the room after you finish. Everyone will wait to be dismissed together. You are still allowed to leave briefly to go to the restroom but must return to the exam room.

Making sure you get to the exam center and have the right materials isn’t really complicated but there is always one or two candidates that forget something or arrive too late. Prepare your materials and CFA exam day schedule well in advance to take the stress out of these little things. Arriving at the testing location rested and ready will go a long way in giving you the confidence you need to pass the exam.

‘til next time, happy studyin’
Joseph Hogue, CFA

Freelance Analyst Jobs for CFA Candidates

I got a lot of comments and emails about last week’s idea of freelancing as a way to find your passion and succeed as an analyst. I have been freelancing for more than five years and have done it full-time since 2013. Besides making extra money, it can be a great way to build your skill set before you land that dream job.

I thought I would share my story of how I got started as well as some tips for CFA candidates looking into the possibility of freelancing as an investment analyst.

Freelancing Opportunities for CFA Candidates

Freelancing is nothing more than working for yourself, finding small projects where you can and not being held to any single employer. There are two great benefits to freelancing for CFA candidates.

  • The obvious benefit is extra money. You can charge by the project or by the hour with hourly rates ranging from $25 to several thousand dollars an hour for highly qualified CFA charterholders or candidates.
  • You can use freelancing to gain practical experience while you are studying for the CFA exams. Employers want to see that you can apply what the CFA curriculum teaches you before they take a chance to extend a full-time position. I have gotten full-time job offers from people for whom I did freelance work.

There are risks and headaches to freelancing as well. You won’t make much to start and will have to do a lot of work just to get your first clients. You may even have to do some free analysis just to show people what you can do. One of my first projects was a report on the affect of market integration in Latin America. It wasn’t a paid project but something I wanted to do to show my ability as an analyst. It took several weeks to complete but ended up getting me an invite to speak as a panel expert at a Bloomberg conference in New York.

Occasionally you may also run into clients that refuse to pay or have to be reminded several times. This is extremely frustrating, especially if you’ve already delivered the work. Contracts outlining the payment terms help but are not really enforceable unless you want to spend a lot of money on legal fees. It’s rare that this happens but can turn you off freelancing when it does.

Despite the risks and occasional frustration, freelancing is a great option for CFA candidates. It can be fairly easy to get started but you’ll need to make sure you hit the important points.

How to Start Freelancing as an Investment Analyst

Freelancing as an investment analyst is pretty much the same as any freelancing strategy but it’s the job that appeals most to CFA candidates. The truth is that your freelancing business will probably grow to offering other services like white paper reports, content writing and consulting. Of course, the first thing to do if you are already employed is to get written permission to freelance from your employer.

You first need some practical skills. The CFA curriculum is great for understanding how the markets work and some of the tools you’ll use as an analyst but there isn’t much practical exercise in the curriculum. I started with a few financial statement modeling courses and small writing jobs to hone my skills. If you are not a proficient writer, you will need to put in some practice. Even if you are doing almost all your work in an Excel model, you still need to be able to explain the model and potential outcomes in a report. Holding the CFA charter or candidacy will help get your foot in the door, being able to write well will get you the job.

You will also need a basic website to present yourself as well as highlight some of your previous work. The site does not have to be expensive but should be professional-looking. You can launch a website for as little as $5 a month for hosting and just use basic WordPress themes.

Your freelancing business should be doing something you enjoy. You are probably not going to make much money at first so it helps to enjoy the work and be able to see future benefits.

Getting your first jobs will be difficult unless you already have some work experience to present. Make sure it is permissible to present your previous work from employers before posting it on your website. A few websites like Seeking Alpha will allow you to post short analysis and may even pay you to do it. Take some time to read through other articles to see how to put something together and publish. You may also want to reach out to other freelancers and offer to help with their projects. You’ll learn a lot in just a few short months and will have a portfolio of projects to present.

You might try posting for projects on the freelancer websites like Upwork and Freelancer but I have never seen much from these. In more than five years, I have only gotten four projects from these types of sites. Your best bet is reaching out to contacts to let them know you are freelancing and asking if they will refer your name to anyone in need of help.

After a while, people will start coming to you from your website and referrals. Make sure you only promise work that you can complete and deadlines that you can meet. The first job for a client is nice but you will only succeed if you can keep clients coming back for more work. Do well enough and you may find that you continue freelancing even after you pass the CFA exams.

‘til next time, happy freelancing!
Joseph Hogue, CFA

How to Find your Hustle and be a Success

I know a lot of you are just starting your careers and getting your first jobs. I thought I would share an experience that changed my life and that might save you from the misery that plagues so many people.

I get a lot of questions about how to be successful. Some readers are looking to do well at work while others just want to achieve financial independence and retire early. I can relate because I asked the same questions for many years.

The response isn’t what most people are expecting. Instead of hearing how to work less and achieve more, the real secret may actually be in working more.

How the Hustle Changed my Life

Like so many people, I started my professional career in my 20s and hated every minute of it. I had three jobs before I was 32 and felt like I was trapped in the rat race. They were good jobs, all professional positions in finance, but I spent half the time thinking of what I was going to do on the weekend.

I understood that I needed something different. I couldn’t spend the next 30 years of my life hating my job.

Earning the CFA charter in 2011 was a start. It opened up my opportunities but I still didn’t know how to find the job I wanted and how to be successful.

My wife and I knew we wanted to move back to Colombia from the United States and decided to make a plan shortly after I passed the CFA exams. I started freelancing, writing investment analysis for financial advisors and institutional investors. It was tough balancing a side job with my 9-to-5 job but I knew that once we moved, we would have to depend on my freelancing income.

I worked an extra 20 or 30 hours a week on my side job to build it as quickly as possible. By the time we moved back to Colombia in 2013, I was ready with regular clients and a steady income.

But in freelancing and working for yourself, if you’re not hustling then you’re not making any money. I determined to work even harder.

That was just over two years ago. Recently, a blogger friend posted a question on Facebook asking why I hustled. I didn’t have an immediate answer.

While I started hustling out of necessity, working around the clock to support my family and get ready for our move, it wasn’t about the money anymore. I have more than enough clients and we don’t worry about money.

After thinking about it, I realized that I still hustle because I love the challenge. The hustle is a part of my life and I have never been happier. I realized that the secret to being successful and happy with your job is not working less but finding something that you love and working more.

How to find your Hustle

Are you hustling? If you aren’t working everyday like your job and your financial security depends on it, you’re missing out on a huge opportunity. You will never be as successful or as happy as you can be.

I found my hustle by breaking into freelancing but you can find yours at your traditional 9-to-5 job. It can be harder because people are not always rewarded for their hard work in a traditional job. You might have to deal with senior workers that benefit from your work simply because they have been around longer. Work hard enough though and your reward will come.

If you don’t feel like your hustle is at your current job, you first need to decide where your passion is in work. Having a hustle has to start with a passion or you’ll just burn out from the stress. Finding what you enjoy doing and making it a career will help you get through the tough days without giving up.

If you haven’t considered freelancing, check out how to freelance and some websites that connect freelancers with clients. Starting a freelance side job, you’ll work harder than you ever have but you will develop a real expertise. You’ll love the sense of pride from being great at your job and you’ll start to enjoy the challenge of working harder.

‘til next time, happy hustlin’
Joseph Hogue, CFA

The Best Part of the CFA Charter and You Don’t Even Need to Pass the Exams

As a CFA charterholder of more than four years, I can tell you about the benefits of having those three little letters after your name. I’ve gotten my foot in the door to jobs that wouldn’t have been available and have found that I can charge more for my freelance services.

But it turns out, there’s another benefit to the CFA program and you don’t even need to pass the exams to take advantage. This benefit will help you open doors as well. It will connect you with all the right people and will help you shape your career.

I’m talking about connecting with the CFA community through the resources on the CFA Institute website.

We’ve covered some of the great resources on the CFA Institute’s website before. Earlier this year, we ran a five-part series on landing your dream job from networking to interviews. I’ve talked about how to fill the void after studying for the CFA exams by becoming more active in your local CFA society.

But there’s still some great resources and benefits I wanted to highlight, especially for the new readers that might not have seen the older posts. Check out the CFA resources below to network, keep informed on the industry and even make a name for yourself.

Again, best of all, your CFA candidate login gets you access to all of them. You don’t need to pass the exams to start benefitting.

CFA Institute Blogs

The CFA Institute Blogs are a relatively new resource on the website with posts dating back a few years. There are nine linked blogs though a few have been discontinued.

The most active blogs are the Enterprising Investor and Inside Investing. New posts are published on a daily basis and anyone can submit an article for publication. Not only are the blogs a great resource for staying up-to-date on market issues but could turn out to be an excellent way to distinguish yourself.

Check out the posts on one of the blogs to get a feel for the kind of issues discussed and how your expertise might fit in on the blog. Depending on your experience, you might need to research a particular topic to build enough expert knowledge to add something but it is easily doable.

Consider approaching a local CFA charterholder to team up for an article. They can provide the direction and you can do the research. Getting published on one of the CFA Institute blogs and building your expertise in a subject area is sure to get noticed by employers.

CFA Local Societies

I am a big supporter of the local CFA societies and sat on the board of directors to the Iowa society when I lived in the States. Besides the obvious benefits of networking with the people that direct the financial community, going to society events is just plain fun!

Check out a few of your local society’s events. Don’t worry about ‘networking’ at first, just talk to people and have fun. Going into the events without a motive other than just to talk to people and enjoying yourself will help lessen the stress of an unfamiliar room.

Remember, you aren’t restricted to only participating with your local society. Use the societies strategically to guide your career where you want it to go. If you want to end up in a particular city or at a particular firm, try contacting people in that city or with that firm.

CFA Institute Insights & Learning

The CFA Insights & Learning site is the main page for some great continuing education material.

My favorite section is Research & Financial Tools with topic-specific calculators, spreadsheet models, questionnaires and data sets for just about any need. The section is a great resource for data sets that has saved me a lot of time.

The Institute provides some excellent content for your clients in the For Investors section. This is material you can share with clients and other investors to help them understand the financial markets and basic investing principles.

The area also hosts the CFA Institute’s initiative on the Future of Finance, a long-term global effort to shape a trustworthy, forward-thinking financial industry that serves society. This project is on the forefront of the industry and will be a huge issue for years to come. It could be one area where you can make a name for yourself.

CFA Career Resources

Probably the most popular resource with candidates is the CFA Career Resources section with its resource library of presentations and the JobLine platform. The resource library hosts webinars, articles and presentations on everything from skills development to networking for that dream job. There are currently 2,623 jobs listed across five regions and by 175 employers on the CFA Institute’s JobLine.

It’s easy to let time slip away between study seasons for the CFA exams. You finish up the June exam and don’t even want to think about the curriculum or anything with CFA in its name. Pretty soon, it’s January and you have to start studying for the next exam. You’ve let a great opportunity pass by without taking advantage.

You’ve still got two months before you need to start thinking about your next CFA exam. Use those months to take advantage of all the CFA Institute has to offer and some of the resources available. If you haven’t attended a local CFA society event, make it a goal to attend at least one before the end of the year. If you’ve attended some of the events, make it a goal to start getting involved by volunteering. You won’t regret it and you will open up doors you didn’t even know where there.

‘til next time, happy studyin’
Joseph Hogue, CFA

How NOT to be Surprised by the CFA Exams!

Less than half the candidates taking the CFA exams each year pass. It’s a statistic most of you know but never ceases to amaze me. How can an exam be so difficult that less than half pass each year?

You could blame the CFA Institute for making it so difficult and adjusting the minimum passing score but the fact that no one with an average of 70% has ever failed takes some of the blame off the Institute’s shoulders. Having to answer about two-thirds of the questions correctly doesn’t seem like too much to ask for a professional exam.

What if it’s something else? What if candidates just aren’t prepared for the exams? Spending upwards of 300 hours doesn’t seem like a lack of preparation to me so maybe candidates just aren’t preparing correctly for the CFA exams.

Each exam can be surprising for its own reason. This specific challenge in each exam catches candidates off guard and leads to a ridiculously-high rate of failure.

Learn what to expect on each CFA exam and how to study for it, and you’ll be better prepared than half the candidates already.

CFA Level 1 Exam: Information Overload

The first thing that surprises candidates on the CFA level 1 exam is the sheer amount of information they are expected to remember. Through undergraduate studies, most of you have been responsible for textbooks of information but you haven’t had to master all the material for one mammoth-size exam.

The CFA Institute doesn’t feed you the information in manageable chunks and then ask you focused questions every couple of weeks. The Institute turns on the firehose and drowns you in knowledge of which you’re supposed to drink every last drop.

Maybe the firehose analogy is a little extreme but it seems that way at times.

The trick to passing the CFA level 1 exam is that you don’t need to know every excruciating detail within the curriculum. Much more important is the basic ideas and concepts around each study session. Understanding the qualitative ideas in the curriculum is much more important than being an expert in one topic. This means reviewing every study session and getting a basic understanding across the entire curriculum.

Understanding the main ideas will help you immediately eliminate at least one potential answer for each question and should help you pick out the most appropriate answer.

It also helps to use multiple resources when studying for the CFA level 1 exam. Getting the curriculum from several different perspectives, i.e. official text, study notes, videos, flash cards and practice problems, helps to build repetition and memory.

CFA Level 2 Exam: A Quantitative Monster

After figuring out that the first exam is all about basics and qualitative information, the CFA Institute throws you a curve ball with the CFA level 2 exam.

The second CFA exam is all about formulas and quantitative detail!

While the CFA level 2 exam includes the same topic areas as the first exam, the topic weights clearly show a focus on three subjects. Financial Reporting & Analysis, Equity Investments and Fixed Income will account for up to 65% of your exam score and a large chunk of that is in quantitative calculations.

Top it off with the fact that you have a different format in the vignette questions, having to read through a story and then answer a set of questions.

Avoid being surprised by the quantitative material on the second exam through understanding the conceptual reasoning in the formulas and repetition.

Try memorizing every formula on the CFA level 2 exam and you could end up in an asylum for the criminally-insane. There are just too many letters, abbreviations and craziness. If WACC = (Vd/(Vd +Vce))rd (1-t) + (Vce/(Vd+Vce))rce) doesn’t make you go cross-eyed you are a stronger person than I am. Think about it intuitively and it makes sense.

The overall cost of a firm’s funding capital is the cost and proportion of equity and debt. The percentage of each funding type relative to the total is multiplied by its cost. Debt is tax advantaged, so you need the after-tax cost.

Understanding the conceptual reasoning behind each formula will help you recall it on the exam and you won’t drown in a sea of math.

The second trick really is no trick at all. You just have to work those practice problems over and over again. Use flash cards to write out the especially-difficult problems so you can review them several times a day until you’ve got it down. Work the end-of-chapter questions for each study session and use a question bank of problems if you’ve got one available.

CFA Level 3 Exam: Essays are a Physical, Emotional and Intellectual Challenge

Most CFA candidates understand that the essay section will be difficult but few realize how difficult it’s going to be until they’re half way through the morning session and sweating through their shirt.

The three-hour morning section of the CFA level 3 exam is a physical, emotional and intellectual challenge for which few really prepare well. It isn’t about just understanding the material, it’s about being able to construct your own answer and being physically able to write for three-hours straight.

There is really no better resource than the old exams provided by the CFA Institute. The Institute releases the last three years’ worth of morning essay questions on its website along with guideline answers.

  • Don’t just review these past morning sections, actively work them as if you were sitting for the exam. If you haven’t prepared the muscles in your hand to write for three hours when you arrive at the exam, you are going to regret it.
  • Learn how to bullet-point your responses to include all the relevant information. This will save you a ton of time on the exam. See how it’s done in the guideline responses.
  • When you’re writing out your answers on old exams, practice writing out your thought pattern. The CFA Institute awards partial credit for the essay portion but you have to demonstrate a certain point within the answer. Writing out your reasoning makes it more likely that you’ll hit on a few of those points and get the highest score possible.

Passing the CFA exams means being prepared for each exam and not being caught off guard by differences on each. Ask other candidates what surprised them most and understand how to study for each exam.

‘til next time, happy studyin’
Joseph Hogue, CFA

Last updated: July 18, 2016 at 16:34 pm

Will I Pass the CFA Exam: A CFA Studying Checklist

As much as we cover strategies and studying here on the Finquiz blog, one of the most difficult questions a candidate faces is, “How do I know if I’m ready to pass the CFA exam?” You can practically quarantine yourself away for months, studying every formula and note in the curriculum, and still the question will nag you.

Go into the exam shaken and worried that you’ll end up in one of the fail bands and you’ll have a harder time remembering the material. Without being able to know if you’ll pass the CFA exam, it’s difficult to find the confidence to not be worried.

It’s an ironic dilemma.

To that end, I’ve put together a checklist for passing the CFA Exam. Plan your CFA studies out to check off each point on the list and you can go into the exam with the confidence of your success.

Checklist for Passing the CFA Exam

First off, this isn’t a scientifically-developed checklist. The CFA Institute hasn’t provided any data or guarantees to prove the points. It’s just my experience of what makes a candidate successful after three years of taking the exams myself and another 3+ years of writing exam prep.

I’ve spent more years studying the curriculum than most. I’ve talked to more candidates than I can count about their experience. I can confidently say, if you have done the points below, you have a great chance of passing the CFA exam and you can be confident of your success.

I have read the official CFA curriculum at least once all the way through

There’s really no substitute for the official curriculum. On an exam where more than half the candidates fail and just a few points could make the difference, do you really want to put all your faith in condensed study notes?

The curriculum is extremely long and can get boring at times but you need every detail. I would recommend you read through it at least once and then review once more just to be sure.

I have read through the official CFA curriculum once again or through condensed notes once or twice

Part of the ‘secret’ to passing the CFA exams is just plain repetition. There’s an immense amount of material that you need to remember over the six-hour test. Studies show that you need to see something about seven times in order to commit it to memory. It might not be possible to read through the official curriculum that many times in your limited time but you can easily cover the material a few more times through condensed study guides.

Besides reading through the curriculum and reviewing it through notes a few times, you’ll want to build repetition through practice problems and other resources.

I have worked at least 120 practice problems for each study session

The CFA level 1 exam consists of 240 questions, split between morning and afternoon sessions. Working 120 practice problems for each of the 18 study sessions means over 2,000 problems and a full three-hour session practiced in each.

You won’t be able to get all the practice problems from the end-of-chapter sections of the curriculum. This is where question banks and study guides come in handy. You can refer to questions in older versions of the curriculum, usually available at the library or through members of the local CFA society, but you have to make sure they aren’t outdated.

I created flash cards with the most difficult problems – most of which I now know

This one serves a couple of purposes. It measures your use of different resources for mastering the CFA curriculum. Using different resources beyond just reading helps to keep your studying from becoming boring and gives you another way to look at the content. It’s one more repetition closer to the seven or so you’ll need to remember the material.

Being able to easily work problems you once found difficult is also a sign of progression and learning. Constantly progressing through your mastery of the CFA curriculum is more important than you might think. Besides understanding more of the material, you’ll become more confident from the regular reinforcement in the fact that you are learning more.

I have kept close to my original study schedule or if I lost some time, I made it up within the next week

This one is more a test of your commitment. Too many CFA candidates allow themselves to deviate from their schedule, promising to make up the time but never getting around to it. It becomes easier to skip studying all-together.

I have taken at least three mock exams and measured my results in each

How can you have any idea of how well you’ll do on the CFA exam if you don’t replicate the experience with a mock exam? Not only will it test your knowledge of the material but will also test your endurance to sit through the two 3-hour sessions.

Make sure you track your results for each mock exam, overall and for each topic area. Besides studying the material, it will help uncover any weak spots you may need to hit again.

Being able to say you’ve done everything on the list doesn’t guarantee you a passing score on the CFA exam but it does demonstrate your commitment to the process and a good review of the content. Remember, the idea isn’t just to check off that you’ve completed one of the points but to have the confidence that you’ve done what it takes. It’s not the end of the world if you’ve stumbled in a few of the points and can’t quite check them off, just try to get as much study time in from here to exam day.

‘til next time, happy studyin’
Joseph Hogue, CFA

Top 9 Formulas for the CFA Level 1 Exam

Peeling back the cover on your CFA Level 1 books can be a shock at first. Thousands of pages and hundreds of formulas sit in front of you and can seem overwhelming.

Before you freak out, it’s not really so bad. While formulas become crucial on the CFA level 2 exam and its quantitative focus, the formulas on the first exam are much more about learning relationships and the process. Learn the ‘why’ of the formula and you’ll remember how to work it on the exam easily.

I thought I would cover some of the most important formulas in the CFA level 1 exam and how to approach the mountain of equations. Practice problems and flash cards are going to be your best friends. There’s really no substitute for working formulas over and over again for remembering them on the exam. Write out practice problems of the most difficult and most important formulas and then practice them daily until you can do them easily.

Equation #1: Future Value of a Single Cash Flow

The future value of cash flows is not a difficult formula and one that you’ll do on your financial calculator but it’s really a building block to a lot of the more difficult formulas for time value of money. Make sure you understand this basic formula and what the different notations mean.

FVN=PV(1+r)N

i.e. if your savings account earns interest at a 5% rate and you have $100 deposited, how much will it be worth in 20 years?

FV20=$100(1+.05)20
=$265.33

Equation #2: NPV and IRR

Both NPV and IRR are also found easily with the calculator but they pop up many times in conceptual questions so you really need to understand the idea behind each. Remember that a key assumption of IRR is that cash flows are reinvested at that rate, which may not be realistic. Also, if there are multiple cash outflows, there will be multiple IRRs or none at all. There may be a conflict between NPV and IRR when projects are mutually exclusive or when there are multiple cash outflows. In this case, NPV is preferred.

Using the calculator is relatively easy,

The initial project cost or investment is a negative (outflow) as CF0
CO1 through x are the stream of cash flows and entered as a positive (inflow)
If cash flows are an equal amount, you can enter them as F (frequency)

Press the NPV button and enter the interest rate
Down arrow
CPT NPV
For IRR, just press the IRR button and CPT

Equation #3: Sharpe Ratio

The Sharpe Ratio is a measure for adjusting risk across investments and measuring return on the same scale. While bonds may offer a much lower rate, are they a better or worse investment than stocks given their lower volatility? It’s a pretty easy calculation and you’ll see it come up in all three exams so make sure you can remember it quickly.

Sharpe ratio = (Asset Return – Risk Free Rate) / Asset Standard Deviation

Equation #4: Capital Asset Pricing Model

There are a lot of flaws in the CAPM and it’s used more in academics but it is still a very useful formula and will appear throughout the CFA exams. Beyond the formula, you should pay attention to drawbacks of using the CAPM.

Ra = rf + Ba (rm-rf)

The required return (Ra) is the amount of return required given a specific asset’s additional risk relative to the market and the risk free rate. You multiple an asset’s beta (Ba) by the difference between the expected return on the market (rm) and the risk free rate (rf). You then add back in the risk free rate.

The difference between the market’s expected return and the risk free rate is called the market premium, the additional return required for taking on market risk.

Equation #5: DuPont Analysis of ROE

DuPont analysis breaks down the return on equity (ROE) into three components, profit margin – asset turnover – equity multiplier.

ROE = (Net Income/Sales)*(Sales/Assets)*(Assets/Equity)

Which becomes (Net Income/Equity) in its simplest form.

The formula provides another layer of analysis on which to compare company profitability. It’s not enough to be able to say that one company has a high return on its shareholder equity but you need to know the source of the return.

Equation #6: Dividend Discount Models

The Gordon Growth Model (GGM) is arguably one of the most used formulas in the curriculum. It is a single-stage model, assuming that dividends will grow at a constant rate into perpetuity. The general formula is:

Price = Div0 (1+growth) / (Rce – growth)

An important note is that the required return must be higher than the growth rate in dividends to use the formula. This is not usually a problem in single-stage models because the long-term growth rate will probably be fairly low. Be ready to calculate some of the data points on the exam (like finding the discount rate through CAPM or the growth rate through ROE and the payout ratio).

The GGM is not appropriate when the company is experiencing super-normal growth for a period before it slows to perpetual growth. For this scenario, you need one of the multi-stage models.

Equation #7: Weighted Average Cost of Capital

Understanding and calculating the WACC is another foundational concept that you will need to master. The concept is pretty intuitive, a firm’s cost of capital (spending) is a weighted average of the cost from each source (debt or equity). Debt is normally less expensive and tax shielded but can be risky at high amounts.

WACC = E/V * Re + D/V * Rd * (1-Tc)

The WACC is equal to the percentage of financing from equity (E/V) times the cost of equity (Re) plus the percentage of financing from debt (Rd) times the cost of debt, adjusted for the tax shield.

Use the market value of debt or equity when available. Remember, the company’s capital structure may change over time so it is preferable to use target weights instead of current market value weights.

Equation #8: Free Cash Flows

FCF models acknowledge that investors have a right to all cash flows from a company and not just those paid out as dividends. Free cash flows are the cash generated from operations after that needed for continued operations is deducted.

The advantage is that FCF compared to dividend models is that FCF can be calculated regardless if the company pays a dividend. FCF models are also appropriate for investors that may be able to exercise a control premium on the company. The major disadvantage is in valuing those companies with high capital expenditures, making free cash flow negative at times.

Free cash flow is shown two different ways, Free Cash Flow to Equity and Free Cash Flow to the Firm, each appropriate to two different ownership perspectives. FCFF is the cash flow from operations after capital expenditures that is available to both levels of ownership (debt and equity). FCFE is that left over after paying debt holders, since they have a prior claim.

Free Cash Flow to the Firm (FCFF) is the cash flow available to all capital providers (debt and equity) and equals:

Net income + Net noncash Charges (depreciation and amortization) – Investment in working capital – Investment in Fixed capital + after tax interest expense

Free Cash Flow to Equity (FCFE) is the cash flow available to common shareholders and equals:

Net income + Net noncash Charges (depreciation and amortization) – Investment in working capital – Investment in Fixed +/- net borrowing

  • Notice that FCFE is FCFF except without adding back interest expense and taking net borrowing into account.
  • Understand how to arrive at FCFE or FCFF with CFO
  • FCFF = CFO + INT (1-t) – invest fixed capital
  • FCFE= CFO – invest fixed capital +/- net borrowing

Equation #9: Turnover Ratios

The last formula is actually a series of ratios but all relatively easy to remember. These are the turnover ratios: accounts receivable, inventory turnover, number of days receivables, number of days payable and number of days inventory. You’ll use these to calculate the net operating cycle and all individual ratios are fair game on the exam.

The most important thing here is to remember that when you are combining income statement data and balance sheet data, you need to use an average of the balance sheet data. For example, the inventory turnover ratio is the cost of goods sold (income statement) divided by the average inventory from the current and previous period balance sheet.

Most of these formulas are not difficult and are pretty intuitive if you just think through them for a moment. You’ll need that deep understanding of what is going on in the formula more than you’ll need the formula itself. Make sure you have this conceptual mastery and you’ll have no trouble on the CFA level 1 exam.

‘til next time, happy studyin’
Joseph Hogue, CFA

What do you need to pass the CFA Level 1 Exam?

By far the most common question we get at Finquiz is, “What does it take to pass the CFA level 1 exam?” It’s a valid question considering only 42% of CFA level 1 candidates passed the June 2015 exam.

How can more than half of the candidates taking an exam fail to achieve a passing score? What does the CFA Institute expect you to know before moving on to the second exam?

Of course, the Institute doesn’t make things any easier by not releasing their minimum passing score. We know that no candidate has failed any of the exams with a score of 70% or higher but we’re never given the minimum score for any testing year.

But there are ways to approach the exam to determine what you need to do to be confident of passing. Looking at the topic weights and understanding how the CFA level 1 curriculum is tested can give you the edge you need to push you above the mysterious passing score.

CFA Level 1 Most Important Topics

Every study plan should start off by looking at what is being tested and how important it is to the overall exam. The CFA Institute releases the topic weights for the three exams each year with changes occurring only rarely.

2016 CFA Exam Topic Weights

2016 CFA Exam Topic Weights

The CFA exam topic weights factor heavily into our study strategy to pass the CFA level 1 exam. Topic weights have changed only slightly since I studied for the level 1 exam in 2009 and the key topics haven’t changed. Ethics and Financial Reporting & Analysis continue to be the most tested topics. You should also notice that Equity Investments and Fixed Income, while only worth 10% of your level 1 exam are worth a much bigger percentage in the other two exams. Focusing on these other two topics as well will help you save time when you do pass the first exam.

It may be a little disappointing but there really is no secret to passing the CFA level 1 exam. The exam covers a huge range of topics and can seem overwhelming for many candidates. Fortunately, the test doesn’t get very far into the details of the subject matter. The curriculum is tested on a basic understanding, a mastery of the big picture and the relationships between different concepts.

This means that you shouldn’t spend too much time on any particular topic or reading. Make sure you master the four core topic areas in terms of weighting but read through the entire curriculum multiple times to get a strong overview of everything.

The CFA Institute regularly releases its candidate study survey that nearly always shows an average of 300 hours studying by successful candidates. While candidates in the level 2 exam might spend a majority of time on FRA and level 3 candidates probably spend more time on the essay section, level 1 candidates should spread their time out more evenly.

Trying to spend 300 hours reading through the same curriculum is only going to lead to burn out. You need to mix up your study resources so studying stays fresh enough that you don’t get bored. This means reading the curriculum, reviewing notes, working practice problems, studying flash cards and even reviewing difficult concepts on YouTube when available.

CFA Level 1 Study Plan: Tortoise or the Hare

If you are reading this for the 2015 December level 1 exam, just two months out from now, you may need to kick your study plan into overdrive depending on how far along you are in the curriculum. You will want to start taking mock exams and practice exams by November to gauge your progress. Aim for a target of 75% or better in each topic area to give yourself some room for error on the actual exam.

Multiple resources are the key for covering the material from different perspectives and reviewing the curriculum multiple times. With thousands of pages in the official curriculum, you may not have time to read through it again and still do the necessary practice problems and mock exams. Try shifting more time to review notes and flash cards to cover the material more quickly.

If you are studying for the 2016 CFA level 1 exam next June, then you’ve got more time to prepare. Start reading through the curriculum in December or January at the latest. Once you’ve worked through the official curriculum once, you can start reviewing using other resources to reinforce the material.

Given the low pass rates on the CFA exams, you’re best bet is to over-study for the test. Plan an aggressive study strategy and go into the exam super-confident that you know the material. It’s far better to over-study than to have to spend another year reviewing the material because you didn’t study enough.

‘til next time, happy studyin’
Joseph Hogue, CFA

What to do after Failing the CFA Exam

So you got the bad news that you failed the CFA exam last June and you’re feeling pretty low. Even though you’ve got plenty of company with between 47% and 58% of candidates failing one of the CFA exam levels, it still feels like a personal defeat.

First of all, don’t stress out over a CFA exam fail. Over a 20- or 30-year career, one year doesn’t make much difference at all. Having to repeat the material may even make you a better professional by really cementing the curriculum in your mind.

The most important thing is that you learn something from the experience and understand how you can avoid it in the future. I talked with five candidates that failed the CFA exam in June, three that failed the CFA level 2 exam and two that failed the third exam. Each candidate had something different to share and a different strategy for passing the CFA 2016 exam.

Check out their story and relate it to your own and your chances of passing your next CFA exam will improve significantly.

Why did you fail the CFA Exam?

Take a moment and evaluate your CFA study plan. What band did you appear in for the exam results? The ten bands are approximately equal score so each is likely between 3% and 5%, meaning the band 9 and 10 candidates missed passing by only a few questions.

For many candidates, it is just a matter of time spent studying. The average passing candidate spends around 300 hours studying for the exam. That’s just over ten hours a week on a six-month schedule, but try to cram it into three or four months and your commitment increases to 20 hours a week or more. A lot of candidates plan on putting in 15 or more hours a week studying and decide to wait until February to start but then have something come up that takes their time away.

That’s what happened to James from Portland. He started studying in late February and thought he would have plenty of time. He got a job offer in March and was working more hours than he expected through June. Besides James’ story, I hear the problem from a lot of candidates. Between heavy workflow around the end of the quarter and other life events, you never really know how much time you’ll have to study. That’s why you need to start as early as possible, even in December, to give yourself plenty of time.

The CFA level 3 essay section catches some candidates by surprise. Arnav of Mumbai told me that he was extremely confident of his knowledge of the material but just couldn’t write fast enough on the essay section. His hand started hurting after a couple of hours and he ran out of time before he could finish.

You absolutely must practice the essay section for the level 3 exam. Besides learning how to write down your thoughts quickly, you need to train your mind and muscles to be able to do it for three hours. It can be really tiring for candidates that don’t practice. The CFA Institute makes this as easy as possible by publishing the actual morning section exams along with guideline answers. You can sit down and take the essay questions just as if you were sitting for the exam.

We’ve covered a lot of the old CFA essay exam questions on the blog. Click through to this post on How to Pass the CFA Level 3 Essay Section for strategy and links to individual essay questions.

What could you have done differently to pass the CFA Exam?

I know a lot of CFA candidates that neglect doing practice problems, something that tripped up Jennifer of Miami. She told me that she meant to work the problems but it was just so much easier to read the material and not do the work.

Working practice problems can be a pain sometimes but they are absolutely critical. Not only is it an active learning technique, proven to help you retain information, but it also keeps you from zoning out as you read the material.

Paul from New York fell into the trap of having too many distractions during his study routine. I am guilty of this one as well. When I was studying for the first CFA exam, I would often study in front of the TV. I would be distracted often and would spend much of my study time just focusing back in on where I was in the book. Beyond the TV distraction, a lot of other things in the home are going to distract you from really focusing on the material. That’s why it’s always better to find a quiet place outside the home, maybe at the library, to do your studying.

Koki of Tokyo thought he would pass the exam by just reading through the curriculum once and working the practice problems. Many candidates believe that because they did well in school, always remembering things for the test, then they will do equally well remembering the CFA material for the exam. The CFA curriculum is an incredible amount of material and you have to remember it all in one six-hour sitting. It’s entirely different than having to remember a few weeks worth of lectures for a college exam.

Studies show that you need to review something between five and seven times to commit it to memory. Besides reading through the curriculum and working practice problems, you should consider other ways to review such as flash cards, study guides and talking your way through it. Finquiz Notes are designed to be used with the official curriculum so you can review and highlight important information while you are studying. The more times you can cover the material, the more likely you’ll be to remember it on the exam.

Taking an honest look at what happened on your CFA exam is the first step to passing the next exam. Check out these five stories from candidates and reevaluate your own study plans. With a little work, you’ll be well on your way to earning the charter.

‘til next time, happy studyin’
Joseph Hogue, CFA

Last updated: July 18, 2016 at 17:00 pm

Why I Sacrificed Three Years of My Life and am Glad I did!

The CFA exams are tough! No doubt about it. To pass the exams, you’re basically saying that you’re willing to work a part-time job for six months of each of the next three years…and you’re going to pay someone to do it.

I did it and about 165,000 candidates make the decision every year. After making the decision, many candidates constantly fight with the question of whether it’s all worth it. Only half the people pass their exam in any given year.

Despite all the time and sacrifice, I would do it all again and am glad I took the time for one of the most difficult professional challenges in finance.

The Best Textbooks You’ll Ever Read

Like all candidates, I sat through my undergraduate work and wondered if there was anything more boring than a college textbook. I studied for two degrees, Finance and Communications Studies, and even the analytical material in the finance texts usually seemed completely academic and impractical. Don’t just theorize about the capital markets, help me see how it actually works and fits together!

The CFA curriculum is some of the best textbooks you’ll read, written by actual market participants as well as a few academics. It won’t teach you everything you need to know about a specific job but the breadth of information will get you through just about any topic in asset management. No one really knows where their career will take them but the CFA curriculum gives you a good start in a lot of different fields.

As a CFA candidate, you’ll work harder than you ever did in any undergraduate course. I pretty much breezed through my undergraduate studies. I did the reading and went to class and was able to easily pass the exams without really trying too hard. The CFA exams are different. It’s an immense amount of material and you need to remember it all for the six-hour marathon exam. This kind of challenge forces you to be a professional and to really put the effort into the curriculum.

Surround Yourself with Success

Not only are the CFA exams worth it in themselves, for the challenge and information, but having the charter has opened a lot of doors for me. I have been able to open my own freelance consultancy and have had many clients hire me on the basis of having the charter. I don’t guarantee any special insight or performance as a matter of holding the charter but it does command a high level of respect from a lot of people in the financial market.

Through society and CFA Institute events, I’m able to network and partner with some of the best minds in the business. The Institute keeps a great flow of materials for professional development on its website and I’ve seen several new ideas pop up there before they became commonly accepted rules within the larger financial community.

There are a lot of you, candidates, that will be reading this while questioning whether to start or to continue studying for the CFA exams. I certainly faced my own ups and downs over the three years of studying. It is a lot of time spent with your nose in the books when you could be spending it with friends and family. Some people may even tell you that it doesn’t matter and they did fine without the charter.

Earning the CFA charter isn’t a golden ticket and it doesn’t mean the work is over once you’ve gotten your charter. It does mean a lot of things though and I’m glad I pushed on through. I think you will be just as glad you made it. Stay strong and keep studying.

‘til next time, happy studyin’
Joseph Hogue, CFA

Boys enjoying beautiful yellow sun and green grass. Copyrights FinQuiz.com

Boys enjoying beautiful yellow sun and green grass. Copyrights FinQuiz.com

Study Groups for the December Level 1 CFA Exam

With the start of the study season for the December Level 1 Exam comes a rush of calls for study groups in CFA groups on the internet and locally. Studying for the CFA exams can be an extremely solitary and uncertain pursuit so candidates look for help and confidence in groups.

But should you join a study group for the CFA exam? If you do join a group, how much time should you commit and what are the advantages or disadvantages?

We’ve posted a few articles on the Finquiz CFA blog about participating in groups but I thought I would reinforce some of the most important ideas. We’ll look at some study group options, benefits and risks to watch out for before tackling the question of whether you should join a study group for the CFA exams.

What are your options for CFA Study Groups?

I remember studying for the CFA exams, from 2009 through 2011, and joining study groups. Since then, technology has brought new options to CFA study groups but candidates are still using the old methods as well.

First, you’ve got the old school method of in-person study groups. Maybe I haven’t grown up with the technology that enables the other study groups but I still like in-person groups above all others. They take a little longer, through travel time, and a little more coordination to set up but these study groups can be an indispensable networking tool. Through your study time together, you’ve got a chance to develop a real friendship with some of the people that will lead the profession in your city or region.

There are live study groups that meet over Skype or Google Hangouts. This is the next best thing to the in-person groups. You lose a little of the interpersonal nature because you can’t really talk one-on-one with anyone but it’s still face-to-faces so you can build some good connections. Virtual groups can save a lot of travel time and are easier to put together than in-person groups.

Next you’ve got web-enabled study groups on Facebook and in other website forums. These can range in formality from an open forum that allows posting to a closed-group that controls the study plan and questions. You lose a lot of the networking benefit unless you interact with members outside the group. The benefit is that they allow everyone to post and reply on their own schedule.

Lastly, you’ve got the newest type of CFA study groups in messaging software like WhatsApp. These are so popular that they are continuously the most commented discussions in the CFA Candidates LinkedIn group. I’ve gotten mixed reviews from candidates about these groups. They can be helpful because you can multi-task while participating, checking in occasionally on new messages, but you lose all of the networking benefit to groups. I sat in on one of the groups a few times and the flow of messages can get overwhelming.

What are the risks you want to avoid in a CFA study group?

The biggest risk to any study group is going off-topic and letting the group go unorganized. It’s fine to trade a few off-topic comments here and there, that’s all part of being sociable, but it helps to set a schedule and bring the group back on topic quickly.

  • Don’t make the same person act as schedule-keeper every meeting. Nobody wants to be the bad guy, constantly nagging the group to stay on topic. Rotate the role each time the group meets.
  • Everyone in the group has to make the same commitment to the process and the schedule. You’re not accountable to anyone for grades like in school groups but the group breaks down if one or a few people are always missing or forget to read their assignment.

In-person groups and internet-live groups should probably be limited to about six people or less. This helps make sure that everyone has a chance to participate and that you don’t get too many people talking at once. Forum and chat groups can include more people but it still helps if there are a limited number of ‘virtual’ seats. Having hundreds of people participate makes it difficult to differentiate between the real contributors and those just hanging out.

Don’t be afraid to question someone’s answer or rationale behind an answer. You will either learn where you were wrong, improving your own score on the exam, or you will avoid everyone learning the wrong material which will improve everyone’s score. On the same note, don’t take it personally when someone questions one of your answers. You are all there to learn.

Should you join a CFA study group?

Now that you know your options, some of the benefits and the risks to joining a CFA study group, you can make a better decision whether to join one or not. Study groups can be an inefficient way of learning the material, eating up your time and possibly even giving you misinformation from wrong answers. They can also be great motivators through the group support system and an excellent way to network.

I participated in study groups and I would recommend everyone try them out at least once. Maybe I’m old fashioned but I still prefer the in-person groups to any other method. Try putting together a weekly or bi-weekly group in your area, close enough that no one has to travel more than 20 minutes for the group. Limit the group to under two hours and stay on schedule. Going out socially after the group can help keep group-time focused.

I would caution against participating in more than two groups. Spending more than a few hours a week in group is seriously going to cut into your study time. Groups can be great for discussing problems and questions but they are not as efficient as reading the material yourself and working end-of-chapter questions.

If you can’t manage to coordinate an in-person study group or a live-internet group, you might try one of the forum or chat groups. You might have better luck than I did with these groups but remember to keep it organized and on-topic.

I’d love to hear how you are using CFA study groups to further your studying and prepare for the exam. Let me know if I missed any pointers or any of the risks you’ve seen in groups.

‘til next time, happy studyin’
Joseph Hogue, CFA

You need someone at steering wheel in any group. Copyrights FinQuiz

You need someone at steering wheel in any group. Copyrights FinQuiz

Countdown to the December CFA Exam – Here’s your Strategy

There’s just 13 weeks left to the December level 1 CFA exam and you should be starting your preparation if you haven’t started already. Two deadlines have passed for registration and only the final deadline remains to get your seat at the exam.

We just finished up our review of the Code & Standards topic area of the exam but I thought I would start us off again with a few words on getting ready for the December exam. Despite the roughly 50% of candidates that do not pass any given exam, preparing for the three exams can actually be relatively easy if you know the process.

That’s not to say that studying and passing the exam will be easy but that too many CFA candidates make it more stressful than it needs to be. Understand how the Level 1 CFA exam is tested and build yourself an outline for your study plan and you’ll find it much easier to make it through the exam.

How to Pass the December Level 1 CFA Exam

It’s been said that the Level 1 CFA exam is like a lake one-mile wide and an inch deep. It’s an appropriate analogy because the breadth of the material in the curriculum can seem endless, but you will not drown in the details.

In this first exam, the CFA Institute wants to introduce you to the world of asset management and analysis. They do not expect you to be a world-class analyst after reading the curriculum but to have a good base of understanding on the many topic areas and how they fit together.

Your job is to keep this in mind when studying for the December level 1 CFA exam. Make sure you have a good understanding of all the topics and can begin to see how many of the topics relate to each other. The sheer volume of material will seem overwhelming sometimes but the difficulty of the questions is ultimately not a problem.

How do you build this idea into your study plans for the December level 1 CFA exam? You need to make it through the curriculum multiple times. This will help commit it to memory and will make sure you get a broad understanding of everything. Do not spend so much time on details or any one topic area that you cannot make it through all the material.

Besides the official curriculum, a set of study notes makes this more easily achievable. FinQuiz Notes are designed to be used with the curriculum instead of substituting for it. This means they’re shorter than other study notes packages and can help you get the broader picture of the material more quickly. Read through a topic or study session one week then follow it up with a review of the study notes the next week for better absorption.

Check out our basic strategy on how to pass the CFA exams
Check out a more detailed strategy on how to pass the CFA level 1 exam

Getting to December: An Outline for Study Plans

  • Registration ends for the 2015 December CFA exam on September 16th, register here
  • Plan out your study schedule
    • You’ll want to read through the curriculum at least once with time enough to review over the last month
    • Plan on working at least the end-of-chapter questions for each reading and consider a question bank with additional item sets
    • Plan on at one or two days a week with no studying so you do not get burned out on the curriculum
    • Try scheduling the entire last week off from work and devoting it to a last-week review
  • Keep to your study schedule at all costs! It’s only a few months and the odds are high that you’ll have to retake if you do not take this seriously.
  • Check your passport right now! The information must match that provided on your CFA exam registration and the passport must not expire before the exam date. Still time to get it fixed if you check now.
  • Admission tickets will be available several weeks before the exam. Check the information on your ticket as soon as you receive it.
  • One week before the exam, gather all the materials that you’ll take to the exam in one spot. Better to have these ready than to be looking for them the night before the exam.
  • Several days before the exam, check the route to the testing location (if possible) for detours or road work. Ask a local candidate to check the route or if there are typically traffic problems on Saturday mornings.
  • Plan on arriving at the testing center several hours early. This will allow you any last-minute problems and still get you to the exam on time.

We’ll cover parts of the CFA exam prep outline over the next few months to make sure you stay on track for the exam. Try to work a little ahead of your study schedule just in case something comes up to set you back a little. Too many candidates work right at their schedule or a little behind and then get set way back on any minor hurdle. Stay ahead of schedule and go into the exam with the confidence that you WILL pass.

‘til next time, happy studyin’
Joseph Hogue, CFA

Copyrights FinQuiz.com

Copyrights FinQuiz.com

Ethics Practice Roundup for CFA Level 1 Exam

We’ve covered eight practice problems in the CFA Level 1 ethics material over two prior posts, available by clicking CFA Level 1 Ethics and CFA Level 1 Ethics Practice. This post will wrap up our practice problem review and look at a few key points to the Ethics and Standards topic area.

At the very least, you need to cover every end-of-chapter question in the Ethics study sessions at least once during your CFA exam prep. You may also want to consider a question bank of item sets as well to get a little more practice. The Ethical & Professional Standards topic area accounts for 15% of your CFA level 1 score.

Not only will you need to master the material for the exam, you’ll see it again in the CFA level 2 and level 3 exams where it’s worth as much as 15% of your score on each. The fact that you could see questions on all three exams covering roughly the same material makes for a great opportunity. Learn the material early in level 1 and you will save a lot of study time leading up to the other exams.

CFA Level 1 Ethics Practice Problem Review

We’ll work two more practice problems in this post. Be sure to check out the prior two posts for eight more ethics practice problems. When you’re working the problems, make sure you read through the given answer to get an understanding for how the CFA Institute is looking at the ethical dilemmas.

CFA Ethics Question #1

Tom Hart works for IAM Investment Management, a struggling firm that is likely to close soon under the weight of redemptions. Tom wants to start a small independent practice so he will have something to work on if the firm closes. Which of the following statements is correct under the Code and Standards?

A. CFA Institute members and candidates are prohibited from pursuing independent practice that might be in competition with their employer.

B. Tom needs to obtain written consent from his employer for the independent practice since it could result in compensation or other benefits in competition with the firm.

C. Since the firm is likely to close, Tom does not need permission from his employer and can start his independent practice. He must disclose his independent practice only when he starts making money.

CFA Ethics Question #2

Meg and June have been good friends since high school and are sitting down to a cup of coffee. Meg, the CFO of a large retail clothing chain, mentions that sales are booming and the quarterly results should look very good. June, an investment adviser, writes a research report to clients suggesting they buy shares of a retail exchange traded fund on the potential for high industry sales this quarter. June also buys shares of the fund, which includes shares of Meg’s company, for her personal account.

A. June violated the Code and Standards by buying shares of the fund but not by making the recommendation to clients.

B. June did not violate the Code and Standards by either action because she did not directly act on the information by buying shares of Meg’s company.

C. June violated the Code and Standards by both actions, buying shares of the fund and recommending that clients do so.

Question #1 Answer: B

Under Standard IV – loyalty, members and candidates may undertake independent practice as long as they get written permission from their employer. The requirement is not contingent on actual compensation or benefits but the potential. This is like the ‘perception of conflict’ standard held by the Institute. All necessary disclosures and requirements must be upheld if there is the potential or perception of conflict in a scenario.

Question #2 Answer: C

June violated Standard II – material non-public information because both her purchase and recommendation appears directly related to the information she received from Meg. The information would likely influence the share price of the fund¸ making it material, and it is non-public because it has not yet been released.

Wrap-up of CFA Level 1 Ethics Practice

Many of the ethics questions on the exams will offer one answer that the action was not a violation and then two questions that claim a violation but for different reasons. For this reason, you not only have to know if an action is a violation of the Code and Standards but also why it is a violation. Practicing ethics problems will help to practice matching violations to specific Standards.

Another favorite of the CFA Institute is the problem where someone makes two statements and the candidate must decide whether one, both or neither statement is a violation of the Code and Standards. One statement is usually clearly a violation or not but the other is often ambiguous. For these, you really need to study the Standards for claims that can be made and things you can say.

The ethics material on the CFA exams is actually not too difficult if you spend a little extra time studying before the first exam. I earned 70% + on the topic in the second and third exam without spending a lot of time refreshing just because I drilled on the material extensively while studying for the first exam. Do the same and you shouldn’t have any problems.

‘til next time, happy studyin’
Joseph Hogue, CFA

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