CFA Level 2 Exam and Overall Strategy

CFA Level 2  exam still draws from the same 18 study sessions seen in the level 1 exam but with different topic weights. The topic area weights for all three exams are shown at:

A couple of things you might notice:

1) Ethics!!!!! Learn Ethics! You saw it at I and will see it again at III. I cannot stress enough that the earlier you learn the ethics portion the easier all three levels will be. The CFA Institute has explicitly said that scores close to the cut off pass/fail are determined by how well you did on Ethics. LEARN IT!

2) All study sessions will be tested at least 5% but Financial Reporting & Analysis, Equity, and Ethics will be at least 45% or more of the exam. That is almost half the exam in just three topics! Cover all the material but make sure you master these three.

The volume and depth of information at level 2 is intense! I, along with many CFA candidates, feel it is the most difficult exam. The level 1 exam was much more an introduction, while the level 3 is more conceptually-focused and can be relatively easy if you master the essay portion. The CFA level 2 exam is very quantitative and analytically-focused.

CFA Level 2 Exam Format

The exam is split into morning and afternoon sessions each with 10 ‘item-set’ questions. Each item set question is about a page long scenario followed by six multiple choice questions. Each item set will only cover one study session topic like ethics, economics, equities, etcetera. Each question within the item sets will be worth 5% of the overall exam score.

This means there is a possible 360 points with each question being 3 points and each item set worth 18 points. The passing score is determined after grading all the exams at each level. While the CFA Institute does not publish what the passing score is for each year, they have said that no score of 70% or above has EVER failed the exam. What does this mean? It means you should be completing practice exams and aiming for a score of at least 75%. Your practice exams may not mimic the actual exam exactly, but shooting for a higher average will give you some breathing room when it comes to test day. Check out the FinQuiz question bank for nearly 5,000 practice questions and 200 item set problems.

As with the other level exams, pass rates have been decreasing and range around 40-50% of candidates. Just as with the passing score determination, there are theories about why the pass rate is declining, but again does it really matter? You only need to be concerned with averaging above 75% on practice questions, nothing more. Focus on that.

Basic Strategy for CFA Level 2 Exam

Many providers will suggest that you read through the six item set questions then go through the scenario. This will give you an idea of the information for which you are reading. For example, if you see an item set question asking for the portfolio sharpe ratio then you know that you must look for the portfolio return and standard deviation within the scenario.

The strategy works like this:
1) Read through each question, highlighting and noting important data needed.
2) Start reading the scenario.
3) When you get to data or information needed to answer a question, you can either highlight it or immediately stop to answer the question.

Time is critical in the level 2 exam, especially if you are a slower reader. This strategy is a useful one (and generally recommended for most), but do not force yourself to do it if it does not suit you.

I knew that the strategy above was not appropriate for my style. I like to take each question separately and reading through all six at once wouldn’t help to remember the pieces of information needed. My strategy (as with above, don’t force yourself into a strategy, go with what feels natural):

1) Skim the scenario, highlighting and making notes for numerical information and stuff that might be important.
– After enough time studying, you get a fairly good idea of what information might be important.   For example, if the item set is on ethics and you read that someone is tipping off their aunt before significant news is released, then that will probably come up in a question.
2) Start with the questions, they are often in the same order as in the scenario. For each question you go back to the part within the scenario and pick out necessary details to answer the question.

** I have to stress that this will not be the best strategy for everyone. If you are not able to skim the scenario quickly and pick out important information, then use the other strategy and read the questions first. The important advice here is that no single strategy will work for everyone.

Do not think that you can approach CFA level 2 exam like you did the first exam. You must be comfortable with the item set format and understand HOW you are going to answer the questions.

After each study session, i.e. reading through a topic:
1) Complete individual questions, at least 20 or so. This will help to quickly test yourself on the material.
2) Do at least (2) item sets to test yourself on the material and get comfortable with the format.
3) Always, Always revisit the material the next day with another round of questions and an item set or two. This will help to solidify the material you learned the day before and turn short-term memorization into long-term memory. It will also help test how well you are studying and learning the material.

Good Luck. Looking forward to your questions and comments.

Joe Hogue, CFA

Last updated: September 19, 2016 at 8:23 am

CFA Level 1 Jobs – How to Distinguish Yourself

As candidates put the exam behind them, their minds turn firmly to using the designation to land that dream CFA Level 1 jobs. Some are quickly rewarded but many are just as quickly disappointed that their candidacy in the program does not make them a hot commodity in the labor pool.

I’ve talked a few times about the reality of today’s labor market for our industry. Cuts in the tens of thousands at the big banks means a steady stream of qualified and experienced applicants competing for that position. As the inbox of every HR representative fills up with resumes, candidates need to reach deeper into their toolbox to distinguish themselves from the masses.

Isn’t spending upwards of 300 hours to upgrade my skills enough? Isn’t it enough that I could soon be a charter member of the industry’s most respected designation?


CFA Level 1 Jobs and Networking

Networking has always been a requirement in the industry and it’s becoming even more important as competition heats up for fewer CFA jobs. While there are volumes of books on the subject, the easiest and most direct opportunity is right there in front of you. Other candidates, charter holders and your local CFA society could be your best chance at getting your foot in the door to an interview and that eventual job.

Misery loves company and candidates have a huge bond in the grueling six months you’ve all been through. Hopefully you already know some of the other candidates in your area but the LinkedIn group and the local CFA society are good places to start if you don’t. A conversation about how brutal the exam and what they are hoping to do with the designation can easily be steered to where they work and which supervisors you could talk to about opportunities.

Other charter holders know what it takes to take the exams and this could give you some implied credibility. Even if you don’t have much experience, you have the persistence to put in the work and get the job done. Again, your local society is a good place to start for charter holders working at a specific firm. You might also try the member directory on the CFA Institute website.

CFA Societies and CFA Level 1 Jobs

Local CFA societies are always looking for volunteers. These range from short-term assistance with specific events to longer-term commitments as a volunteer or even on the Board of Directors. I volunteered for the CFA Society of Iowa and was elected to the Board even before I had the charter. With the CFA Institute Investment Foundations Certificate still in its infancy, there is a great opportunity in establishing yourself as the “go-to” person for the program in your area. Volunteering to head up an event or a committee is going to put you in the spotlight and will turn into some excellent networking opportunities.

It’s tough out there but not impossible for someone that is willing to put in the time and develop a few connections. Don’t jump right into your elevator pitch on why you should work for the firm or asking if there any opportunities. Develop a rapport with your connections first and find out what they need. Then figure out how best to fill that need.

Stick with it. You’ve already been through the tough part and sat for the exam.
Joseph Hogue, CFA

Last updated: September 14, 2016 at 5:18 am

CFA Results – It Doesn’t Matter! It really doesn’t!

Here we are more than a month after the CFA results and the elation hasn’t worn off for those that passed. Nor has the disappointment gotten any better for the candidates that did not make the cut. You can read about how to deal with failure in my earlier post. Statistically, about half of you are looking forward to the end of your studying and the other half are wondering if you want to continue in the process.

Whether it comes as a cruel reality or a reassuring truth, the fact is, it doesn’t matter whether you got good news or bad last week. It really doesn’t!

I’m not saying that the CFA charter is not a significant milestone and something worthwhile. I am glad I took the challenge and made it through. What I am saying is that it is just part of a continuing process in your life as an analyst.

Passing the CFA Exam and landing a job after CFA results

While passing the exam might help you land a job, failing the exam won’t keep you from getting one. Networking and persistence will trump the CFA charter in the job search any day of the week.

Not passing the exam also does not mean you will not be a good analyst or investment professional. Everyone that failed this year’s exam will eventually pass, given enough determination and hard work, the same amount of determination and hard work that are prerequisites to being successful in the industry.

The only difference between those that pass the exams sooner rather than those it takes a few extra years is that the early birds realize one indisputable truth a few years earlier. Passing the CFA exams does not mean you are done studying!

CFA Results – Exams Passed? Now read more

I do more reading now than I did while studying for the CFA exams. The only difference is that now, I have to find the material instead of having it all delivered to me in a series of texts. I have to find and study a company’s annual and quarterly reports, any press releases and news reports. I have to find and study other analyst opinions on the company and the industry. An analyst has to find and study the specific industry’s trade journals. One has to study the macro trends that are going to affect the industry.

Beyond the ‘studying’ you will do to analyze your coverage universe or group of investment products, you will also need to keep on top of the general regulatory environment, changes in tax code and accounting principles, and the newest paradigms in wealth management.

It may seem a dismal truth for many, the idea that hard hours of studying never really end, but I don’t mind it at all. Why? Because I have embraced it as a part of being a true professional, as a part of being the best in my career.

In fact, I have embraced the idea of this life-long process so completely that when someone asks what I do for fun, I have a hard time not saying, “I like to read some of the trade journals or surfing the web for new ideas on accounting gimmicks.”

Your first three years as an analyst

Maybe I’m a nerd and just love this stuff too much but you really do need to find some joy in it. The industry is extremely demanding on its analysts, especially the new ones. Your first three years as an analyst, you will put in far more time ‘studying’ than you ever did for the CFA exams. Those thinking about dropping out of the CFA program after CFA results because they are tired of studying may want to reevaluate their chosen career path.

Think of it this way, in your career as an analyst just as with the CFA exams, there will be a minimum passing score but not a maximum passing score. The minimum score is not published and is always changing depending on the size of the candidate pool and their knowledge. Falling behind this MPS once or twice will not doom your career but you need to continuously improve on your score to be a better professional.

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

Last updated: September 7, 2016 at 7:38 am

CFA Level 1 Study Plan – The addiction

According to the good people at Merriam-Webster, many of you have an addiction. You have, “a compulsive need for and use of a habit-forming substance.”

The addiction…social media and web browsing.

While it may not be as devastating as an addiction to narcotics or lead to financial ruin like an addiction to gambling, the compulsion to surf the internet can also have huge consequences for your preparation of the CFA exams.

Candidates love to talk about the exams. They talk about which level is most difficult and why. They ponder the minimum passing score and trends in the pass rate. I have even seen forum posts on the best beverage to drink while studying.

The real problem is that these activities are done with the guise of productivity. Yes, you need to understand the topic weights on the exams. Yes, there are some great tips and tricks out there on how to approach the CFA exams. The problem is that candidates too easily use the web as a subtle form of procrastination and an excuse to get out of actual studying. How many hours have you spent ‘researching’ how the tests are conducted, how to approach each topic area, the earliest one should start studying, or a myriad of other questions about the exams?

Don’t be too hard on yourself. You are not alone. The average U.S. internet user spends 32 hours per month online and total time connected from sea to shining sea was measured at 121 billion minutes in July 2012. That’s 230,060 years spent online by internet users in one month alone. Americans spend approximately 19% of this time on email and 22% of it across the social networks.

I have to be careful here. Your internet addiction is what brought you to the blog and I want you to come back regularly to listen to my ramblings. But I also want you to pass the exams and I have seen too many candidates sabotage themselves by spending too much time on the forums and not enough time actually studying.

CFA Exam Everything in Moderation

As with most habits, the first step is understanding the behavior and approaching it with moderation. There is some great advice out there and it can make your life incredibly easier come the first Saturday of June. You need to know the general process involved and the idiosyncracies within each exam, but you also need to know when to get off the forums and get to work studying.

Give yourself an hour or two every week to answer questions about the exams. You might take a little more during the first couple of weeks to familiarize yourself with a new level and you might take less time toward the end after you’ve learned what you need. The important point is to understand how much time you are spending and to make sure it does not come at the expense of studying.

  • If you have a specific question about the exams, especially while studying the curriculum, do not stop studying. Write the question down and address it later, after studying.
  • When looking for the answer to a specific question, try searching for the question using the forum’s search bar rather than making a new post. This will help answer the question quickly and will not bring you back to the post every time someone leaves a reply.
  • Find a couple of good sites (I hope this blog will be one) that you visit once or twice a week to see if there are any updates. Finding a new site can be helpful but don’t spend too much time surfing the web for new places to visit.

Would love to hear your own checklist to kick the habit.

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

Last updated: August 26, 2016 at 8:28 am