The Three Funniest CFA Stories I Have Ever Heard



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

Free Cash Flows and the Level II CFA Exam



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

CFA Institute Mock Exams are Available



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

Turning the last week before the CFA exam into big points



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

Donald Sterling and the CFA as the Great Equalizer



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

Level III Essay Review – Question #2 2013 Exam



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

Think you are ready for the CFA Exams? Think again.



With just six weeks to the CFA Exam, you might be feeling pretty confident about your preparation so far and ready to coast through to the June test. You are doing well on question bank problems and are sure you will be able to pass the exam.

Don’t take your focus off of the finish line! This is the time you need to double your efforts and finish strong for several reasons.

Surprised every year

Everyone knows that nearly half of the candidates taking an exam will not pass their level this year yet the statistics are always the same. While the Institue shifts the passing score from year to year, we should see pass rates increase if more candidates were getting at least a 70% or better across all topics. Even after experiencing the exams, candidates continue to underestimate the challenge.

While you may have already put in hundreds of hours in preparation, know that it may take another hundred hours or more to cement your place at the top of the pack. I put in a fairly tough schedule usually from September or October all the way through May each year I was a candidate and was still surprised every year when I went into the exams.

Put in that little extra time and you’ll be rewarded with a huge sigh of relief in June.

Exam, what exam?

One thing I have tried to stress on the blog is the fact that professional development is an enormous part of our industry. Not only is the competition among analyst jobs so fierce but trying to find the best investments in a fairly efficient market among a sea of investors seems impossible at times.

You need every tool at your disposal and the CFA material is the best toolbox around. Try to not think of studying for the exams so much as a one-and-done event but a continuous process in your new career as a true professional.

Obviously, this is tough to do when you are singularly focused on passing your next exam. I understand because I was in the exact same spot just three to five years ago. Keep focused and confident that you will pass the exam but keep the studying in perspective. Don’t stop when you think you are safe to pass the exam. Only stop when you feel you have mastered the material.

Putting it into perspective

While you might feel that the exams are consuming your life right now, putting the time spent in perspective might help a little. That 300+ hours studying for each CFA exam is insignificant over a lifetime.

The Bureau of Labor Statistics reports that Americans 15 years and older spend approximately 7.5 years in front of the television. That’s nearly three hours a day on sit-coms and reality TV.

Surfing the internet takes up nearly as much time with 10,000 hours or about 5 years of our lives. Some of it is time well spent connecting with friends and family or other worthwhile sites but there has got to be a few pointless hours within that total.

Thinking about some of the time wasted throughout the day makes a few hours of professional improvement a little easier. If you spend 300 hours on each exam, that’s just 37.5 days and a little over 11 hours a week over six months. Find that quality time with your family, make sure you get enough time where it counts and then get to work!

Good luck. You’re almost there and I know you can do it.

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

Making Level I Success a Step to Level II



If you’re a CFA level 1 candidate, your top priority right now is to pass that first hurdle and enjoy a well-earned six months of rest. The last thing you want to think about is putting in your time on the next two exams.

But if I told you that there was something you could do while studying for the CFA level 1 exam that would save you a lot of time next year, would you be interested?

You bet you would!

Remembering a few key points while studying for the first exam could help you pass the level 2 exam and even give you a head start on the third exam as well.

Relationships between the CFA exams

The secret is understanding the related material across the exams and what you need from one exam to the next. While the topic areas across all three exams are all related to an extent, there are a few in which your work on earlier exams is absolutely imperative to passing.

Ethics and Professional Standards is probably the most consistent across all three exams. You will see a couple of new sections in the level 2 and 3, but the core material is exactly the same. The topic area is worth more nearly 12% of your total score across all three exams so definitely points you can’t afford to miss.

Not only is the topic extremely important across the exams, it’s been my experience from candidate comments that it is the one they are most often disappointed by on the first exam. Candidates assume they are ethical people and will be able to pick the correct answer out of the three possibles. They neglect the section and then are surprised at how difficult it is on the exam. Spend a little extra time on this area, do the end of chapter problems and save yourself a ton of time and stress in the next two exams.

Quantitative methods is another topic where mastery of the CFA level 1 curriculum will pay off big time on the second exam. While it is not a high-point section, only 12% of your first exam and 5% – 10% of the second, understanding the material in the CFA level 1 is critical to do the work on the next exam. The level 2 curriculum usually even includes optional refresher material for those candidates that didn’t learn or forgot the prior material. Think of it as the difference between two mathematics courses, one teaching the basics of multiplication and the other moving on to algebra. You would be absolutely lost in the algebra class without mastering the prior course.

Financial Reporting and Analysis is one of two or three core topics to the entire curriculum and worth more than a fifth of your first two exams. The readings on the financials statements in the first exam must be mastered to be able to do the intense analysis work in the second exam. Talk to almost any level 2 candidate and they will tell you that one of the hardest parts of the exam is the FRA material, especially intercorporate investments, multi-national operations and pensions. To be able to understand these readings, you must understand the relationships between the financial statements which is Level 1 material. Save yourself the time of reviewing this by mastering it early.

Study session 14 in the Equity Investments topic area will also be a very important reading for progressing to the level 2 exam. In fact, it looks like a lot of the level 1 material is repeated in the level 2 curriculum. Equity Investments are a quarter of your total score at the second level so you want to be ready for the topic.

The usual disclaimer applies that you cannot afford to completely neglect any topic area. You will need around 70% on your exam to pass to the next level. These exams are extremely difficult on a mental and physical level so do not expect to get all the points in any one section. Spend enough time on the secondary topic areas so you can get at least 60% or more and then focus on the higher-point and higher-importance sections.

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

Your Most Frequent Questions on the CFA Exams



It’s always around this time that I see an increase in questions from candidates. Six weeks to the exam and everyone is second-guessing their readiness to face that 6-hour marathon. I decided to use this post to review five of the most frequent questions I get and some previous posts to address them. Click through the text to be redirected to specific posts on the topics.

If you’ve been a regular follower of the blog, you might have seen some of the posts before but it might help to refresh on the ideas or suggestions. I’m always open to hearing your recommendations and thoughts so use the comment section below if you think I missed anything.

Five most common questions by candidates

Basic strategies for each of the exams is always a popular subject. The format for each exam varies a little and you need to go into the test knowing what to expect. Besides insight on the format, our basic strategies cover the relative point importance on the topic areas and strategies for studying.

Click on the links below for basic strategy on each exam. The posts were written ahead of the 2012 exam but the formats and strategy have not changed. There are a few changes to the actual curriculum but that won’t change how you approach the tests.

CFA Level 1 Basic Strategy
CFA Level 2 Basic Strategy
CFA Level 3 Basic Strategy

The intense quantity and complexity of formulas is always a sticking point for candidates, especially on the second exam. While the formulas on each exam vary, the way you study for them is consistent. One of the most popular posts on the blog explains the difference between active and passive learning. It may not be as easy as sitting back and reading through the material but actively working through problems and flashcards is the best way to learn the material.

Speaking of flashcards, a recent post on how (and why) to make your own flashcards offers good insight on remembering the formulas. Flashcards were a core resource when I was studying for the exams. They can be carried anywhere and you can use them when you’ve just got a couple of minutes free. Absolutely essential for learning the tough formulas and processes.

No matter what you are doing in life, there never seems to be enough time. Studying for the CFA exams is no different and time management is one of the top questions by candidates. Whether you are a full-time student or have a family and a 9-to-5 job, you’ll need to find ways to effectively use limited time.

Part of this comes from effective time management and moving your schedule around to find blocks of study time but another important idea is using your time responsibly and prioritizing.

The most exam specific question I get is how to approach the level 3 essay section. I loved the morning section when I took the third exam because it is the only group of questions where the Institute actually gives you the questions and answers to previous exams. The morning essays can be extremely easy points if you work through prior exams, or they can be a frustrating mess of lost confidence if you don’t.

We have worked through 14 prior essay questions going all the way back to the 2009 exam. The individual and institutional portfolio questions usually have similar formats across years so be sure to study those and how to approach them. The post linked here is our review of last year’s individual portfolio management question. Click on “Level III” at the top of the blog and scroll through to review the posts on the other essay questions.

Getting a job after earning the designation or even while you are studying is always a top concern for candidates. While I explain in one post that the designation will NOT get you a job by itself, it is an important step in your career as a professional. Instead of relying on the charter to get you a job, follow the advice in another post on how to stand out from the other applicants and get the job you really want.

Have a question about the exams? Send me an email or use the comment section below.

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

Do Not Let the CFA Level 2 Exam Surprise You



The pass rate for the CFA level 2 exam has only been lower than that of the first exam in three of the last 10 years. For many candidates, that is a welcome relief after a grueling introduction to the exams and it must mean that the second exam is easier. Right?

Wrong! And it catches a lot of candidates off guard.

While the CFA level 2 exam may indeed be easier for a few, most candidates find it incredibly difficult especially compared to the CFA level 1 exam. Which exam is the most difficult for you will obviously depend on your own abilities but you need to go into the second exam knowing exactly what you are facing.

Quantitative Monster

It is often said that the CFA level 1 curriculum is a mile wide and an inch deep because it covers a huge range of material but really only teaches to the basic ideas within each. The CFA level 2 material covers the same topics but seems to focus more on the detail within a few. While the range of material can still seem daunting, candidates usually agree that the level two curriculum is a mile deep and maybe a few feet wide (to paraphrase the saying).

This becomes a little clearer looking at the topic weights across the exams. While the first exam is more evenly spread out, the second exam is more focused in a couple of topics. In fact, Financial Reporting & Analysis and Equity Investments alone will account for between 35% to 55% of your entire score.

This is obvious enough to anyone preparing for the exam. What is not so obvious is the quantitative difficulty you will see on the exam. Those problem sets are a monster!

Given that nearly half of the exam could be from just two topic areas, I hope I don’t have to tell you where you should be spending your time. You absolutely must know the FRA and Equity material, especially the formulas.

We covered some of the most important formulas on last year’s exam in three posts (First, Second, Third) and linked here. Almost all will still be applicable to this year’s exam so feel free to look through the posts for hints on each.

There’s two things you can do to help get through the formulas.

  • First, you need to understand what is conceptually happening in the formula. Trying to understand the myriad of symbols is crazy. If  WACC = (Vd/(Vd +Vce))rd (1-t) + (Vce/(Vd+Vce))rce) doesn’t make you go cross-eyed you are a stronger person than I am. Think about it intuitively and it makes sense. The overall cost of a firm’s funding capital is the cost and proportion of equity and debt. The percentage of each funding type relative to the total is multiplied by its cost. Debt is tax advantaged, so you need the after-tax cost.
  • Secondly, you have to work these formulas through practice and repetition. One of the most popular posts here shows that active learning (engaging the material through practice and conversation) allows you to remember much more than passive learning. The best way to approach tough formulas is to put them on flash cards. We covered the importance of flash cards and why you should make your own set in the previous post.

Just because a higher percentage of candidates usually pass the second exam than the first doesn’t necessarily mean it is easier. Think of it this way, candidates are fully aware of the immense challenge presented by the exams after the first test and still less than half typically pass the second exam. That should give you an idea of difficulty on the CFA Level 2 exam.

The good news is that tens of thousands of candidates pass the exam every year and you can too. Focus on those formulas, especially in the high-point topic areas, and you will do well. Less than two months ahead of the CFA exams. Be ready.

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

Making Flashcards for CFA Success



Every year while I was studying for the CFA exams, I would see candidates at the mock exams and at study groups pulling out their shiny new flashcards. The cards were impressive, detailed with problems and answers and professionally done by prep providers. And every year I saw candidates continue to struggle with the concepts written on their cards because they did not understand them.

One of the best resources for CFA exam preparation is flash cards but not the ones prepared for you. For real exam success, follow the process below to make your own cards.

Your fourth-grade teacher had a secret

Remember getting in trouble in grade school and having to write repetitive sentences on the chalkboard? Ok, maybe many of you don’t but I got in trouble a lot and was perpetually doing math problems and grammar exercises out after class.

Years later, I realized getting in trouble so much actually helped me succeed academically. Writing out about a million math problems over the course of a couple of years virtually guaranteed that I could do those problems from memory years later. Our brains are wired to learn by repetition. Writing something repetitively makes new neural connections and commits information to memory.

And this is why those prepared flash cards will never be as great a resource as writing your own cards. Writing out a problem that covers a Learning Outcome Statement is a long way to memorizing the material.

Making your flashcards is pretty easy but there are a few things to remember. I would try to work through the curriculum once before composing any flash cards. On the second time through, you will have a better sense for the difficult topics and where you need more work. Putting flashcards together on the first read through the curriculum is going to eat up a lot of time on material that you would have gotten without the cards.

Writing your cards, do not simply write out an equation to solve. Cards should be like mini-exam questions with information on a specific scenario. Write out a short story with data that will be needed to solve a problem. You might even try putting in unnecessary information as will be done on the exams. Then on the reverse side of the card, work through the problem completely. Write out every step and every calculation. That will help you learn off your cards instead of constantly referring back to the curriculum if you are confused on how the solution came out.

Don’t think your flash cards are a static learning tool. As you progress, you may want to put some aside that you’ve mastered or make more cards on other topics. After several runs through your cards, you may even try re-writing the ones that are still giving you problems for a little repetitive exercise.

Flash cards cannot be your only resource ahead of the exams but you certainly cannot neglect them. Not only will the cards help you focus on tough material and are a good source of repetitive-type learning, they are a great resource for time management. You can carry your cards with you and run through them anytime you have a couple of free minutes. Those extra few study sessions can add up to a lot of extra time every week.

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

CFA Level 3 Review, Behavioral Finance



Behavioral finance is always a tough topic for candidates because the material can be a little confusing and the sheer volume can be overwhelming. The topic really doesn’t have to take a lot of time though and can be some easy points.

Behavioral Finance and the CFA Essays

Behavioral finance is typically tested in the morning essay section of the exam and has been worth an average of 14 points over the last three years. While you need every point you can get, that is just 3.8% of your total exam score. You want to approach the section with the idea of getting the concepts and basic definitions without taking valuable study time from higher point topic areas.

The material is extremely definitional and lends itself really well to flash cards. If you can get the basic definitions of the concepts and vocabulary then you should be able to get the vast majority of the points on the exam. Take a look at the prior years’ exams to get an idea of how the behavioral questions are asked.

Make sure you understand the basic difference whenever a contrast is offered, i.e. the difference between traditional finance and behavioral finance.

The cognitive and emotional biases have shown up on the essays frequently so make sure you have a good understanding of these.

Understand the five belief perseverance biases, consequences and detection:

Conservatism –failure to incorporate new info after a view is established
Confirmation – selectively seeking information that confirms a prior view
Representativeness – tendency to make decisions based on stereotypes or patterns
Illusion of control – belief of ability to influence uncontrollable events
Hindsight – overestimate “ex-post” the accuracy of forecasts

Understand the four processing error biases, consequences and detection:

Anchoring and adjustment – similar to conservatism but is usually tested as an under reaction to new information rather than avoidance of new info or no reaction at all
Mental Accounting – often tested as investors dividing total assets into ‘buckets’ based on categories (i.e. leisure, necessities, emergency)
Framing – tendency to respond differently depending on the situation
Availability – tendency to overestimate the possibility of an outcome based on ease of which the outcome comes to mind (know the four sources of availability bias)

Types of emotional biases:

Loss aversion – includes house money effect and myopic loss aversion, tendency to treat investments differently depending on whether it is a loss or a gain
Overconfidence – tendency to overestimate own ability or knowledge
Self control – preference for present consumption (certainty) versus future (uncertainty)
Status quo – avoidance of change
Endowment bias – emotional attachment to an asset or investment
Regret aversion – avoidance of decision due to fear of regret

The difference between a lot of these biases seem relatively minor and semantic but they often appear in the exam. Besides the basic definition and consequence, understand the slight difference between similar biases so you can distinguish them in a question. This is really where practice on some of the past essays comes in handy, to see how the Institute frames questions.

The material is extensive but you really do not need to memorize every detail. The Finquiz Study Guide has 32 pages of notes on Behavioral Finance for Study Session 3 and can better help to explain the topic. Again, my advice for the topic area is to get the basic idea and concepts and then move on to higher point topics. Even if you only get 60% of the points by just taking a quick look at the section, you’ve only missed 1.5% of the total exam.

I haven’t heard much from Level I or II candidates on which topics they want covered on the blog. Let me know if any particular study session or LOS is giving you problems and we will try to hit it in one of the blog postings.

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

Your Nine Week Study Plan to Pass the CFA Exams



Just two months are left to study for the 2014 CFA exam and most of you are probably wondering where the time went. Even starting early, an impending sense of dread always came over me about this time of year when I was taking the exams. Whether you have 300 hours or just 30 hours under your belt by now, these last two months are the time you need to focus your time and make sure you’re ready for June 7th.

From Quantity to Quality

Most of us are die-hard numbers people so it easier to put things in quantitative terms. We talk about 300 hours or 70% needed to pass. While this may be convenient, it isn’t necessarily the only way to prepare for the exam.

All the time spent studying won’t help you if you are not comfortable with the material going into the exam. Candidates get so focused on scoring high enough to pass the exams that they forget the reason for the exams in the first place, to master the material. Instead of placing some arbitrary amount of time on study, focus on trying to be able to explain the material in your own words and how it applies to analysis and asset management.

Where your time counts

We’ve talked a lot about core topics to the exams but they are even more important as the exam draws near.  While you can’t afford to neglect any part of the curriculum, there are some topic areas that will make or break your score.

Ethics, Financial Reporting & Analysis, Equity Investments and Fixed Income account for a strong share of the points across all three exams. The four topics may account for between a third and 80% of your exam score. Beyond that, you will need a strong concept of the material in the four topics to be able to understand more detailed material in later exams.

Getting max points in these core topics means a lot of wiggle room across the other six topics.

cfa topic weights

 

 

 

 

 

 

 

 

 

 

An important note here is that if you are going to be spending a lot of time on these four topics, you need to do it with different resources. Reading the same thing over and over again is just going to lead to burnout.

Resources for the finish line

When I talk about different resources, I mean ways to study the curriculum whether different media or different sources. These might include the curriculum, condensed study notes, flash cards, question banks, videos or your own personal notes.

  • Using different resources helps avoid burnout by not repeating the exact same material.
  • Using different resources also helps to find the one with which you learn best.
  • Different resources can help provide different perspectives on the material.

Reviewing two study sessions a week

Covering two study sessions a week means you can cover nearly every topic and still have a week left for an intensive review. There are two ways to approach this, you can either cover 16 separate study sessions or you can cover some of the core topics multiple times. It really depends on how comfortable you are with some of the secondary topics and how well you know the core topics.

I always liked alternating study sessions when I did my two per week reviews. Using Ethics and FRA as an example, a week might look something like:

Sunday: Read through condensed notes for the Ethics material and spend an hour on practice problems

Monday: Read through condensed notes for FRA and spend an hour on practice problems

Tuesday: Review each LOS for Ethics, highlighting key concepts and re-reading the sections in which I haven’t quite mastered

Wednesday: Review each LOS for FRA, highlighting key concepts and re-reading the sections in which I haven’t quite mastered

Thursday: Review flash cards for Ethics and spend two hours on practice problems

Friday: Review flash cards for FRA and spend two hours on practice problems

It’s a pretty intense schedule but can be flexible for the number of days and hours you have available. Alternating study sessions helped me avoid burnout trying to cram consecutive days on one topic. Notice I also use different resources through the week so I am getting different perspectives on the material. Practice problems are an extremely effective resource at this point so I tried to include them nearly every day.

Do this up to the last week and then do an intensive review of the curriculum as a review. Plan on giving yourself a day or two to relax before the exam and plan your test day.

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

2013 Level 3 Essay Question #1 Review



Passing the Level III CFA exam is all about the essay questions. You know what to expect on the afternoon vignette section and the curriculum is more or less consistently difficult in both the morning and afternoon sessions. The only unknown variable is three hours of application and writing.

Do not underestimate the physical challenge of the morning essays. Who really writes things out by pencil or pen anymore? You need to condition the muscles in your hand to be able to write non-stop.

Fortunately, the CFA Institute is uncharacteristically generous to level III candidates and supplies copies of the actual essay questions and the guideline answers for the last three years’ exams. The single best advice I can offer to level III candidates is download and practice those exams. Work through each exam at least twice.

The exams are available on the Institute’s website here.

We’ve covered a general review of the Private Wealth Management topic area last year and not much has changed in the curriculum. Click here for a review of the topic and how to approach it. You absolutely must know how to work through the two types of return questions and apply the constraints of the IPS. Remember TUTLL!

2013 Level III Exam, Question #1 Individual Wealth Management

Between the first two questions last year, the individual wealth management topic accounted for nearly 10% of your entire exam score (35 points of 360). Besides the technical importance, starting off the day by doing well on the first couple of questions will give you a huge confidence boost and sets you up for success.

Hit this section hard and master it!

Last year’s first question covers the Voorts and their needs in retirement. Some candidates like to read the questions first then the vignette. I always liked reading through the vignette first and underlining important information. Try it both ways in practice to see which you prefer for the exam.

A)    This is a single-period return calculation (as opposed to the other type of question you might see, a multi-period return calculation. Be ready for both). Notice almost every questions says, “Show your calculations.” You can get partial credit if you show your calculations even if your final answer is wrong. Don’t forget!

The guideline answer is a pretty standard format. List out the living expenses with an inflation adjustment and reduce it by any guaranteed income like pension payments. Taxes and inflation are two of the biggest hurdles in these. Make sure you note where you need to incorporate taxes and inflation into the given data.

After you know how much is needed from portfolio assets, you need to list out all investable assets to find the portfolio size. After that it is a fairly easy calculation of cash needs divided by the portfolio value. Note, this will give you a real return requirement (without inflation) so you need to adjust upwards.

B)   Part B is fairly easy. Understand which factors go into ability and which factors affect willingness to assume risk. Remembering this, you can quickly scan the vignette for specific details when you see either word. Notice the guideline answers lists five possible answers but the question ask for only two. Do not waste your time listing every possible answer! The grader will only check the first two.

Typically portfolio size to needed cash is a strong factor in ability. Even if higher risk led to a decrease in portfolio value, they could still probably meet their needs. Age is also a common topic with younger people having the ability to return to work.

C)   The liquidity requirement is basically done in the return calculation above but I guarantee a lot of candidates forgot to include the cash reserve. Liquidity is not necessarily only the money you plan to spend but what you need set aside.

D)   This ‘choose the most appropriate portfolio’ is fairly common and easy points. A few pieces of information are key: goal return, preference for risk and the risk-adjusted return.

Given the goal return of 3.5% means a return of 8.57% on a nominal pre-tax basis ((3.5% +2.5%/(1- 0.7)). Only portfolios X and Z meet this preference.

The Voorts do not want the portfolio to decline by 10%. Only Portfolio Y and Z meet this requirement.

Only portfolio Z meets both reasons.

With a little preparation, that is 20 easy points, nearly 6% of the entire exam in the bag. Be ready for these essay questions and they will be no problem.

We reviewed multiple essay questions from previous years on the blog last year. Click here for the review of Question #1 in the 2011 exam and scroll through for other essay questions.

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

Max Points on Ethics and the Standards



If you’ve been reading the blog for any length of time, you are probably tired of me repeating the importance of the ethics topic area on the exams. If you are new to the blog…get used to it because the material is integral to your success.

Over the three years, the Ethics and Standards (including miscellaneous material included) is worth about 12% of your entire CFA preparation. Beyond the points associated, the Institute has explicitly noted that your score on this portion of the exam will determine a pass/fail if your score is close to the minimum passing score. It’s the tie-breaker!

The biggest hurdle for candidates is realizing that while they may be ethical people, they still need to put in the study time to learn how to react in specific situations. The test developers are masters at dreaming up difficult scenarios where a rational person would consider two of the answers as correct. The only way to learn how to answer these questions is by practicing the examples at the end of the chapters and through question banks.

Fortunately, the material in the topic is virtually the same through each level (except for a few readings on additional topics on which you may or may not see questions). This means that hard work spent in level I will pay off over the next two years as well.

Professional Conduct Program (PCP)

There are a few key points that you need to remember of the PCP. Understand that information can come from four sources: self-disclosure, written complaints, media/public, or the exam proctors. Only members and candidates are subject to the PCP and the Code or Standards. Note that a charterholder supervisor is responsible under the PCP/Code for actions of non-charterholder subordinates.

Remember the basic process to an inquiry as well:

1)    Inquiry assigned to staff who collects information and determines one of three outcomes

  1. No sanction required
  2. Cautionary letter
  3. Inquiry escalates to next level

2)    The member can accept or contest this outcome and request the issue go to a panel

SPAMED: Components of the Code

While the acronym SPAMED makes it easier to remember the components, it is really the details within the code and standards that you will need to understand to answer exam questions.

  • Subordinate personal interests
  • Promote the integrity of and uphold rules governing capital markets
  • Act with integrity, competence, diligence and respect
  • Maintain and improve professional competence
  • Exercise reasonable care and independent judgment
  • Demonstrate ethical practice and professionalism

I’ve copied my own notes on the standards below. Three pages is about as condensed as you can make the material. These are the bird’s eye-view of the important concepts within each standard.

Standard I- Professionalism

**Strict law rule- the standards say to follow the most strict interpretation between either local laws or the code/standards. This applies to all jurisdictions to which you are responsible. A classic example is doing business in one country but living in another. You are probably under both jurisdictions so must follow ‘most strict’ laws in either of the two (or the code/standards).

Know or should have Known- must not knowingly violate or assist someone else in violating laws or code. A big part here (and with supervisor duties) is if you should have known, given your responsibilities.

*NOT required to inform police unless explicitly required by law. Procedure is to inform supervisor, compliance and to disassociate from activities.

Independence & Objectivity

* Firms/analysts should pay their own expenses whenever possible and disclose when they have accepted any form of compensation. This includes when there is not a violation but may be a perception of a violation. Token gifts are acceptable but the Institute does not explicitly define or give a dollar amount on ‘Token’ so questions

* Issuer Paid research should be on a fee-only basis and not tied to rating. Issuer paid research must be disclosed.

* You need to understand and tell the difference between informational firewalls, quiet (blackout) periods, and restricted lists.

Misrepresentation

You can NEVER guarantee a return unless the investment is explicitly guaranteed by an institution (and the institution has the means to back up losses, i.e. U.S. Government).

All informational sources must be directly credited (not just- “leading analysts” or “experts”).

Misconduct

* Even if something is legal (drinking) members/candidates must not engage in the activity if it could lead to a loss of confidence in the employee, employer, profession or the Institute. Having a ‘high tolerance’ for alcohol does not cover the fact that the perception of misconduct may occur.

* Bankruptcy or civil disobedience is ok as long as it is not from fraudulent conduct.

Standard II- Integrity of Capital Markets

Material non-public Information- This is a big one for the industry and the Institute

* know the Mosaic theory and how it is interpreted. Combination of material PUBLIC information with non-material non-public information is ok to trade on.

* members/candidates must not use or cause others to use material non-public information. “Material” is anything that an investor would want to know or could affect the asset price.

* Company conference calls or meetings are NOT public release and any material information divulged should be immediately made public (and cannot be traded on until made public)

Market Manipulation-

Any actions with INTENT to distort price or volume is against standards. Understand the “pump and dump” and “liquidity priming” scenarios

Standard III- Duties to Clients

Benefit of clients always comes before employer (whose benefit is before employee)

Understand responsibilities for ‘best execution’ and that ultimate beneficiary (i.e. pension holder) is your client, not necessarily the institution hiring your firm

Fair Dealing

* All clients must be treated fairly and equally

Different service levels are ok, but must be available to everyone and disclosed

Allocations should be on a pro-rated policy (but only to those portfolios where suitable)

The method of client communication seems to be important. Example: you can’t send snail mail to some while directly calling others because this gives the called clients an unfair advantage. You can however use the same initial distribution method (email everyone) then start calling clients without violating standards.

Suitability

You must understand client’s risk/return objectives and constraints to determine suitability. Investments may be risky in isolation, but suitable given total portfolio.

Performance Presentation

Just remember FACT: Fair, Accurate, Complete (and timely)

Confidentiality

Only release client information if: required by law, illegal activities, or explicit client permission

Standard IV- Duties to Employers

Loyalty

Remember benefit should be to (in order): client, employer, then yourself

* Must NOT take any records, files, or property from employer when leaving. You can reconstruct client information, but only from memory

* You can make preparations for another job (before leaving employer) but only on your own time and it must not conflict with employer until after you have formally left their employment.

Additional Compensation

*** Written Consent (not verbal!) must be obtained from ALL parties (employer and third parties) prior to accepting additional compensation that could create a conflict with employer

Responsibilities of Supervisors

This is a confusing one for many candidates because a lot falls under the ‘should have known’ category. **Understand that supervisors should have policies in place that help prevent or detect violations

*Inform IN WRITING if the company has an insufficient compliance system and decline your supervisory position if the company fails to improve compliance.

* Even if employees are not members/candidates, a charterholder supervisor is responsible under the Code and Standards for their actions.

Standard V- Investment Analysis, Recommendations, and Actions

Diligence and Reasonable Basis

* a big part of this is relying on second or third-party information ONLY if you can confirm the validity and reliability of their research

- You do not need to disassociate from a recommendation (of which you do not agree) made in a group if the recommendation has a reasonable basis but you should document your disagreement.

Communication with Clients and Prospective Clients

* big issue here is distinguishing between FACT and OPINION in analysis.

* communications must include basic factors and processes used in investment analysis/selection. This does not mean a lengthy discussion but a general statement on how investments are selected.

Record Retention

Keep all records on analysis/recommendates for SEVEN (7) years

Records are property of employer so it is their responsibility to keep them if you leave

Standard VI- Conflicts of Interest

* Important that disclosures are made for actual and POTENTIAL conflicts

-Disclose any material ownership. The Institute does not put a dollar amount but it is usually fairly obvious. Ownership is personal or anyone living in same household (but not family living outside of household).

Priority of Transactions

- Again, priority is for: Client, Employer, then self (beneficial ownership)

“Family” or beneficial ownership is only those residing with you. Other family, not living with you, should be treated same as other clients

- Oversubscribed IPO should be pro-rated to clients first

Referral Fees

Any compensation or benefit must be disclosed (must include nature of benefit)

- Issue here is usually when there is obvious connection between yourself and who you are referring. Example: you are referring services offered by other departments at your company

Standard VII- Responsibilities of members and candidates

This always seemed the catch-all for stuff not covered by other standards.

* Focus seems to be on candidate obligation to the standards (don’t cheat on the exams)

- Members can disagree with Institute and express differing opinions but must not do something that compromises reputation of the Institute or the designation

Reference to the Institute, designation, and program

- Designation (CFA) can only be attached to a person, not a company

- You must pay dues and sign annual standards compliance to use designation

As mentioned, you can read through and memorize the material for the code and standards but it may still not help as much as working through practice problems. You really need to work through specific scenarios to see how these standards are applied. Give the curriculum a read and then focus on key points like the ones noted above. Then spend your time working through questions to get a good feel for it.

Ten weeks to the exam. Almost there just stay focused and you’ll make it.

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

The CFA versus an MBA, an answer to the unsolvable question



An article from CNBC’s Stephanie Landsman hit the net recently comparing the CFA designation with an MBA in a time-honored assessment that just won’t die. With less than three months to the June exams, the last thing candidates need to be asking themselves is an unsolvable question.

I say unsolvable because it is not whether the CFA designation is better than an MBA, the question should be whether the CFA designation is better for YOU than an MBA.

If you have to ask, you’ll never know

The question whether you should pursue the CFA designation or an MBA is one that should be asked before you begin either process and with the conviction to see it through to the end. While the two may seem to lead to comparable careers, they are in fact extremely different and you need to make a clear and definitive choice.

A study by Georgetown University shows that unemployment for recent business grads is still relatively high at 7.6% while finance grads were not much better off with a 5.9% unemployment rate. In the frustratingly sluggish jobs rebound, a post-grad education that doesn’t suit your job search may do more harm than good.

While you can specialize in certain fields, the MBA is a general business designation. If your goal is to be a c-suite superstar then you will probably need an MBA somewhere along the way. Granted, there are plenty of people in corporate finance or other areas of the corporate world with the CFA designation but the curriculum really isn’t designed to manage a company or a corporate division.

Perhaps some of the confusion comes from the title, chartered financial analyst. The CFA curriculum will not prepare you to be a corporate financial analyst. In fact, a role in corporate finance may not even be approved for the required work experience to be awarded the charter. The CFA curriculum is an investment analysis and asset manager education. If you have a passion for the art of the deal and forming asset valuations, then the designation may be right for you.

Studying for the CFA designation takes an immense amount of work and dedication. With only about half the candidates passing their exam in any given year, you need to be fully committed to the profession of investment analysis and asset management. Without this focus, you will always be second guessing your motivation and it will make passing the exams nearly impossible.

I don’t say this to discourage anyone from pursuing the designation or an MBA. Some people, whether they enjoy learning or just love the punishment, do pursue both. The question is a valid one but one that only you can answer and must not let it be a distraction after you’ve come to a decision.

Just 11 weeks to the June exam. Right about now you are probably deep in the curriculum and feeling a little overwhelmed. Stay strong. Have some coffee, go for a jog, whatever you do to refocus because the finish line is coming up. I know you can do it.

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

The Internet and Three other Reasons Why You Don’t Have Time to Study



There are just 13 weeks left to the CFA exam and candidates everywhere are getting frantic. Sometimes no matter how early you start or how well you plan out your studies, there just doesn’t seem to be enough time. How many times have you gotten to the end of the week and realized there was no way you were going to get through as much material as you hoped?

Now, another question, how many times have you checked the news, email or stock quotes while you were studying?

While the title of this post claims five reasons why you don’t seem to have enough study time, it really comes down to one – distractions. If you study like I did when I was a candidate, probably spend about half the time devoted to studying as you think you do. The rest of your ‘study schedule’ is filled with digressions and meaningless tasks as a way to procrastinate.

With that in mind, on to the four biggest problems to your study schedule and how you can solve them.

  • Disable your internet connection and unplug the television

This was the biggest distraction for me. Most of my studying was through study notes and question banks, available on my computer. It was just too easy to click over to news, blog sites, email or a hundred other things whenever the inclination hit. You start off justifying this as, “Oh, I have studied for an hour and I need a short break,” but you end up spending way more time surfing the net than originally intended. Worse yet, you end up taking these ‘study breaks’ more frequently.

The television is just as bad. Do you study with the TV on? I did occasionally and rarely met my study goals when I did. The material in the CFA curriculum can be extremely complex and detailed. Do you really think you can master the curriculum and still follow what is happening on that episode of 24? Your eyes are drawn to movement, it is just how we are wired and any kind of peripheral movement is going to distract you.

  • Turn off your cell phone

Unless you are on-call for your job or expecting to hear from the lottery commission that you won $10 million dollars, you really need to turn off the cell phone. With text messages, internet and phone calls (yes, phones are still actually used for talking as well) these things easily take the number two spot for biggest distraction. You can tell yourself that you won’t answer your texts and set it on silent all you want but the temptation is still going to be there. You’ll peak once and then will be drawn into 30 minutes of ridiculous emoticons and chatting.

  • Do something nice for the family, and yourself

My respect goes out to all the candidates with kids. It’s tough and you’re probably just going to have to resolve not to sleep for the next three years. If you are studying at home, then you are not really studying. You are trying to study between tying shoe-laces, cooking lunch, kissing boo-boos and resolving fights over who is kicking whom.

Once a week, offer a fun day at the water park/mall/museum/fill-in-the-blank. It may cost a little more but your time is money and you are just wasting time if you think you can study while there are three other people demanding your attention. Juggling family and studying for the CFA is one of the most difficult problems for many. Put it in perspective, it is only 4-5 months a year for three years.

  • Start a diet

This was another tough one for me. Not being on a diet but the constant temptation to break from studying to go get a snack. It doesn’t matter that you are not hungry and like other distractions, that small snack becomes a 30-minute or more digression and you don’t know where the time went.

The easiest answer to distractions is to go somewhere private to study. Most libraries usually have private study rooms though it may be difficult to reserve one for more than a couple of hours. Besides having to spend the travel time to get to the library, or another private location, is that it just isn’t always possible to go somewhere else to study.

When you can’t get out of the house to study, remember the major sources of distractions and do everything you can to avoid them.

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

CFA Study vs. Family



The title above is the title from a recent forum post on the LinkedIn group. While the underlying subject of juggling a personal life and family with the CFA exams is a constant topic, I thought the title was interesting and brought back memories of managing my own social life with exam preparation.

I thought the forum title was interesting because it is how many candidates feel about studying for the exams and…well, everything else. It seems that preparing for that 6-hour monster in June puts you at odds with everything else; your family, your friends, anything you previously enjoyed.

It’s tough to get in the necessary study time, for everyone but even more so for those with families. I was married while studying for the exams but was able to finish before we had any kids. The problem is, when you start to think of studying for the exams as, “this and nothing else,” you set yourself up for questioning whether it is worth it and end up postponing the designation.

Studying for the CFA exams shouldn’t be a this-or-that scenario but just needs to be integrated into your daily routine. Hundreds of thousands of candidates have done it and you can as well.

It is just a matter of making time where there was none before,

  • Lunchtime study – This doesn’t necessarily have to be cloistering yourself off to some remote part of the building and avoiding co-workers. A quick run through your flash cards while talking to co-workers can be a little less intrusive and still help you get some extra points.
  • Travel time – If there is any way you can take public transportation to and from work, this can be a huge boost to your study time. Sure, it may be a little inconvenient but shifting that hour or two of studying each day to the bus or train means more time with your family.
  • No rest for the wicked – This is the most common I hear but it has its limits. I concentrate better at night so it was no problem for me to stay up until midnight or later and study while others slept. You can get buy on five or six hours of sleep but don’t try to do it immediately. Try studying just a half hour more per night an increase it gradually so you don’t crash at work.
  • More efficient study – While the average time candidates take to study for the exam is 300 hours, it can be done on less but you need to spend your time where it counts the most. You will not be able to get through the curriculum multiple times. Spend more time on condensed study notes and working practice problems. For the first two levels, devote the majority of your time on the topic areas where you will see the most points.
  • Start earlier – I am still amazed that many of the same candidates that question how to juggle life with exam prep are the same ones that do not start studying until February or later. Three hundred hours divided by 26 weeks is a lot easier to handle than when it is crammed into 12 weeks or fewer. In fact, there is nothing that says you need to wait for the new curriculum to come out before you begin studying. Borrow the previous year’s curriculum from a local candidate and start working through it in July or August. Starting 40 weeks before the exam means you only have to study about 7.5 hours a week. That’s doable for even the busiest schedules.

It will be tough but will also be worth it. Not only will you be able to use one of the most respected and professional designations in the industry but you will also be able to say that you were able to complete something that few others could.

Families are forever, the CFA exams are only three years. Stay strong and push through it.

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

The Number One Rule to Break While Studying for the CFA Exams



Answering weekly emails I get from candidates, common themes tend to come up frequently. Candidates always want to know how the upcoming year is different from the last, what score they need and if passing the exams will get them a job.

Another common theme is rules they should follow for passing the exams. Everyone loves lists and being able to check off a couple of rules to help pass the exams is something everyone would appreciate.

We’ve covered lots of lists here on the blog, things to do and what to look for but there is one rule you might just want to break. It’s not my rule but it is one commonly held by many candidates.

The rule is that you should use the official CFA curriculum as the core to your studying for the exams.

I have advised candidates to read the curriculum and always tried to get through the books myself. The exams come directly from the curriculum so it stands to reason that the books should be your best bet for a passing score.

But the reality is that your time is just too precious and reading through the curriculum enough to commit the material to memory just takes too long. Candidates feel like the curriculum is the sacred text of the Institute and that memorizing every word will ensure them a passing score. I have seen too many candidates get burned out or not even make it through the curriculum once, and subsequently fail the exam.

I am not just saying this because Finquiz sells condensed study notes and I agree that you still need to use the official curriculum, just not as your core material and probably not in the way you were expecting.

Condensed study notes, by their definition, are going to leave some details out. The idea is that you can still master the LOS without all the examples and explanations but this will not be the case for every section of the material. To make up for this short-coming, you still need to use the curriculum.

While most candidates start with the curriculum and then study the condensed notes, I propose a different plan. Start with the study notes. Work through the study guides, working problem sets to make sure you understand the material.

Then read through the curriculum. Having already picked up the core concepts, you should be able to read at a faster speed. This will help you read through for any stray questions you might still have but will take much less time than if you had tried reading the curriculum first.

You might even try working through the study notes twice before going through the curriculum, depending on how quickly you can work through the condensed notes. Notice that you still need to work through practice problems and this more time-efficient method does not mean you can wait until March to start studying.

You still need to put in your 300 hours, this method will just allow you to go through the entire curriculum multiple times. Most people learn best by repetition and it is said that you need to repeat a task approximately seven times to commit it to long-term memory. You may not have time to go through the material seven times, but focusing your time on condensed study materials is a good way to get through the content faster and more efficiently.

Have another commonly-held rule that you should break? Email me or use the comment section below.

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

Top 3 Myths about the Claritas Investment Certificate



The Claritas Investment Certificate is less than a year old and the rumor mill is already operating at full strength. Many of the grapevine assumptions follow pretty closely with those that candidates hold for the CFA exams as well.

  • Obtaining the certificate will get me a job in the industry

This is probably the most common misconception for CFA candidates as well, that passing either the exams or getting the certificate will guarantee a job in investment management. While the CFA charter is well-respected and the Claritas Certificate is building its brand, neither are a sure-shot at landing your dream job. They will make you competitive and may get you an interview where you wouldn’t have otherwise but you’ll still need to work for the job.

Probably the most overlooked advantage of the charter or the certificate when job-hunting is the networking advantage. Though the exams are self-study, there is also a tremendous social network established around local societies. Talk to your local society to see if Claritas candidates can attend a networking event.

  • I need the Claritas Investment Certificate to begin studying for the CFA charter

I have mixed feelings on this one. I personally know several people that have used the Claritas curriculum as a start to their studies for the CFA charter. The Claritas curriculum is more generalized and starts a little slower than the CFA curriculum so it may help those with absolutely no experience in finance or investments. You will see a lot of information in the Level 1 exam that was in the Claritas program, so it is not time wasted but you may not need it either.

Passing the Claritas exam is not a prerequisite for the CFA exams and you may not need it to begin studying for the charter. At approximately 100 hours of studying, it is not an overly demanding exam but that is still 100 hours that you could be studying for the CFA Level 1 exam. If you want to eventually sit for the CFA exams, go to your local library for a copy of the Level 1 curriculum. If the material is completely foreign and you are not able to pick up the concepts, then you may want to start with Claritas.

  • You only need a 70% to pass the exam

Passing scores are annually a huge topic on the CFA forums and already have a few posts on the Claritas forums. The actual passing score is set by a standard setting process and changes regularly. The score needed to pass any of the exams is not released by the Institute but we do know that no one with a score of 70% or above has ever failed.

So just shoot for 70%, right? Well, yeah if you want to be the person in their career that barely squeaked by their professional exams. Besides that, professional development is a life-long process and those that think it ends after an exam or two will quickly find themselves downsized. Study until you master the curriculum then move on to new curriculum and new challenges.

Those seem to be the big 3 myths for the exam but there are bound to be more. Use the comment section below for other myths you’ve heard.

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