One of the most common questions I get from new CFA candidates is if it is possible to take the December Level 1 exam and then sit for the Level 2 CFA exam the following June.
To which I reply, “Possible, of course. Recommended, maybe.”
What’s the hurry?
Maybe the three years that have passed since I was a candidate have made me forget how anxious candidates are to be done with the exams. I understand that, like any academic credential, completion of the program is a big step in your career and you just want to get through it.
But are you taking the exams just to pass or are you taking them to learn how to be a better analyst? Trying to fit so much material in so little time may mean you will miss an important opportunity to really master the details. There is a ton of material in the CFA curriculum, written by some of the best minds in the industry, but a lot of it will go in one ear and out the other if you do not take your time.
Taking both the December and June exams makes for a tough schedule as well. Upwards of 600 hours studying over about nine months means a minimum of 15 hours per week devoted to the curriculum. Studying for 15 hours a week is achievable but you are going to risk some massive burnout trying to do it for such an extended period.
Even passing both the December and June exams will only get you the charter a year earlier, and that is if you will have the necessary work experience requirement.
Passing in the fast lane
For those of you intent on getting through the exams as quickly as possible, there is still time for a December and June exam schedule. You’ve got 18 weeks to the December exam which means you can accumulate the 300 hours of minimum study with a little over 15 hours per week. Some will be able to pass on less than 300 hours but many will not and it is much better to over-study than to fail an exam.
There is one advantage to the quickened strategy, that you will not need to review the Level 1 material while studying for the second exam. A lot of the material in the Level 2 exam is repeated or closely builds from the first exam. Many candidates find themselves having to review before going on to new information because of the six-month hiatus from studying.
Paying attention to the topic weights for each exam will help immensely. The first exam heavily weights Ethics and Financial Reporting. The second exam heavily weights Financial Reporting and Equity Investments. The material on Ethics and Professional Standards does not change much across each exam so spending extra time mastering it for the first exam could save you a lot of time studying for the Level 2 exam. I would also spend a lot of time studying Financial Reporting and Equity Investments within the Level 1 curriculum. You absolutely must master the material on financial statements in the first exam to be able to understand the Level 2 Financial Reporting and Equity Investments material.
You cannot afford to neglect any of the topic areas but spending the majority of your time during your Level 1 studying in these three topics will help give you a head start on the second exam.
After the Level 1 exam, taking at least a few weeks off is probably a good idea but you will want to start studying for the June exam as soon as possible. The Level 2 CFA exam is regarded as the most difficult by many candidates, especially for its huge amount of formulas.
I guess there is nothing wrong with a December-June exam schedule if you do not mind studying overtime for the better part of a year. Even if you are not successful on one of the exams, time spent studying is time well-spent and will help you in your career. Just remember not to neglect other aspects of professional development like networking or taking on more responsibility at work.
‘til next time, happy studyin’
Joseph Hogue, CFA
I have a confession to make. I am one of the worst offenders of what I am about to post but I bet I’m not alone. I have 810 connections on LinkedIn and according to the site that puts more than 14.7 million other professionals in my network.
But would I be able to tell you anything about 90% of those first-level connections? Probably not.
And that is where many find themselves, with a huge virtual network but no real connections to help manage their professional career.
Maybe networking is not supposed to be this easy
While traditional networking should not be the painful process that many see it as, I’m not sure that it should be as easy as clicking ‘accept’ with no exchange between yourself and another. Sure, there are clear benefits to expanding your network through virtual platforms. We are able to build relationships with people that we would otherwise never meet. My ‘network’ spans nearly every country and just about every industry. Virtual networks help us keep in touch with our connections on a much more frequent basis than we probably could otherwise as well. A quick scan through profile changes lets me stay updated on what people in my network are doing.
But then there are the obvious disadvantages and traps we fall into as well. The ease of virtual networking has given us a false sense of connection and made it easy to neglect establishing stronger relationships. After all, why do I need to work to establish 10 strong connections when I can set up a network of 14.7 million with the click of the mouse?
Having too many ‘connections’ will make it impossible to really keep up with the connections you need to manage your career. Most of the social platforms are set up to run a news feed of things happening in your network. Are the important events and updates in your network getting buried under a pile of news from people you barely know?
Ultimately networking is about using those connections to help each other professionally, whether directly or indirectly through a second-level connection. Do you think you could do this with most of your connections? Would you feel comfortable recommending the people in your network based upon what you know about each of them? You are the only one that can answer the question, “How many connections are too many.”
Time to develop real connections
The benefits of virtual platforms for networking are too good to let them go to waste by superficially building your network so make a commitment to take advantage of them.
I know a lot of people will recommend going through your connections and deleting anyone that isn’t directly relevant to your professional sphere. It depends on how many connections you have but this might not be altogether necessary. If your list is still relatively manageable, you might just try categorizing people into spheres of importance. People with which you want to build a strong relationship would go in one folder and all others in another folder.
Once you’ve cleaned up your network, it is time to work on those relationships like you should have at the beginning. Browse through everyone’s profile and categorize connections within groups of experience, topic of expertise or anything else that might make it easier to organize. The idea is that when you have a question or want to talk to someone about a specific topic, you can quickly look through your network for the right person. This will not only help you answer your questions more quickly but will also help you get to know people in your network.
You probably do not need to talk to everyone in your network every week, maybe not even every month, but you should make it a point to interact with them. Before you go to a presentation or other professional event, send out a personal invite to the connections that might be interested. Regularly check up with your connections to get their opinion on the most important news and event for their sector.
Maybe it’s just that virtual networking is still so new for many of us that we have not learned to use it effectively. I know I’ve got a lot of cleaning up to do.
‘til next time, happy networkin’
Joseph Hogue, CFA
We finished up our series on career management last week and candidates still have upwards of six months until the study season begins for next year’s exam. It is usually this time of year that I am urging candidates to stay active professionally and academically, but let’s get real here… you busted your butt to prepare for the CFA exam and many of you did it while juggling family and a job.
You deserve a break.
Give the numbers a break
A friend recently confessed to me that he has focused solely on his professional life for so long that he is having trouble disconnecting and just having fun. For the last ten years, he has been singularly driven to improve himself as a professional analyst.
He spends upwards of 50 or 60 hours a week working as an analyst in a Chicago commodities firm, usually spending a few hours at home each night to finish up on some reading. The books he reads during his free-time are usually somehow related to work, i.e. financial history, commodities and other concepts in investing. He goes out once or twice a week but much of the time it is to networking or other professional social events. His life has become so limited that, when he does go out with friends, the only thing they talk about is work.
I can sympathize with his plight and can see a lot of myself in the story. The industry is extremely demanding and sometimes being successful means sacrificing other parts of our lives but it should not become your life 24/7 and 365 days. Maybe the biggest challenge many of us face is limiting the time spent working or in professionally-related activities during those periods of the year where we can have some real free-time.
You need a hobby
There are a million-and-one hobbies and things you can do to take your mind off of the industry. If you’re having trouble thinking of an activity or hobby, try a web search for bucket lists. These lists of things people want to do before they die can be a great resource for one-time events or things you can do on a regular basis.
One of the most detailed bucket lists I’ve found is at:
I like to exercise as one of the things to take my mind off of work. I know a lot of analysts that become extremely competitive in their sport or activity, almost taking it to the professional level. Even if you don’t push yourself to the limit, challenging yourself physically can really take your mind off of everything else.
Cooking is another hobby I’ve tried to pick up. In our hectic lives where time is money, it can be too easy to order out every night. It’s nice to relax and take the time to create a truly amazing dinner.
Your hobby doesn’t have to be something mainstream or recurring, just something that you might enjoy doing in any particular week. Make a point to spend some time with friends or family. Visit the local museum or a park every once in a while.
‘til next time, relax.
Joseph Hogue, CFA
This is the last post of a series we have run over the prior few weeks highlighting some of the great resources available to candidates through the CFA Institute’s Career Resources. We covered networking, branding, job search techniques and interviews in previous posts. This week, we will wrap it all up with career management and what to do after you’ve got your dream job.
For resources from the Institute: Click through to CFA Institute – then to Career Resources – and then to Library. The first clickable link on the page will take you to, “Sessions on Career Management,” and 39 separate resources. You will need your candidate Id number to login to the site.
Did you forget how hard you worked to get the job?
The resources on career management are all podcasts, between 10 minutes and an hour, and take longer to browse through than the other topics we’ve reviewed. Don’t neglect the topic though, it is one of the most overlooked by employees.
The fact is that many people stop strategically thinking about their career after they land a job. Worse yet, many forget how grateful they were and how hard they worked to get the job and they soon fall into a daily routine that gets them nowhere. Constant career management is about two things, guiding your long-term career goals and guiding your career where you currently work.
Just because you love the company for which you work does not mean you want to or have to work their forever. It may be a great job and give you tons of experience but there are a number of reasons why your long-term plans may take you elsewhere.
- Is the firm large enough for advancement opportunities?
- Will the position/sector you want ever be available?
- Does the firm deal in the asset class in which you want to work?
- Does the culture fit with your long-term goals, i.e. family
Don’t forget that even the strongest, most long-lived firms may fall on hard times. Even if you see yourself at your current employer, you cannot afford to completely cut yourself off from the rest of the investment community.
Guiding your long-term plans just means being aware of how you want your career to progress, what rungs do you want in your career ladder, and devising a rough plan on how to climb your ladder. This includes knowing the limitations of your current firm and what other firms can offer. The four-part Career Conversations series with Khalid Ghayur lays out the topic very well and is definitely worth a look.
Guiding your career where you currently work may or may not be different from your long-term plan. I included it as a separate idea here because I see a lot of employees quickly fall into a rut after they get the job. The worked so hard to get the position, were so happy to get it but then lose their momentum. That desired position becomes just another job and they miss out on the opportunity to manage their career at the company.
Everyone’s job can get monotonous at times. The best advice I can offer is to formalize milestone career goals. These should be things you want to accomplish within six-months, one-, three- and five-years. The earlier periods (i.e. six-months and a year) should have multiple goals and may be more defined while the longer-term goals may be more strategic and vague. Regularly reevaluate your milestone goals to make sure you still want to get there and you are on track to achieve them.
Again, doing all this alone will not be half as effective as seeking the advice of someone else. With career management it is better to seek the advice of a supervisor or mentor rather than a peer. You don’t have to tell your supervisor that you see your long-term goals at another company but talk with them openly about how you can advance at the firm.
It strikes me, writing this series on getting a job and career management, that two very important ideas are prevalent across all the topics.
- You need to be strategic to reach your goals. Know where you want to go and plan on how you can get there. Planning two steps ahead will put you at least one step ahead of the rest of the crowd that is reacting to their environment instead of guiding it.
- You need to be active to reach your goals. Too many people passively go with the flow and wait for opportunities to come their way. Unless you have a guardian angel (i.e. someone that is pushing you to your goal and being active for you) then opportunities are not going to seek you out. You need to seek them out by knowing where you want to go and putting yourself in front of them. Attend conferences and professional events, be active in your local CFA society, do research into special topics and become an expert in things that may not be directly related to your current position.
We’ve still got at least four months before you need to start thinking about the next CFA exam. This is the perfect time to review the resources on the CFA Institute’s website, career resources or otherwise. Don’t just be a participant in your life’s story, actively guide it and you won’t regret where you end up.
‘til next time, happy job huntin’
Joseph Hogue, CFA
This is the fourth post of a series we will run over the next few weeks highlighting some of the great resources available to candidates through the CFA Institute’s Career Resources. We covered networking, branding and job search techniques in previous posts. This week, we will look at one of the most intimidating and difficult stages for many candidates, interviewing.
For resources from the Institute: Click through to CFA Institute – then to Career Resources – and then to Library. There are five linked-documents for interviewing, most offering a list of tips. You will need your candidate Id number to login to the site.
From 1-in-100 to 1-in-10
Congratulations, you have made it through the mountain of submitted resumes for a position and actually landed an interview. Getting the call for an interview is a huge affirmation of your skills and experience, especially in today’s ultra-competitive environment.
As great as it is to make it to this stage, don’t forget that there are likely at least five or ten other candidates that want the job as badly as you. You’ve improved your chances but you can’t let up on the effort until you sign the employment contract.
- Understand the company and the type of person they usually hire. Are many from a specific school or field of study? Do they prefer newbies or people with strong experience? What is the workplace atmosphere, laid-back or hard-charging? Most candidates will give a cursory glance at the company’s website but this won’t tell you anything about how personalities fit in the office. Proving you are a good fit with the culture is just as important as proving your skills and experience.
- As with your resume, it is important to be able to answer questions with definitive proof. Make sure you are able to support your skills with an anecdote and quantitative proof.
- Be brief and listen to what they are saying. Avoid talking for more than a couple of minutes without some input or response from the interviewer. This will help avoid rambling or getting off topic. If you can turn the interview into a conversation, it becomes much more enjoyable for both and increases your chance of making a connection.
- Don’t be afraid to ask for feedback on your answers and skills. If you can address the interviewer’s biggest problems/concerns during the interview then you’ll have a better chance when they are making the decision later.
The ‘Behavioral Interviewing Worksheet’ provides a nice template for answering experiential questions. These behavioral experience questions are popular with many employers because they cause you to ‘prove’ your abilities through actual experience. Make sure you keep each part of the question brief, the worksheet recommends 2-3 sentences, because it can be too easy to ramble and lose focus.
If you thought you were done with networking when you got the call for an interview, think again. One of the best suggestions I’ve ever heard was to find someone already working for the company to get the inside-scoop on the interview. They may not offer much, depending on how well you know each other but it is an opportunity you do not want to pass up. Does the company ask behavioral questions, will there be some kind of test, do they ask opinion or off-topic questions? Having an idea of the type of questions could save you a ton of time in preparation.
While it should go without saying, make sure you follow-up with everything you promised in the interview. Did you promise to provide contacts for references or to find some other information? At minimum, you need to send an email thanking the interviewer for their time.
As with most of the steps we’ve looked at in the series, you really need to be working with someone on your interviewing skills. It’s easy to sit there and read your pitch back to yourself but you’ll never get the feedback you need. Find someone else on the LinkedIn CFA group or around your city that is also job hunting and team up for feedback and support.
Next week, we’ll wrap up the series with career management and what to do after you get the job.
‘til next time, happy job huntin’
Joseph Hogue, CFA
This is the third post of a series we will run over the next few weeks highlighting some of the great resources available to candidates through the CFA Institute’s Career Resources. We covered networking and branding in previous posts. This week, we will look at resume writing and strategic job searches.
For resources from the Institute: Click through to CFA Institute – then to Career Resources – and then to Library. The Personal Branding material is about halfway down the page. Resumes and Strategic Job Searches are the last two topics on the page. You will need your candidate Id number to login to the site.
Do people still use resumes?
There is only one resume link to, “Insider Tips for Resume Writing,” offering nine bulleted tips. In the age of ubiquitous internet profiles, resumes may seem outdated but are still universally used by employers.
HR and employer time is limited, especially with the hundreds of resumes they may be receiving, so it is imperative that you get there attention quick. Put a summary section above everything else that gives a one or two sentence pitch and offers a few bullet points of your top achievements or skills.
One of the hardest but most important things to do on a resume is to quantify your accomplishments. Anyone can say they helped improve the return on a portfolio but you need to be able to prove it. Spend some time to analyze your own contribution to your past employers. Did you suggest and/or lead a project or investment. If your split with the employer was friendly, they might be able to offer ways to quantify your accomplishments.
In keeping with the idea of a restricted time reading your resume, the tips suggest limiting it to two pages though I am still from the old school that tries for one page. This means limiting the amount of information and the number of employers you list. Focus on your most recent and most relevant experience.
Crafting a superb resume is still not going to get you out of networking. The author of the linked tips states that 75% of all new positions are won through networking. While I’m thinking this seems a little high, you absolutely must make those personal connections.
Strategic Job Searches
I couldn’t have told you what ‘strategic job searches’ were before I started this post but the Institute offers nine files for review so I figure there must be something to it. From reading through the resources, it appears that searching ‘strategically’ is just integrating all the topics (i.e. resume writing, branding, networking, interviewing) and formalizing a process for the search.
As a type-A person who likes to have everything planned out ahead of time, the need for a strategic search seems obvious but the resources are no less helpful. It strikes me that a lot of candidates think getting a job begins with a search on Monster or eFinancialCareers but have very little idea of what they actually want to do besides make money. If you do not fully understand what you want and what you can offer, then you won’t be able to relay that to a potential employer and will have nothing to separate yourself from the crowd.
I would highlight two resources available on the site. Effective Job Search Campaigns gives you a template, though you may want to add or delete some sections, to formalize a marketing plan and a few helpful tips on networking.
Job Search Strategies for Today is probably the most detailed resource with 44 slides that cover quite a few different topics including resumes, planning and social media. You will want to take some of the ideas within this resource to develop the template from the previous resource.
Next week, we’ll look at those all-important interviewing skills.
‘til next time, happy job huntin’
Joseph Hogue, CFA
This is the second post of a series we will run over the next few weeks highlighting some of the great resources available to candidates through the CFA Institute’s Career Resources. We covered networking in last week’s post and, as much as I would like to move into resumes and interviewing, we need to cover something almost completely overlooked by job candidates…personal branding.
For resources from the Institute: Click through to CFA Institute – then to Career Resources – and then to Library. The Personal Branding material is about halfway down the page. I like the first link, “Building and Managing a Professional reputation,” for its straight-forward questions but it won’t take much time to browse through all the material on the site. You will need your candidate Id number to login to the site.
Personal branding? It’s not like I’m Coca Cola
You may not be a multi-billion dollar company with a product to push but you are still trying to sell something, yourself and your skills.
Sure, you hold the CFA designation or are working towards it but that puts you in the company of about 280,000 other charterholders and candidates. That is on top of the masses of new finance grads and the consolidation in equity analysis over the last few years that has left fewer positions for which job seekers must compete.
Personal branding WILL get you a job! I can say this so confidently because the process is so neglected by job seekers that working it into your job search will distinguish you from all the rest. As with networking, there are several slideshows and resources on the Institute’s webpage. Most are relatively brief, notes from a presentation, so you might want to check out something from the library. You don’t have to spend weeks developing a plan but give it the time it deserves and it will pay off.
Branding is actively creating a perception of yourself and your skills. This means sitting down to think through the idea and writing down a formal plan. Do not just spend 30 minutes and figure that you will remember your brand without writing it out. Actively creating your brand means seeking out ways to display it so it gets built into people’s perception. This includes public speaking, writing or blogging, as well as highlighting it on all your communications material like resumes and business cards.
The best advice I got from the resources on the website was to be focused and differentiated, understand your value proposition and the specialized solutions you can offer. Think creatively here. Experience is not the only value proposition. If you lack experience, you need to develop your brand around something else.
- Cross-specialization : Are you someone that has strong experience in other areas? There are tons of analysts out there but many cannot put two sentences together intelligibly. I have built my brand around being able to produce persuasive and thoughtful writing around strong fundamental analysis.
- Perseverence: Everyone says they are passionate and will, “do what it takes.” If you can prove it with a short anectdote then the brand might be yours. Have at least two stories of how you went above and beyond or overcame huge obstacles.
- Be the First or the Leader: You don’t necessarily have to be the very first to do something as long as there are few that do it. Make sure to pick something that will be in demand by a large enough universe of employers.
- Be the Expert: This doesn’t necessarily mean being the global expert but could be the Expert among the group of job candidates. If you do not work in the topic or have much experience, you’ll have to take the time to develop it. Read everything you can on the subject and seek ways to develop your expertise. Volunteer to speak on the topic or submit analysis to journals or to newsletters.
As with any communications strategy, branding works best if it is integrated across multiple channels. You need to focus on your brand across your LinkedIn profile, resume and cover letters, business cards and in your face-to-face interactions.
Whatever brand you choose, stop saying you are, “well-rounded!” Do you know what this tells me, that you do not know your strengths or are not an asset in any particular area. It is fine to have some good general knowledge but you need to be able to bring something extra to the team.
Next week, we’ll look at a few resume tips and some job search strategies.
‘til next time, happy branding.
Joseph Hogue, CFA
This is the first post of a series we will run over the next few weeks highlighting some of the great resources available to candidates through the CFA Institute’s Career Resources. We’ll start with some networking ideas, highlighting some of the best articles, handouts and presentations available on the site.
Through the next few weeks, we’ll move through the career search highlighting interviewing, resumes, personal brand development and communication skills. Don’t feel like you have to wait for the posts though, click through to the CFA Institute’s site and take a look at some of the resources available.
It’s not what you know
After 300+ hours studying for your exam and countless hours spent in your undergrad program, I’ve got bad news. You may have neglected the most important skill for our industry.
Most people think of networking only when they get ready to find a job. Don’t let the fact that you’ll spend much of your day following portfolio returns and market analysis fool you, your success in the investment and asset management industry lives and dies on relationships. This is most obvious for the brokers and advisors but the dealmakers and analysts also need to know who is looking in the market for their advice and expertise.
Networking can be frustrating at first. It’s not really taught in school and the ease of social media platforms like LinkedIn has given people a false impression of how to really make connections. Networking is not adding someone as a “connection” on your profile and it is not simply “Liking” someone’s repost of the cat playing piano video.
Networking is about getting to know others, their job and their personality, and understanding how the two of you can work together to achieve both your goals.
Ok, so most of you are saying, “That’s fine but I NEED a job now and that’s the only thing I’m thinking about.” That’s understandable and your networking will eventually lead to job opportunities, but…
Try to approach networking first as the opportunity to meet others in the industry and learn. Too many job hunters rush through getting to know someone and jump right into asking for a job. When you do this at a social event or conference, you immediately stop being someone with which the other person is interested in building a relationship and become just another resume.
There are a few handouts and multimedia podcasts available on the CFA site, my favorite is, “Building Success through Strong Networking,” put out by Marshall Brown & Associates. Handouts like these will give you tips and some good starter advice for networking but the best way to learn is by getting out there and practicing.
Don’t just scan through the handouts. Actively read through and compare the advice with your experience in the last couple of times you’ve been to a social or networking event. Did you do anything particularly well? Chances are you will find some points that you either didn’t do well or actively avoided. Use the handout and your experience to write out a networking plan, not a long book on meeting people but a half page outline on what you are going to do at the next event you attend.
Better yet, write it on a small index card and take it to the event with you. Looking back on the outline during the event can be a great way of forcing yourself to do some of the things that you actively avoided in the past.
There are a ton of tips available in the handouts but my favorite is to network with a friend. Working with a peer will help you develop your ‘elevator speech’ ahead of time. At the event, you can use each other to help with introductions. Each of you plan on meeting at least 3-5 people then introduce each other to the people you met. After the event, talk about what you were able to do from your outline plan, what you might have missed and what you learned.
Your local CFA society is your best bet for networking events. From there check out the local business organizations and your connections through LinkedIn. After going to a few events, you will start to see familiar faces and your ‘real’ network will grow exponentially. Start talking about what you want to do through your career and what you think you be great at doing.
Next week, we’ll look at a few resume tips and some job search strategies.
‘til next time, happy networkin’
Joseph Hogue, CFA
First, congratulations on making it through another year of studying for the CFA designation. The relief you feel depends on how many more years you have to earn the charter but the accomplishment is as tremendous for level one candidates as it is for those taking the last exam.
Now, you’re probably sitting there wondering, “What do I do with all this marvelous free-time?” Sure you want to reconnect with friends and re-learn the names of your kids. That in itself might be enough for some people, but we are driven people and need to be doing something more. Even more, no one is relaxing in this industry and you can’t afford to rely on what you learned yesterday to make you competitive tomorrow.
This is a great time to put the material you learned for the CFA exam to practical use. This is going to serve two purposes. First, it is going to reinforce the material and you won’t have to review when you begin studying for the next exam. Levels II and III each have supplemental review sections ahead of many of the readings because many candidates neglect to keep the topics fresh in their mind. Save yourself a lot of time and don’t lose the information you studied so hard to remember.
Using the material is also going to help you grow as a professional. The smartest guy in the room still isn’t worth squat unless he can put his intelligence to good use. Working through the material on a project will help you see what works best and you’ll pick up new ideas along the way.
Being proactive with your own work
If you are not employed or not working in the industry, you absolutely must be putting together your own portfolio of work examples. Want to be an equity analyst? Who is going to hire you if you have never worked on a report? Putting together a couple of sample reports will not get you a job that requires years of experience but it will show your ability and enthusiasm and it will put you higher on the list.
If you can find a mentor, so much the better. This can be a professor or a connection, anyone with prior experience in the field. Have them help you with a roadmap of creating your project; i.e. sources, process, material from the CFA curriculum that you will use. Don’t ask for their entire day, just a lunch to outline what you need to do to put a report together. If you cannot find a mentor or someone to help you for a limited time… you probably are not trying hard enough or are doing something wrong. Our industry, as with many things, is all about networking and you need to develop the skill of reaching out to connections.
Leverage the exams at work
If you’re already working in the industry then talk to your supervisor about how you can use the curriculum in your job. The CFA curriculum is fairly practical so you should already be using some of the material. First, sit back and think through the topic areas and readings yourself. Ask yourself, which parts am I currently using and which might I use more. Of course, this is all assuming that your supervisor is open to change and new ideas. If he’s not then you may want to consider your options because his lack of creativity is eventually going to hold your growth back.
Side projects and team leadership are a dirty word around some offices but can really make your career if you succeed. Keep your ears open to planning and development needs and volunteer to lead or sit in on projects. Keep in mind that you may be studying for the next CFA exam in six months so be mindful of the time the project is going to require.
Whether you add a few responsibilities to your existing role or take on a new role, the idea is to use the material from the CFA curriculum. Just working through the exams and holding the designation has value in itself but it’s nothing compared to being able to use that knowledge.
Would love to hear how you used the information or how working through the exam has helped you professionally.
‘til next time, enjoy your break
Joseph Hogue, CFA
Less than a week left to the exam and there’s little I can tell you that is going to change your test score. At this point, an old Louis Armstrong quote always comes to mind, “Man, if you have to ask…, you’ll never know.” By now in your studies, you’ve either got it or you don’t.
It doesn’t mean you can’t get a little more studying done this week. I always took the last week before the exam off from work to get another 40 hours of review before I closed the books, but that is what it should be, review. Just cementing the information in your memory before the big day.
Whether you are using the last week for one last cram-session or not, your brain probably feels like about three pounds of slush and you just can’t wait to get through Saturday. It’s always about this time that I needed to step back and recharge.
Watch – Listen – Or Just Do It!
There’s about a million and one things you can do to get your head back in the game this week. I am a big fan of music and always love a good motivational song. After three hours of studying, I need at least three minutes of rockin’ out to recharge. Some of my favorites for pushing myself just a little bit farther are:
Destiny’s Child, “Survivor”
Eminem, “Lose Yourself”
Europe, “The Final Countdown”
Katy Perry, “Roar”
Kelly Clarkson, “Stronger”
Queen, “We Will Rock You” and “We are the Champions”
Survivor, “Eye of the Tiger”
Twisted Sister, “We’re Not Gonna Take It”
Bon Jovi, “It’s My Life”
U2, “It’s a Beautiful Day”
Ok, so I am definitely showing my age with this list and there’s surely more than ten that could be listed. It was a close call between Twisted Sister and LMFAO, “Sexy and I Know It” for #10 but…hey, I’m a child of the 80s. If nothing else, maybe just reading through my list will help you to relax a little with a good laugh.
I really like movies for relaxing as well but they’re a little harder. When I think of a motivational movie, I want a climactic ending that makes me want to jump up and do something. A lot of great movies just do not have the ending. Others are just too darn long and still others can leave you shell shocked. Try sitting through all 169 minutes of Saving Private Ryan and not thinking long about life afterwards. Anyway, some of my favorite ‘sit back and relax’ movies:
Back to the Future (1985)
Wreck-It Ralph (2012)
Star Wars (1977)
Again, unless you’re in your 30s or older, you’re probably scratching your head just a little. I originally wrote out nine of my favorites but figured five movies in your last week of studying is probably way too much time in front of the television anyway. Wait until after the exam to sit back with a Star Wars movie marathon (ok, at least the original trilogy).
The die-hard overachievers out there will complain if I don’t add exercise and other activities to the list of stress-relievers. Going out for a jog or a work-out can be a great way to clear your mind and recharge. I wouldn’t be running too many marathons unless you’re used to that kind of thing, but a good 30 minute workout can do wonders.
After six months of studying, you’re probably asking yourself, “What’s a hobby?” As long as you can complete it in a couple of hours or less, a lot of candidates like to return to the past-times that always made them happy. The idea is to pick something that you can enjoy for an hour or less and then get back to the CFA.
Whatever you do to recharge, get to it and get back to studying. Just five days left.
Good luck on Saturday,
Joseph Hogue, CFA
By now you are probably freaking out about the upcoming CFA exam on June 7th. Even candidates that have taken the exam before get butterflies in their stomach as test day approaches and if you are not even a little bit nervous, you might want to check your pulse.
Fortunately, very few candidates have problems unrelated to the material on test day. We have all heard horror stories of another candidate forgetting their identification or getting lost on the way to the test site, but these problems are fairly rare.
Even so, the day could be extremely stressful and it helps to know exactly what you can expect. There are also details that can help you have an easier, if not enjoyable, test day.
Test day: T minus 3 hours
I’ve covered the need to plan your route to the test site in other posts but it cannot be emphasized enough. Make sure you know how to get to the test and you may even consider booking a night in a nearby hotel. A nice leisurely stroll to the exam can help calm your nerves and you’ll face no risk of traffic problems.
I always made sure to arrive a couple of hours early to the exam. How early you wake up and arrive at the site will depend on how far you need to go and personal preferences. If you arrive early, you can always take the time to meet other candidates. These will be your peers throughout your career and can be a great source of information and networking.
As far as food, play it safe for breakfast and lunch. Do not eat too much more than you usually do or load up on greasy foods. You don’t want to be hungry but you also don’t want to be so full that it makes you groggy. Do not drink more coffee than usual. On the other hand, don’t forget to have a cup of coffee if you are accustomed to the caffeine pick-me-up. You are allowed to use the restroom during the exam but it comes out of your allotted time.
Once you arrive at the exam site, you may need to sign in with proctors. This usually begins up to a couple of hours before the exam. If you do not see a registration table, ask other candidates.
About half an hour to an hour ahead of the exam (to tell the truth I don’t remember which it is), you will be allowed to enter the testing area. Any personal belongings not allowed during the test will need to be left in the lobby or in your car, so plan ahead. You may not wear any hats while testing. As you enter the testing room, you will show your admission ticket and find your assigned seat. Lay out all your materials in front of you on the table.
The proctors will begin reading the testing policies and rules. At this point, no talking or looking around! Every year, candidates are removed from the exam for cheating because the proctors saw them talking or looking at another candidate’s test. Whether you are actually cheating or just looking around may not save you from getting kicked out. Don’t risk it.
Test Day: Zero Hour
Follow the rules exactly. Do not open your test booklet until told to do so. This should be obvious but candidates get in such a rush that there is often someone that gets reprimanded for it.
Some candidates bring ear plugs for the test. I never had a problem with noise distractions but it is a good idea just in case. I have heard horror stories of open windows and lawn mowers distracting candidates. If you are at all distracted by small noises, bring ear plugs.
I was always amazed at some candidates that do not quit writing in answers after the session is completed. Some proctors will just warn you or repeat to put down pencils but you run the risk of having your exam thrown out! Do not risk it for a couple of points!
Lunch is always a big question. Should you eat or talk with others? What and where to eat, etc.
Again, don’t eat too much or eat anything that might upset your stomach. If you have a ‘comfort food’ or something that helps you relax, that is probably your best bet. As with finding the test center, you may want to plan where you will eat or your options the night before. The safest bet may be to pack your own lunch for test day and eat at the site. Be careful not to pack anything that is going to spoil if not properly refrigerated. Packing my own lunch always seemed too boring and I found that getting away from the test site for at least half an hour helped me to relax and recharge.
A lot of candidates obsessively avoid talking to others out of fear that someone will say something that destroys their confidence. I always felt a little more relaxed by socializing with other test-takers. We never talked about the exam, other than to mention whether it was easier or harder than we had thought. Whether you talk to someone else or not, I guarantee you will realize you missed a problem or second-guess one of your answers. GET OVER IT AND RELAX! No one has ever gotten a perfect score on the exam. Worrying about the morning session is the quickest way to fail the afternoon session.
I would often catch about 10 minutes of flash card studying before lunch was over. Sometimes you can guess which topics have a good chance of showing up on the afternoon section by what was not asked in the morning. If there are a few equations or processes that are still giving you problems in topics that were not in the morning section, this might be a good last-minute refresher.
The afternoon session will go exactly like the morning session. You will file into the testing room, showing your admission ticket. It must be the same admission ticket with the proctor’s check on the morning session so keep it with you and do not write on it. Once inside and at your chair, the proctors will read off the testing policies again.
You are allowed to leave the test if you complete early but no one can leave within the last hour of the exam. In my opinion if you complete the exam with more than an hour to spare, you are either extremely smart or rushed through it. Do you really need to be somewhere so quickly that you leave time on the table for one of the most important professional exams of your life? I recommend checking through your exam at least once. Make especially sure you have filled in the correct bubbles for the correct number.
Many local societies have some kind of party after the exam. Try to go to these if at all possible. They will give you a chance to relax and network with local charterholders and candidates.
The CFA Institute is always the last word on exam day do’s and don’ts but rarely changes policies. You have put in enough time studying and worrying about the exam. You shouldn’t have to worry about minor details of taking the exam as well.
‘til next time, happy studyin’
Joseph Hogue, CFA
There are just two weeks left to the exam and hopefully all of you are nearly prepared academically for the test. You’ve put in your 300 hours of studying, diligently worked your practice problems and mock exams and are confident that you have mastered enough to put you well above that passing score.
But are you prepared for the day of the exam? Every year, candidates are turned away from the test or fail because they do not understand CFA Exam policies and procedures. After spending all that time, do you want to fail the test for something as simple as checking out list of exam rules?
Below are four website links that will help prepare you for what’s waiting on June 7th. The last link is probably the most important as it leads to the full list of testing policies but click through the others just to make sure you are not missing anything important.
CFA Program Main Page
This is the main landing page for the CFA program. It’s probably of secondary importance compared to the pages linked below which focus on the exam but you should be familiar with the site in case you need to come back for general questions on the designation or the program.
CFA Exam Main Page
This is the main landing page for the CFA exam. It is also more general than you probably need at this point but a good reference for later. You should know most of the information like exam dates and content structure but there are a few links here that might be helpful. The page links to testing policies, grading and when you can expect results.
June Exam Testing Locations
This is the first ‘must-see’ page with a drop-down list of cities in which the test is administered. The test center for which you are registered is listed on your exam ticket which you should have received by now. You can only take the test at the site for which you are registered. You are allowed to change your test center but it must be done through the Institute before the exam.
If you have not already done so, I highly recommend you look at your exam admission ticket now. Right now. You absolutely MUST know how to get to your test center before exam day. If at all possible, you should try a practice run some morning before exam day to see how traffic might be and where you are able to park. I always arrived at the test center extremely early on test day, sometimes as much as three hours early. If you plan on arriving an hour or two early and everything goes smoothly, then use the time to review flash cards or just relax. This avoids any one-in-a-million problems like a car breakdown or having to run back home to get something.
If you do not live close to your exam site (within city limits), I would recommend staying in a hotel the night before if possible. First, you do not want to be waking up extremely early to make a 3+ hour trip to the exam site. You need a restful and relaxing morning before the exam. Second, there is just too much that can go wrong with that long of a trip planned the morning of the test.
CFA Program Policies
This last link is hugely important. It links to all the testing policies for the exam including admission tickets, calculators, exam materials, identification, and personal belongings. Even if you think you know all the exam policies, I would recommend that you go to the page and just double-check the material. It will take less than half an hour and you may just find something that will save you on exam day.
If you have not done so, I would suggest preparing your exam day kit as soon as possible. The items are not perishable so you can put it together two weeks in advance and not have to worry about it. Print out two copies of your admission ticket. In this kit, you will put:
- Passport identification
- Two printed copies of your admission ticket
- A printed map from your home to the test site
- Pencils (and pens if needed for the Level III Exam)
- Ear plugs
- Pencil sharpener
- Extra calculator battery and small screwdriver
Your passport information absolutely must match the information on your admission ticket and that you supplied when registering for the exam. If any of this information has changed, you need to contact the Institute immediately. Processing these changes can take up to a week so you cannot wait.
Exam day really isn’t too complicated. We have all taken exams before and understand testing policies. The reason why this particular exam day is so important is because it only happens once a year and there is absolutely no leeway in the rules. This isn’t like the professor you had in undergrad studies that would let you take the exam later if you were sick or late. There are no excuses and no repeats with the CFA exam until next year.
We will cover some suggestions for test day in another post this week. For now, the important thing is to make sure you know exactly how to get to your exam site (including any road closures or detours) and exactly what you will need to bring.
Til next time, happy studyin’
Joseph Hogue, CFA
An email from a Level III candidate brings our post today over two changes in the curriculum this year. The changes were not the only ones but the candidate wanted to know how to approach the two new readings, reading 13 (Concentrated Single Asset Positions) and reading 28 (Currency Management).
After looking back over the new readings, there may be less of a change than candidates are expecting. For those taking the exam for the first time, the change means little because they did not see the old curriculum. For those retaking the exam, the new material is going to look a lot like the old material.
Concentrated Single Asset Position
Previously, reading 13 covered Low-basis Stock but dealt with some of the same issues as we see in the new reading. Two of the previous LOS required candidates to understand psychological considerations, risk, tax issues and techniques for reducing a concentrated position. The new reading brings with it 10 new LOS but the reading looks relatively intuitive.
The reading revolves around the issue of diversification and company-specific risks that come with a large single-asset position. Not only do you have to worry about limiting these risks but your have to do it in a tax-efficient manner.
List material is always a good bet on the Level III exam. It is relatively easy to test on the exam, especially the essay part. Remember the considerations affecting a concentrated position (taxes, liquidity, market constraints, and psychological constraints) as well as the common strategies (sale, hedging, and monetization). Pay special attention to advantages and disadvantages to each strategy when available.
There doesn’t look like you need any calculations so make sure focus on the conceptual material. Lists and the advantages/disadvantages to different tax regimes and strategies should also be remembered.
Currency Management was previously seen in reading 35 as Currency Risk Management but now becomes reading 28 and Currency Management: An Introduction. The new reading is still within Study Session 14, Risk Management and the LOS look similar if not identical in spirit.
Foreign exchange concepts is probably one of the most difficult for many candidates but extremely important. You absolutely must understand the basics because you will need it within multiple topics (Financial Reporting in Level II, Portfolio Management, and Risk Management). If you did not master the basics in an earlier level, you might want to go back and review.
The important calculations are finding the mark-to-market value of a position and the return decomposition. Focus on these before any of the other formulas and spend your time on the conceptual elements of the material. As long as you understand the conceptual material and the two important calculations, you should be able to get most of the points on the exam. As with the section above, the list material is a good place to start. Lists can be easier to remember and have a good chance of showing up on the exam. Pay attention if any advantages or disadvantages are offered.
Both of the new readings are fairly large and it really isn’t possible to list out all the concepts in the space we have here. The FinQuiz notes condense the two readings down to 28 pages or you may want to create your own outline of the material for easier review. Less is better with an outline so try to describe each concept or step in a process in no more than a couple of sentences.
Just a couple of weeks to the exam and you need to start wrapping up your studying. Work those practice tests and understand where your strengths/weaknesses are on the material.
‘til next time, happy studyin’
Joseph Hogue, CFA
In all the stress and excitement of the CFA exam for more than 100,000 candidates, there are bound to be stories of the strange, funny and horrific. Whether it’s a personal experience or happened to another candidate, the stories can help you prepare or just blow off a little steam during a long day of studying.
I’ve heard a fair share of horror stories from candidates, from getting lost on the way to the exam to realizing they were studying the wrong material. This close to the exam, I won’t scare you with these but will relay a couple of the funniest anecdotes I’ve picked up over the years.
One of the most common stories I get is of problems getting to the exam site. The first comes from my home town of Des Moines, Iowa and a candidate that was taking the 2011 exam. The candidate arrived bright and early at the convention center downtown, more than an hour early and ready to ace the exam. The only problem was that he had remembered that the prior year’s exam was held at the convention center but had not bothered to check his admission ticket. An hour left to the exam start and the candidate was getting a little anxious. No one else had shown up for the exam!
Checking his exam ticket, the candidate saw that the exam location had changed to a casino convention center on the outskirts of town. He jumped in his care and floored it to get to the exam in time. Fortunately, the new site was only about a 20 minute drive from the old location and the candidate was able to get there with half an hour to spare.
Cell phones have become so common that everyone has heard of one going off during an exam. The proctors are supposed to collect cellphones before the test or to tell candidates to leave them with the rest of their personal items outside the room. This wasn’t the case at the exam in Mumbai a few years ago. According to one candidate, a cell phone beeped about an hour into the exam. It was fairly loud but only beeped twice so the proctors were not able to see from where it came.
Two proctors closed in on the general area from which they heard the beeps but no one said anything. It seemed the candidate would get away because everyone went back to their exams and the phone didn’t beep again. Then, just about 40 minutes later, the phone beeps again. Now the two proctors had stayed close to where they heard the first beeps but again could not tell exactly from where the sound was coming. They moved closer to where they thought the sound was, closing in on their prey. It was like an intense game of hide-and-seek. Fortunately for the candidate, the phone did not beep again and nothing ever came of the incident.
The last story is one of extreme preparedness from a candidate in Chicago. The candidate writes, “I thought it hilarious when the candidate next to me started laying out all of her resources for the exam. We were taking the Level III exam so she had both pens and pencils, and oh man did she have a few. I counted two packs of six pencils, 12 in all, and 20 blue ink pens. The candidate also had two calculators, an extra battery, a small pencil sharpener, a small eraser (even though each pencil had an eraser), a screwdriver for the calculator, a set of earplugs and a small watch. It looked like she was setting up a small convenience store! To my surprise, she actually used five of the pencils, not so much that she needed to because it looks like they were only used until they needed sharpening.”
We’ll get a post out on preparing for exam day next week. You’ve got another couple of weeks so start wrapping up your plans and getting those last few points. Good luck.
‘til next time, happy studyin’
Joseph Hogue, CFA
I’ve had quite a few questions on the Free Cash Flow material for the level 2 CFA exam so thought I would put together a post on the topic. Free cash flow is an extremely important measurement and you will need it extensively in the equity section of the exams as well as in your professional career. It represents the cash available to either equity investors or all capital providers after all working capital and fixed capital needs have been reduced.
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
FCFF is discounted at the weighted average cost of capital (WACC) since it is the after-tax cash flow to all suppliers of capital.
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 +/- net change in preferred shares
FCFE is discounted at the required rate of return for equity since it is the cash flow only to equity shareholders. Using the WACC for FCFE will overestimate equity value since the weighted average cost will be lower than the cost of equity.
FCFE is a more direct way to value equity, so preferred but FCFF may be preferred when the company has a volatile capital structure or is highly leveraged.
The most difficult part in FCF calculations, for me, was the adjustments to net income to arrive at FCFF. Remember: depreciation, amortization, restructuring expenses, losses on fixed asset sales, deferred tax liabilities, after-tax interest expenses and preferred stock dividends are all added back to net income. Any gains on the sale of fixed assets, the amortization of long-term bond premiums, deferred tax assets, and investments in FC and WC are all subtracted from net income.
It’s a pain but you absolutely have to understand and be able to calculate all the approaches of FCF estimation: net income, net cash flow, EBIT, EBITDA, and FCFE from FCFF. Start with the calculation from net income to get a good feel for the adjustments and what is being built into FCF, this should make the other equations more intuitive. Not only will practicing these formulas help get you points on the exam but they also help with a better understanding of the Statement of Cash Flows and how funding works for a company.
FCF models for valuation are most appropriate when the company does not pay a dividend and/or when the investor has a controlling share or influence in the company. FCF models may not be as appropriate for fast-growing companies with high capital expenditures and negative free cash flows.
As always, try to first understand the basic concept of what FCF means and what is happening in the formulas. Understand what non-cash items and capital expenditures are on the Statement of Cash Flows and why they added or subtracted to arrive at free cash flow. Understanding the accounting in terms of why things are adjusted instead of just numbers and symbols will go a long way to your success on the exams and as an analyst.
As with all topics, you need to understand the major difference between important concepts (i.e. FCFE versus FCFF) and when it is most appropriate to use each. Also understand the advantages, disadvantages and assumptions within the models. Understanding these conceptual ideas will get you a lot of the points even if your memory on the formulas fails you.
Less than a month to the exam, let me know if you have any questions and good luck.
‘til next time, happy studyin’
Joseph Hogue, CFA
The mock exams and topic-based practice tests are available from the CFA Institute. One mock exam is included in the price of registering for the test. The mock exam is a six-hour test in two parts and mimics the topic area weights of the actual exam. The practice tests are shorter than the actual exam and focus on specific topics. The Institute claims that the questions on both represent the approximate level of difficulty on the actual exams but I always felt they were slightly harder.
The semantics here always seemed a little confusing so let’s get a couple of definitions out of the way. A ‘mock’ exam is a six-hour, two-part test with the same number of questions and meant to replicate the experience of taking the actual CFA exam. A ‘practice’ test or problems are normally considered to be a shorter group of questions than the actual exam. A mock exam does not necessarily have to be one formalized set of questions but can be constructed from a test bank or by selecting individual problems and doing them all in one sitting.
Regardless of what you call it, you absolutely must take a few mock exams before you go to the actual exam in June.
Glucocorticoids and why you absolutely must take a mock exam
An overlooked benefit of practice problems and mock exams is as a stress reliever on the big day. Everyone is on edge when the proctors pass out test booklets for the exam but I have seen many candidates that appear close to a breakdown of Chernobyl-proportions. Being stressed out will not do you any good on the exam. In fact, the body reacts to stress by secreting hormones like glucocorticoids that impair the ability of the hippocampus to recall memories and diverts energy away from other important parts of the brain.
Do you think it might relieve a little of that stress knowing that you have completed multiple mock exams and have done well? Of course it would. Taking full-length mock exams helps not only by seeing your score across topic areas but also by seeing how your body reacts to a six-hour exam-athon.
Hopefully, you already have a few mock exams under your belt but it’s not too late to start. I would recommend doing at least six exams before the last week before the exam. At least a couple of these should be full six-hour exams but you can also do three-hour sets if time is hard to come by. Put your topic-level results in a spreadsheet and track the average and standard deviation of results. This will help build a confidence interval around your overall score and your score within each topic.
From there it is simply a matter of focusing your study plan to improve your performance in select topic areas while maintaining your score in others. As always, look to the released topic weights and make sure you are doing well where it counts most. I always tried going into the exam with an average of at least 80% or better in the core topics and 70% or better in all others.
FinQuiz also provides a web-based test bank and full-length mock exams with its study packages. The FinQuiz test bank includes nearly 5,000 questions created directly from the curriculum and more than 100 item sets. Three mock exams are available for each exam and the level III material includes five AM session exams.
Whether you just use the Institute’s materials or a third-party provider’s, you need to know where you stand before the exam. Do not underestimate the effect confidence and stress could have on your test performance. Knowing with confidence that you are doing well on most or all topic areas can be a big boost to your score on June 7th.
If you are not doing so well on your practice exams, don’t get discouraged. Focus your study on the core topics; usually Ethics, FRA and Equity to make sure you get the most points possible. Do several practice exams and you should see your score improve.
‘til next time, happy studyin’
Joseph Hogue, CFA
We’re coming down to the wire with just five weeks left to the June CFA exams. Hopefully you are almost through with your study plan. You should be through the curriculum at least once and have started taking practice exams. If you are not scoring around 70% or better on test bank and practice problems, you may need to kick your schedule into a higher gear.
I always took the last week before the exam off from work and swear by it to get those last few points to put you into a passing score. Whether you go to an intensive boot camp program or just stay close to home to study, the week can be a huge help in wrapping up your studying.
Is this really a vacation?
For me, that last week of study was always pretty enjoyable. Was it as nice as spending the week with an Emperor’s Package at Caesar’s Palace in Las Vegas…umm, not even close but it was a break from my day-to-day as an economist.
My own schedule would start each day with a three-hour test bank exam using the topic weights from the exam. The results from these mini-exams are extremely valuable in planning where you need more studying. If you are scoring under 70% in any of the high-value topics, this is where you need to spend your time.
Don’t feel like you have to cover the entire curriculum over the week. Review flash cards and notes in less important topics or in the areas where you are scoring well. I always tried covering a couple of study sessions completely each day and maybe hitting the important points in another one or two study sessions.
Spending 8 -10 hours a day studying means you’re probably going to need to mix it up with different resources to keep from getting bored. Spend some time reviewing flash cards and end-of-chapter questions to take the monotony off of just reading all day.
Three options for your last week vacation
You’ve got three options when planning your last week study plan if you decide to take the week off of work. If you stay home, you really do need to get out of the house to study. Go to the library or another quiet place where you can limit distractions. If you stay home, you are going to be tempted by the television, food and a number of time-killers. Turn off your cell phone and fight the urge to check your email while you are out. This week is still work, it’s just not your normal work but you need to set a 9-5 schedule and follow it. Avoid the temptation to stay out late with friends and pushing your morning study to later in the day.
My favorite plan comes from a friend in Chicago. He would plan a trip, usually to San Diego, for the week. Mornings would start early with a quick run on the beach and studying by 8am. His day still included at least 8-10 hours of studying but it would be done at the beach or the park. You may even ask the hotel to remove the television from the room. The trips gave him a real opportunity to relax but still devote some serious time to getting exam points. It also gets you away from your usual distractions and can re-energize your studying with new surroundings.
You also have the option of going to an intensive boot camp study program like the one offered by Creighton University. These are usually three or four days of intensive lecture on the curriculum. They can be a new perspective on the material and some great advice on how to approach the exam.
Take the Friday before the exam off from studying. You’ve put in the work and deserve a break. Spend the day relaxing and making sure you have your materials to take to the test center. If you are not familiar with where the test center is located, I would spend a little time looking online for routes to the test. Even better, connect with a candidate that lives near the test center for directions and possible road closures in town.
The end is in sight, stay focused.
‘til next time, happy studyin’
Joseph Hogue, CFA
Last week reminded me of an often overlooked benefit of the CFA exams and the designation itself.
First we saw the blowup by Donald Sterling, owner of the Los Angeles Clippers, in a taped conversation with his mistress. I won’t repeat the racist remarks by Mr. Sterling that led to his lifetime ban from the NBA and will mean the forced sell of the Clippers basketball team. The tirade still shows the amount of prejudice and unwarranted hate that many harbor for another simply because of their race, religion or sexual orientation.
Income inequality seemed to be a theme in the news last week as well. Whether it was universal or just related to other things I was looking at on the internet, I was struck by the number of studies and news reports I saw about income disparity around the world. The gap between the richest and poorest earners seems to be widening and its not only in the United States or other developed countries. I read studies on Latin America, China and for income inequality in Africa and they all seem to point to a widening gap.
Lady Justice and the CFA
It all reminded me of a benefit to the CFA program that most overlook and one of the things I respect most of the program and its charterholders. Like Lady Justice, standing blindfolded to judge right and wrong, the CFA program does not care if you were born with a trust fund or if all you have are the people you trust.
The fact that you pull up to the exam center in a shiny new Jaguar F-Type convertible or ride up on a donkey matters little to your score on the test. In fact, the Institute spent nearly $4 million in the twelve-months to August 2013 on needs- and merit-based scholarships to the program. While some of the wealthiest people in our industry hold the charter, i.e. Bill Gross and Mario Gabelli, it is not because they were able to buy the designation. They had to work for it just like everyone else.
The CFA exam is the same wherever you take it, from Afghanistan to Zimbabwe. There are 137 CFA societies in 59 countries and charterholders in every corner of the map. Growth of candidate enrollment in Asia and Africa has been running in the double-digits for several years as growth in the United States and Europe slows. The curriculum does not care about the color of your skin or the ethnicity you claim.
With all those prayers of passing the exams, organized religion may owe a debt of gratitude to the CFA program but the program itself doesn’t care if you pray to one God or many. It doesn’t care if you spend your Sundays reading a religious book or the five books covering the curriculum.
The CFA charter is the great equalizer in our industry. I am not saying that no one in the industry harbors the same prejudices and faults that are found in the general population but the designation is a standard that we can all reach to as just and fair. Earning the designation is a badge of your hard work and professionalism, something that people will notice immediately when they meet you. It is the scale by which all are judged not by the strength of their pocketbook but by the strength of their studying.
Less than five weeks to the exams. We are coming up to the point for which you’ve worked so hard these last couple of months. Stay strong and study hard.
‘til next time, happy studyin’
Joseph Hogue, CFA
This post works through the second essay question on last year’s CFA level 3 exam. If you have not yet downloaded the exam and the guideline answers provided by the CFA Institute, do so here.
The second question on last year’s CFA level 3 essay exam was worth 15 points, a little over 4% of the entire test, and covered topics with which candidates often have a hard time. The four parts, each worth three or four points, cover estate planning and taxes. They are topics in which many candidates have not had much exposure and the curriculum includes a lot of legal points that can be difficult to remember.
The vignette material is relatively small so there isn’t too much information to handle. As always, I read through the material and highlighted data and important points before looking at the questions. Within the material, the investor’s age and any numerical data is usually pretty important as well as any preferences.
Part A was fairly straight forward from the text. The wife is entitled to one of two percentages of the estate, either the 25% of total assets or the 50% of the increase in the estate during the marriage.
As always, remember to show ALL YOUR CALCULATIONS on essay questions. The question was worth 4 points and I bet you would have gotten at least two points if you wrote out the calculations for both percentages even if you ultimately picked the wrong one.
Usually these heirship rules will be spelled out on the exam but make sure you understand the basic concepts and terms for estate planning.
Part B is an important one to study for this year’s candidates. Questions on trusts have come up frequently on the exam. It is not a quantitative section but you need to know the basic rules and especially the differences between revocable and irrevocable trusts, as well as the advantages/disadvantages of each. Notice that the guideline answers provide four possible answers but the question only asks for two. The grader will only look at your top two answers so lead with the best and do not waste your time writing down more than you need.
Remember, with trusts the idea is a transfer of assets outside of probate that may protect assets from other claims and avoid family disputes.
The material on taxes is extremely long and quantitative but many of the prior essay questions have come down to qualitative ideas of whether taxes can be deferred and whether the future rate will be higher than the current. Part C was one of these types of questions and all the information was laid out in the vignette. In these instances, if the question seems difficult, try reading through the vignette focusing on only one solution (either the gift or the estate) and list out the tax rules that apply. Then you can compare the two side by side.
Part D was tough because you basically knew generation skipping or you didn’t. You probably would have gotten at least one point if you described the benefit without explicitly naming it ‘generation skipping’ so make sure you write out your reasoning on all questions. There are some quantitative sections on the estate and tax topics but it seems that the terms and concepts are the most important and will get you a good amount of the points.
The CFA Level 3 essays last year included three questions on individual portfolio management for a total of 14% of your total exam score. That is a huge chunk and combined with the institutional questions, portfolio management was almost a quarter of your exam score. Make sure you hit those two topics hard and be ready for this year’s exam.
‘til next time, happy studyin’
Joseph Hogue, CFA