CFA Curriculum Warning: Do Not Neglect

The actual length of the CFA curriculum varies a little each year but it’s generally between 2,500 and 3,200 pages. When you get the books in the mail, or receive the digital version, that may seem like a monstrous task. Over the three years of studying for the exams, I think my upper body strength grew just as much as my financial knowledge just from carrying the books around.

Study guides meant to substitute for the curriculum vary but generally range between 1,400 and 1,700 pages. At under two-thirds the length of the official curriculum, it seems like a no-brainer and I know many candidates who have only rarely even peaked inside their curriculum books.

And many of them are still candidates.

Do Not Neglect the Official CFA Curriculum!

Candidates that have tried to substitute the CFA curriculum with study guides have come to me afterwards with their horror stories. My reply is always the same, “I wish we had talked before because if you do the math then the answer is pretty obvious.” The minimum passing score for the exams is never released but I would guess it is around sixty-five percent. No candidate has failed with a score of 70% or better and I doubt if the Institute would want to charter someone that knows less than two-thirds of the subject matter.

Even the most gifted candidates are going to miss points. If about half the candidates fail the exam every year, I am guessing that most miss at least a tenth of the points and probably much more. We have no way of knowing but it’s obvious that you need every point you can get.

Now, I have seen pretty much all the study guides commercially available. There are some that do a pretty good job of condensing the material but none are able to get everything in a packet that is half the length of the curriculum. It’s impossible and information is going to get left out. Try to fit nearly 3,000 pages of information in less than 2,000 pages of notes and I would say you’re lucky if 20% of the information isn’t lost.

So if you neglect the official curriculum completely, you are already out something like 20% or more of the points. Now you need to remember at least 80% of the material just for a score of 64% on the exam.

Most of you have taken practice exams through test banks or the CFA Institute. How many have scored better than 80% on these? I know reading all those books is a daunting task but you just cannot afford to leave points on the table by neglecting the official curriculum.

CFA Study Guides

I don’t talk about the FinQuiz study notes much here on the blog other than to reference specific sections of the notes and the curriculum. I don’t want candidates to think I am being biased by pushing one particular study provider over another. But I can say, without any bias, that the FinQuiz notes have at least one big advantage over other study products, that they are meant to be used as a complement to the curriculum instead of a substitute.

The FinQuiz notes vary by length as well but are generally around 600 pages. It’s really the best of both worlds, you get 100% of the information from the curriculum and additional condensed explanations where you need them.

Free examples of the FinQuiz notes are available for download on the website. Take a look and compare them with the curriculum. FinQuiz regularly offers discounts on products and packages so you may want to contact the provider to get the best deal possible.

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

Last updated: August 10, 2016 at 4:30 am

Studying for the CFA Exam without knowing your studying

It’s not even January yet and the last thing many of you want to think about is studying for the CFA exams in June. I always liked to start early and set a relaxed study schedule but I’m not going to tell you that you need to get busy studying immediately.

What I can tell you is that there is a way you can actually keep your skills fresh while waiting for later to really start studying. It’s a little thing I like to call stealth studying and everyone should work it into their daily routine.

CFA Institute Resources

Your first stop will be some of the great resources on the CFA Institute website and the Enterprising Investor blog. The Institute’s Publications & Multimedia page sports a seemingly infinite amount of research and resources. Resources are indexed by asset class and topic area with separate sections for career advice like networking, management and current topics. A lot of the resources are quick presentation-type material so you can look through it within a few minutes to get the general idea. It’s a great way to generate ideas for your own work.

Must Read Books

The Enterprising Investor blog also offers regular reviews for books related to the industry. Within the reviews, you’ll find a mix of educational books to further your skills and books that will entertain. I just finished Alan Blinder’s, “After the Music Stopped,” after reading the review on the site and really enjoyed the insightful analysis of the financial crisis.

Of course, Graham’s timeless book, “The Intelligent Investor,” is always a good start for those that haven’t yet read it. After months of detailed and rigorous study of the CFA curriculum, it’s nice to sit down with a relatively straight-forward and simple tome.

Networking with colleagues

Readers of the blog will know that I’m a big advocate of active involvement in your local CFA society. Most likely, you are going to want to approach these people for a job opportunity in the future so it’s best to get to know them first. Networking with other candidates and charterholders serves another function, getting some of the best insight from some of the best minds in the business.

So stealth studying isn’t really anything new, it’s just keeping involved in your industry. Reading books, whether for information or entertainment, watching presentations from other professionals and connecting with others in the field will all help to keep your mind sharp.

Whether you are working in investment analysis and management yet or not, it’s best to start thinking of yourself as a professional. You’ve committed to one of the most difficult professional designations out there and just the Level I CFA curriculum puts you well on your way. As a professional, it’s also best to stop thinking in terms of a period to study for the exams and the rest of the year in which you get to relax. Being a professional is about constant improvement and keeping up to date with the industry.

The resources above will not only help you prepare for your next CFA exam but will help you become a better professional.

‘til next time, happy…studying?
Joseph Hogue, CFA

A Secret about the CFA Curriculum that You Won’t Believe

There is a secret that many charterholders do not tell candidates. A secret so terrifying that most candidates probably wouldn’t believe it even if we told you.

After struggling through upwards of 9,000 pages of the curriculum over the course of three years, the truth is nearly impossible to fathom.

But even after more than 900 hours of study and countless study problems…
Many charterholders still read their curriculum.

Keep Your Curriculum Books!

Over the three years I studied for the CFA exams, I couldn’t stand the sight of my growing stack of curriculum books. The journey begins innocently enough with your Level 1 books. You may even be excited when that big box arrives in the mail.

But it doesn’t take long for that excitement to turn to despair and loathing as you toil through thousands of pages while your friends and family go out on the weekends.

Ok, so maybe I’m being a bit melodramatic but the fact is that most candidates avoid the CFA curriculum like the plague while studying for the exams. They rely on condensed study guides to get all their information for the exams. Sometimes it works, other times the candidate is left repeating exams because the study guides didn’t include all the detail needed to pass.

After the final Level 3 exam, the candidate breathes a huge sigh of relief and burns his curriculum books in effigy.

And then something odd happens. It happened to me and I can almost guarantee it will happen to you as well. I found myself referring back to the official curriculum in my professional career as an analyst. It starts like this, you will be looking at a company or sector and thinking how a fundamental difference in the group affects its valuation. Maybe the industry typically carries an especially high amount of goodwill on the books or maybe an accounting convention within the industry is different from other industries. It depends on where you work and the exact duties in your role but maybe you do not regularly account for that kind of detail in your analysis.

Then you remember, there was a whole section in the CFA curriculum about just such a practice! You scramble to the nearest library (because you burned your books, remember) to thumb through the curriculum. You read through the section and add it to your analysis.

This isn’t a wild story or something that will only happen to you on rare occasions. Your time spent studying for the CFA will commit to memory the basic idea of the readings even if you do not exactly remember the details. While your job as an analyst will involve going beyond the curriculum’s detail in some sections, there are some sections that you may not use or will only use broader estimates.

For example, while the curriculum goes into great depth and detail to adjust the financial statements in a number of different accounts (i.e. pensions, long-lived assets, inventories and intercorporate investments) you will likely not go into so much detail in your valuation models. That is not to say that your models will not be robust but maybe the level of detail just isn’t always needed. Until that day when you see a particular deal announced or a news release and think, “maybe this changes things and I need to look further into the details.” When you do look into the details, and it produces some real value for your firm, you will be generously rewarded.

The curriculum is your friend, you just don’t know it yet

I know it is tough to imagine how reading 3,000 pages of curriculum is a better option that relying on a 1,500 page study guide. You’ll just have to trust that all the time spent reading through the detail will pay off down the road.

This industry is full of highly intelligent and committed people. Every one of them has a cash flow model and has spent hours (more like years) studying how to analyze companies in their industry. You will only be able to compete if you can find the details that others miss. Reading the whole CFA curriculum when many candidates avoid it may just be your chance to uncover those details.

…and keep the books. It will save you a trip to the library later.

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

Last updated: July 18, 2016 at 16:26 pm

CFA Level 1 Review: Equity Investments

Study session 14 in the CFA Level 1 curriculum concludes the material on equity investments with three readings (49-51). I wanted to hit on this study session before the beginning material in SS13 because it is a little more important and will be the base of what you need for the second exam. Most of the material is conceptual and will be repeat for students of finance. If you are new to the industry, spend a little time to get the vocabulary and concepts.

The topic area is only worth about 10% of your first exam but is extremely important in the other two tests and through your career as an analyst. Much like the introductory material on Financial Statements, this material will act as base knowledge you absolutely must know.

Overview of Equity Securities

The reading is all conceptual so make sure you get the general ideas and the vocabulary. Understand the characteristics of equity and what function they serve. As always, pay special attention anytime the curriculum compares one idea with another and discusses advantages/weaknesses. This kind of list and definitional material is easily testable in a multiple choice format.

Whereas debt securities represent a liability of the issuing company, equity represents a residual ownership on the company’s assets. This implies higher risk but also potentially higher return. There are three types of equity securities; common shares, preferred stock and other. There is some material on preferred stock, i.e. adjusting some of the metrics and its higher status for payments, but you will spend the vast majority of your time learning about common shares.

The material on private equity investments, i.e. venture capital and buyouts is fairly interesting. Understand the objectives of these investors and the summary idea behind the investments. Private equity generally has a lock-up period of 3-5 years, meaning the money is committed for a long-time and illiquid. Understand the difference in exit plans for these groups, i.e. venture capital generally looking to take the company public or sell to another fund; buyouts will recapitalize the company (take on debt) and manage a turnaround to issue shares again or sell to another fund.

The Institute has scaled-back the material on foreign stocks and emerging markets over the last few years but there is still some information you should remember. Understand the reasons a foreign company would issue Depository Receipts and the three levels of sponsored ADRs.

The last section, Equity Securities and Company Value, is probably the most important since it gets you ready for valuation. Understand the different valuation ideas, i.e. book value and market value. Return on equity and the cost of equity are two very important concepts throughout the CFA so make sure fully understand them here.

Return on equity (ROE) is a key measure of profitability and can be calculated as the net income over the book value of equity. How much income is the company able to generate on investor’s equity? You will use the DuPont formula later to look further into ROE but make sure you understand this book value formula and what it implies.

Introduction to Industry and Company Analysis

Another largely conceptual reading and more akin to an MBA course than the CFA curriculum in my opinion. The material on industry analysis revolves around the idea that different industries react differently to the macro-economic environment. Analysis of this helps to assess profitability and leads to an industry or sector rotation strategy.

Businesses can be grouped through their product or service or by the correlation of their sales to the business cycle. Grouping by products or services puts companies in a similar industry and a sector. While grouping by business cycle separates companies into cyclical and non-cyclical stocks.

Cyclical companies have a positive correlation with the business cycle. When the economy is expanding and business/consumer spending is rising, these companies see higher sales. Demand for their product/service is elastic and more discretionary.

Non-cyclical companies do not have as positive a correlation with the business cycle. They sell products/services that are necessities (non-elastic) and demand is more stable. Sales may still rise or fall with the economic cycle, just not as much as cyclical companies.

As always, remember the advantages and weaknesses of business-cycle classifications. The grouping helps to differentiate risk associated with the business cycle but is somewhat arbitrary. Since economic cycles differ across countries, international companies (even cyclical ones) may be able to smooth their revenues. Some industries may have characteristics or products/services that makes it difficult to group them as either cyclical or non-cyclical.

The material on industry classification systems is secondary so just understand the main ideas. Make sure you understand the material on the grouping by sector, then by industry and the steps in constructing a peer group.

Spend a little extra time on the principals of strategic analysis, especially Porter’s Five Forces. The material is highly testable and you will see it again in the CFA Level II exam.

  • Threat of substitutes – the more substitues a product has then the more elastic its demand will be and the lower the company’s ability to increase prices
  • Bargaining power of buyers – when there are fewer buyers that control a large part of the product’s demand then those buyers will be better positioned to bargain for lower prices and concessions
  • Bargaining power of suppliers – similarly if there are only a few suppliers of raw materials, they can more easily demand higher prices or restrict supply. Conversely, if there are many suppliers or it is a commondity material then they will have lower bargaining power
  • Threat of new entrants – this depends on barriers to entry like the cost to start a business, any regulations or laws around the product. If there are high barriers to entry then the existing companies are better protected and face less competition
  • Rivalry among existing firms – the more competitive the industry then the less ability the company will have to raise prices and profits. This tends to happen when the industry is fragmented (many small companies), has high fixed costs and sells an undifferentiated product

Remember the five stages of the industry life-cycle; embryonic, growth, shakeout, mature and decline as well as the basic forces within each stage.

Equity Valuation: Concepts and Basic Tools

Understand the differences and advantages/limitations of each of the three major categories of valuation models:

1)      Present value or DCF models provide an intrinsic value estimate of the shares as the sum of future cash flows.

  1. Understand the Gordon growth model and its assumptions, i.e. growth remains constant indefinitely, dividends grow at a constant rate, and the growth rate is less than the required rate of return. A multi-stage DDM is necessary when growth is not constant.
  2. Pay attention to the FCFE model and how it can be used on non-dividend paying stocks

2)      Market multiple models estimate value through a multiplier with earnings, sales, enterprise value or asset-values. These can be applied on a trailing or forward basis.

  1. These are fairly easy to understand but you need to know the limitations, i.e. the multiples are based on trailing (past) data and may not be a good predictor of the future, the multiples reflect relative valuation compared to peers or the index but not intrinsic value.
  2. Understand the difference between the trailing multiple (past data) and the justified (forward) multiple which is based on forecasted data.

Price-to-Cash Flow Ratios

There are several of these ratios listed in the curriculum but the most attention is given to Free Cash Flow-to-Equity (FCFE). You should already be familiar with FCFE and FCFF from the corporate finance material as well as in other parts of the equity curriculum. For the other P/Cash Flow ratios, just remember some of the adjustments that are typically made like non-cash charges and financing. Cash Flow metrics are preferred because it is not as easily manipulated by management as earnings numbers.

Free Cash Flow-to-Equity (FCFE)

The calculation for FCFE is fairly easy but you need to make sure not to get the components confused with FCFF. FCFE is CFO minus investments in fixed capital plus net borrowing, or the cash flow available to common equity holders without placing a burden on operations.

FCFE can be more volatile than other cash flow measures because of the capital expenditures spending, so you might have to use a multi-year average if the test question mentions it. Though you will probably not be asked to do so on the test, some analysts adjust CFA for nonrecurring expenses before calculating FCFE. A big focus in the CFA curriculum is conservative practices, almost always favored when a choice is given. Adjusting items for non-recurring events and taking the average of volatile accounts over a period of time are more conservative and provide a more stable estimate.

Make sure you can go from FCFF to FCFE or can get there from multiple routes. Thinking through the various accounts and why they are included will help get these concepts down. PRACTICE, PRACTICE, PRACTICE.

FCFF = CFO + interest(1-tax rate) – Fixed Capital Investment

FCFF = EBITDA(1-tax rate)+depreciation expense(tax rate) + (increase in deferred tax) – (investments in fixed and working capital)

FCFE = FCFF – interest(1-tax rate) + net borrowing

Enterprice Value-to-EBITDA

EV is the total value of firm in excess of cash and investments. This is the market value of debt plus common and preferred equity, minus cash and investments. We use the market value of debt because it is a more realistic amount that someone would pay for the firm, when combined with equity. Earnings before interest, depreciation and amortization (EBITDA) measures the potential cash flow to all providers of capital, so by taking a ratio of the two we find a market driven valuation of the firm.

The advantages of the metric are that it is more appropriate when valuing capital-intensive companies or those with differing amounts of leverage (because it is a pre-interest and depreciation measure). The metric is also useful when earnings are negative and P/E cannot be used.

The main disadvantage is that it does not account for several adjustments that should be made for good measures of operational cash flows. Different revenue recognition practices will change results as well as trends in working capital.

We’ll hit study session 13 next week with a review of market structure, indices and efficiency. It is completely conceptual and of secondary importance compared to SS14 so should be a pretty easy week. You might want to plan on reading through SS13 quickly to leave time to review the important material from this week’s SS14 readings.

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

Candidate Warning: Use WhatsApp Carefully

I have been amazed at the growth of WhatsApp study groups just over the last year. Six of the top ten most popular posts on the LinkedIn CFA Candidates group are calls for a WhatsApp group, including the most popular post which has 369 comments.

The draw of the application is that users can send text messages without paying the SMS fees associated with most carriers. With over 118,000 candidates across the globe, there is no lack of members eager to connect especially when there is not much of a local group.

I contacted a few candidates that have used the WhatsApp groups for their insight into the phenomenon. The response was almost entirely positive from the group with a few big caveats.

Avoid common problems with messaging groups

The group members I talked to generally said that their experience with WhatsApp groups was positive but had a few warnings for those considering the groups. Some are specific to the CFA exam while other problems are more common to groups in general.

WhatsApp may be a great resource for asking questions and sharing insight into those tough topics, but don’t forget that the best way to prepare for the CFA exams is still through practice problems. I always set a goal for at least 2,400 practice problems, ten times the amount on the exam, for my test preparation. Doing these problems gets you physically ready to handle a six-hour test and helps to convert the material to long-term memory through repetition.

Make sure you are not spending too much time on the WhatsApp group. Studying for the CFA exams can be incredibly isolating and candidates have a tendency to confront this by spending lots of time in groups and searching through forum topics. Spending a little time each week socializing with local candidates can be a great way to avoid this and can also help make connections that will help you down the road.

Make sure you double-check answers you receive with the curriculum or study guides. There is nothing that guarantees the answer you receive from other candidates is correct. Problems with incorrect answers are not generally a problem with larger groups since the consensus usually corrects the misinformation.

Some caveats to groups in general include:

  • Avoid the temptation to use the group for a conversation with one member. Unless you are answering a specific question that is relevant to the entire group, these conversations are best left to private messaging.
  • Make sure you keep the conversation relevant. This is tied to the caveat above but can often envelope several members and steer the group off topic. There are plenty of forums for discussing your love of cheese (or whatever), you are here to help each other pass the CFA exams.
  • Don’t assume that everyone understands your short-hand text messages. Whole dictionaries could be written on the jumbled mix of letters that have come to be used for text conversations. Some users may not understand your use of acronyms or abbreviations.

It has also struck me how freely candidates share their WhatsApp number on the web. I asked a few candidates and no one expressed any concerns with privacy. I imagine the risk to posting on a very specific forum like the CFA Candidates group would be minimal but I am still interested in hearing if anyone has had a problem with the dissemination of their number. Use the comment section below.

We’ll continue our review of the Level 1 CFA exam next week for December candidates. For those not planning on sitting for the December exam, enjoy your break!

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

Level 3 CFA Curriculum Changes 2015

 

The readings and Learning Outcome Statements (LOS) are out for the 2015 CFA curriculum and there have been some significant changes. Make sure you download the curriculum outline and new LOS from the CFA Institute website.

The most surprising change has been a modification of the topic area percentage weights on the exams. The previous topic weights had been the same for years, before I was a candidate, and no one really saw the changes coming. The actual changes are relatively marginal but still surprising. While new topic weights were given to many topics in the first two exams, it looks like the weights have been removed altogether from the Level 3 exam.

At first glance there appears to be huge changes to the Level 3 curriculum this year but closer inspection reveals less new information and a simple reshuffling of study sessions and readings. The Institute has changed study sessions around, condensing some and separating others.

Private Wealth Management has been separated into two study sessions. Economics and Capital Market Expectations were two study sessions last year but have been rolled up into SS7 this year. Asset Allocation has been separated into two study sessions, eight and nine, this year. Equity Portfolio Management has been condensed from two study sessions to just one. There are also readings that have been moved from one study session to another.

After all that, only one new reading has been added (asset allocation) and three readings have been removed (one in Ethics and two in Equity Investments).

The new (11th) edition of the Code and Standards is not materially different from the previous edition. Some of the standards have been modified to include a more proactive requirement, i.e. the need for supervisors to take positive steps to promote compliance rather than disciplinary action.

New readings:
(20) Market Indexes and Benchmarks

Dropped readings:
(3) Ethics in Practice(24) International Equity Benchmarks
(25) Corporate Performance, Governance and Business Ethics

The removal of topic weights from the exam is not necessarily a big change. Suggested topic weights for the Level 3 exam always had a large range and were not very useful anyway. Portfolio management, i.e. individual and institutional, are still going to be major sections and worth every minute of study time.

The Level 3 CFA exam is still all about the essay portion and the best way to approach it is still by going through old exams released by the Institute. The guideline answers to the essay exams reference a specific reading from the curriculum so make sure that reading is still included in the curriculum. We’ll cover several essay questions from prior exams in our review leading up to the 2015 exam.

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

Level 2 CFA Curriculum Changes 2015

The readings and Learning Outcome Statements (LOS) are out for the 2015 CFA curriculum and there have been some significant changes. Make sure you download the curriculum outline and new LOS from the CFA Institute website.

The most surprising change has been a modification of the topic area percentage weights on the exams. The previous topic weights had been the same for years, before I was a candidate, and no one really saw the changes coming. The actual changes are relatively marginal but still surprising.

Level 2 Changes

The topic weight for Ethics & Professional Standards has increased from a fixed 10% weight to a range of 10% to 15% on the exam. The range on Financial Reporting & Analysis has been tightened to 15% to 20% of your exam score, slightly decreasing its potential importance from a high of 25%. The importance of Equity Investments has also decreased with a new weighting range of 15% to 25%, from 20% to 30% previously. The range on Alternative Investments decreased to 5% to 10% (5% to 15% previously) while the range for Fixed Income Investments increased to 10% to 20% (from 5% to 15% previously).

There are six new readings to the Level 2 exam (one in FRA, one in Corporate Finance and four in Fixed Income) while 10 readings have been removed (two in Ethics, two in FRA, one in Alternative Assets and five in Fixed Income).

New Readings:

(20) Evaluating Quality of Financial Reports
(25) Corporate Performance, Governance and Business Ethics
(42) Term Structure and Interest Rate Dynamics
(43) Arbitrage-Free Valuation Framework
(44) Valuation and Analysis: Bonds with Embedded Options
(46) Introduction to Asset-Backed Securities

Dropped Readings:
(3) CFA Institute Soft Dollar Standards
(10) Prudence in Perspective
(22) The Lessons We Learn
(23) Evaluating Financial Reporting Quality
(43) Investing in Hedge Funds: A Survey
(46) Term Structure and Volatility of Interest Rates
(47) Valuing Bonds with Embedded Options
(48) Mortgage-Backed Sector of the Bond Market
(49) Asset-Backed Sector of the Bond Market
(50) Valuing Mortgage-Backed and Asset-Backed Securities

The Ethics & Professional Standards topic has gotten a little easier with the removal of some supplementary readings. You still have the case studies but almost all the material is a repeat of what you saw at the Level 1 curriculum. The new edition of the Code and Standards is not materially different from the previous edition. Some of the standards have been modified to include a more proactive requirement, i.e. the need for supervisors to take positive steps to promote compliance rather than just prevention. The new chapter on ‘Ethics and the Investment Industry’ provides a strong argument for ethical conduct and integrity of the markets.

If you compare last year’s readings with the 2015 readings, you’ll notice that many have been changed rather than necessarily added or dropped entirely. This is good news for repeat candidates since it means that the LOS have not changed as dramatically as the readings. Of all the changes, I would probably pay the most attention to Fixed Income. The readings have been changed significantly and the topic weight on the exam has increased as well.

The common belief is that there is a higher chance of new material, i.e. new readings, appearing on the exams. I am not sure this is true or if it is even intentional by the Institute if it does happen. I would still recommend focusing on those topic areas with the most weighting whether they include new readings or not. The Level 2 CFA exam is all about the details and formulas. Where the Level 1 exam was about ‘why’ things are done, the Level 2 exam is about ‘how’ they are done so make sure you are able to work through formulas and processes.

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

After the Exam: Taking a Break without Breaking Your Momentum

First, congratulations on making it through another year of studying for the CFA designation. The relief you feel depends on how many more years you have to earn the charter but the accomplishment is as tremendous for level one candidates as it is for those taking the last exam.

Now, you’re probably sitting there wondering, “What do I do with all this marvelous free-time?” Sure you want to reconnect with friends and re-learn the names of your kids. That in itself might be enough for some people, but we are driven people and need to be doing something more. Even more, no one is relaxing in this industry and you can’t afford to rely on what you learned yesterday to make you competitive tomorrow.

This is a great time to put the material you learned for the CFA exam to practical use. This is going to serve two purposes. First, it is going to reinforce the material and you won’t have to review when you begin studying for the next exam. Levels II and III each have supplemental review sections ahead of many of the readings because many candidates neglect to keep the topics fresh in their mind. Save yourself a lot of time and don’t lose the information you studied so hard to remember.

Using the material is also going to help you grow as a professional. The smartest guy in the room still isn’t worth squat unless he can put his intelligence to good use. Working through the material on a project will help you see what works best and you’ll pick up new ideas along the way.

Being proactive with your own work

If you are not employed or not working in the industry, you absolutely must be putting together your own portfolio of work examples. Want to be an equity analyst? Who is going to hire you if you have never worked on a report? Putting together a couple of sample reports will not get you a job that requires years of experience but it will show your ability and enthusiasm and it will put you higher on the list.

If you can find a mentor, so much the better. This can be a professor or a connection, anyone with prior experience in the field. Have them help you with a roadmap of creating your project; i.e. sources, process, material from the CFA curriculum that you will use. Don’t ask for their entire day, just a lunch to outline what you need to do to put a report together. If you cannot find a mentor or someone to help you for a limited time… you probably are not trying hard enough or are doing something wrong. Our industry, as with many things, is all about networking and you need to develop the skill of reaching out to connections.

Leverage the exams at work

If you’re already working in the industry then talk to your supervisor about how you can use the curriculum in your job. The CFA curriculum is fairly practical so you should already be using some of the material. First, sit back and think through the topic areas and readings yourself. Ask yourself, which parts am I currently using and which might I use more. Of course, this is all assuming that your supervisor is open to change and new ideas. If he’s not then you may want to consider your options because his lack of creativity is eventually going to hold your growth back.

Side projects and team leadership are a dirty word around some offices but can really make your career if you succeed. Keep your ears open to planning and development needs and volunteer to lead or sit in on projects. Keep in mind that you may be studying for the next CFA exam in six months so be mindful of the time the project is going to require.

Whether you add a few responsibilities to your existing role or take on a new role, the idea is to use the material from the CFA curriculum. Just working through the exams and holding the designation has value in itself but it’s nothing compared to being able to use that knowledge.

Would love to hear how you used the information or how working through the exam has helped you professionally.

‘til next time, enjoy your break
Joseph Hogue, CFA

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

Your 2014 CFA Study Plan

This is it! January is upon us and I can hear the pencils sharpening in preparation for the 2014 CFA exams. Ok, probably not pencils but I hear the laptops whirring to life and we’ve just five short months left to test day.

We won’t be posting a weekly review of the study sessions like we did last year but most are still relevant for this year’s exam. The study session reviews covered each topic over 18 weeks starting in January and starting with the ethics material.

Make sure you check our post on changes to the Learning Outcome Statements (LOS) for each exam so you can focus on the material that could appear on this year’s exams. We posted the changes to the CFA Level I and Level III exam in August and the changes to the CFA Level II exam in September.

22 Weeks of Good Fun Studyin’

You might be tempted to give yourself another couple of weeks vacation and start studying with a nice round number like twenty weeks, but you’ll need every hour if you are going to pass one of the hardest professional exams out there. Spending about 300 hours over 22 weeks means you’ll still have to dedicate between 13 and 14 hours a week.

I get a lot of questions each year about how to study the curriculum to prepare for the exams. My best answer is…yes, study! It’s not quite the answer expected but the simplest answer could also be the best. We’ve gone through different methods of studying here on the blog, looked at the difference between active and passive studying and talked about the topic weights on the exams. The most overlooked tip though is that candidates need to worry less about how to study and get to studying. Studying the curriculum does not mean putting a plan together that gets you through the material once before exam day, you need to be prepared and that means committing the material to long-term memory.

Committing the material to long-term memory means reviewing it multiple times and in multiple forms. Since we still want to finish early enough to review the more important topics and focus on mock exams, you’ll need to start as soon as possible. The plan below isn’t complicated but it is intense. It’ll be tough but you’ll review the material enough times that it will be seared into your brain well after the test has come and gone.

The plan begins each week with reading the curriculum for the next study session (1-18) and completing all the blue-box and end-of-chapter questions.

The following week, you read the curriculum for a new study session and review the previous study session through the use of condensed study notes. Beyond reviewing the study guide for the previous session, you need to do some testbank practice problems to reinforce the material.

In the third week, review the individual LOS for the study session and write up flash cards for the concepts that you still haven’t mastered. After 20 weeks, you will have reviewed each study session three weeks each and done several rounds of practice problems. Reading the curriculum for a new study session each week will take the majority of your time but try to fit in the reviews and problems as well.

Starting in week 18, try to complete two full-size practice exams each week. Whether formal mock exams or just a 120 questions from test banks, try to do these in the approximate percentages for each topic area. This should give you a good idea of the topic areas in which you need more work.

By week 21, you are going to be tired of anything CFA-related and will deserve a break. You won’t have the luxury of completely relaxing but just review your flash cards for an hour each day.

Your final week is an intensive review. Take the week off from work if you can and treat studying like it was your full-time occupation. Eight hours a day should give you enough time to review two study sessions a day and work a full-length exam.

By now, the practice exams are only partially to clue you in on your weak points but also help to get you into the mental preparedness of handling a six-hour exam. Complete them as you would the actual exam, in two 3-hour segments and in a relatively quite setting.

Go over the curriculum that many times and I have no doubt you will go into the exam fully confident in your mastery of the material. Make sure you follow our last minute checklist for preparing for the exam, available by clicking here.

And good luck on the exam, it’ll be here before you know it.

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

Top 5 CFA Exam Posts from 2013

As we wind up another year on the blog, I thought I would run through the most popular posts over the last twelve months. Most popular does not necessarily mean best or most useful, I’ll need your help in finding those. I would like to think that the most popular are such because they were passed around and read frequently, a result of them being useful as well.

While the three posts describing LOS changes to each exam were all very well read, I’ve excluded them from the list. It doesn’t do us much good to review what LOS changes were made last year but we’ll get the list of next year’s changes out soon.

February 8th Are you ready for the June CFA exam, have you started yet?

I did a quick poll on LinkedIn to see where candidates were at in their study schedule. As of early February, 16% of candidates had finished at least 60% of the curriculum while 56% had not seen more than 20% of the material. It was an informal poll and there were questions unanswered but there were some lessons to be learned. Don’t count on being able to skim through the material once and do well on the exam, most brains just don’t work like that. Most need to see something several times before it is committed to long-term memory.

December 2ndThe passing score on the CFA exams and how to use it

The actual score or percentage needed to pass the exams is never released but it remains a popular topic for candidates. We know that no candidate has ever failed with a score of 70% or above, so that has always served as a good target. We also know that nearly half of all candidates fail their exam in any given year, which can help to gauge your own progress anecdotally against the rest of the herd.

The 70% target also offers a sober reminder that the exams are more than just a set of multiple-choice questions or essays, it is a gauge of your professional knowledge. Would you trust someone that scored less than two-thirds on their professional exams to handle your money?

January 4thThe Tortoise and the Hare study plan for the CFA exams

I’m always amazed how late some candidates choose to start studying for the exam. While I prefer a slow-and-steady approach to studying, I recognize that some work better under pressure and prefer a later start. In this post, I present two study plans – one for the tortoise and one for the hare.

Even the tortoise study plan, with 20 weeks and 15 hours per week, may be too demanding and I normally started much earlier than this. Still, I think it provides a realistic goal of one study session per week and two weeks of review.

The hare’s study plan is only for those that can clear their schedule completely and devote 30 hours a week over the last nine weeks before the exams. This would be nearly impossible for most candidates but maybe just the right amount of pressure for some.

May 17thAre the actual exam questions easier or harder than mock exams or practice problems

As important as the practice problems are to passing the exam, I am not surprised that this post was widely read. Doing hours of practice problems is probably not your preferred choice of study method but it is probably the best way to spend your time. It helps to gauge your understanding of the curriculum and gets you ready to handle the 6-hour marathon that is the CFA exam.

Whether the practice problems or mocks are easier or harder than the actual exams, you need to do enough of them to build a confidence interval around your score. This allows you to guide your studying until your interval range encompasses that all-important 70% score.

May 28thI’ve passed the CFA Level 1, why don’t I have a job

Using the designation to get a job is easily the most popular forum topic, so it’s given that this would be the most popular post of the year. Whether you’ve already got a job and are looking to move up or you think the exams will get your foot in the door, it can be equally frustrating when it doesn’t all fall into place.

I can tell you that the CFA designation and the knowledge you will gain from the curriculum will help you succeed in the industry. It is one of the strongest and most respected bodies of knowledge in the industry and your perseverance does count for something. I can also tell you that you will still have to fight for the job you want. Use the same perseverance and hard work you put into the curriculum to get your foot in the door and you will not be disappointed.

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

The Do’s and Don’ts of using your CFA Charter

Before you tune out saying, “I already know what the Code and Standards say about using my charter,” this is not about how you should technically use the designation.

This post is all about getting the most out of your charter. You worked hard for it. Those 900 plus hours and three years should get you something, right?

1)     Do use the charter! I see a lot of people on the internet and have talked with people at conferences who you would never know they were a charterholder. Now I am not saying you monogram all your shirts with CFA, but it should go on your professional nameplates (i.e. business cards, professional social media profiles, nametags at conferences). Presumably you wanted something more from the designation than just the knowledge you got from the curriculum. It’s going to be hard to reap those benefits unless you let people know.

2)     Don’t be a CFA-ist. I’ve seen this before and came close to doing it myself. You are talking with a group at a conference or professional event and the conversation comes around to designations and qualifications. Naturally you want to talk up the grueling study needed to pass the CFA exams, so you gush about how it is so much harder than other designations and it is the only real investment-related qualification. That’s when you find out that several people in the group have other designations (i.e. CFP, CPA, etc). Then you find out they know a lot more than you and have more distinguished careers.

There is some overlap in the markets for the designations but mostly they serve different purposes. Feel free to talk up the charter but understand that the measure of a designation’s worth is what you do with it, not by just having it.

3)     Do take advantage of ALL the benefits. When is the last time you went to a local CFA society event? When was the last time you logged into the Institute’s website and looked around, maybe looking at some of the published research? Clawing your way through the exams and paying your membership dues (yes, along with signing your annual ethics statement) provides you with a range of benefits well beyond just using those three little letters after your name. The charter puts you in a network of some of the best and brightest in the field.

I’m not saying that Bill Gross, CFA is going to start taking your calls but reach out to other charterholders in your network. The research published and available on the Institute’s website, combined with the insight from others all around the world, will make you a rockstar in your sector.

4)     Don’t forget the connections you made as a candidate. A lot of candidate groups form some great bonds while helping each other through the three-year war that is the CFA exams, then they go their separate ways into different sectors. Keep those friendships alive and help each other out.

There cannot be just four do’s and don’ts for using the CFA designation! What are your own musts for after you earn the charter? Any mistakes you’ve already made?

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

The Great CFA Problem Set Challenge

Each year, thousands of candidates take the CFA exams and I get a lot of emails from those with good outcomes and those with outcomes that were not so great. One thing always seems to separate the passing candidates from those in one of the fail bands, practice problems.

Now it felt like I did a million practice problems and problem sets every year that I took the exam but the average I get from most passing candidates seems to be around 900 problems. Yes, of the candidates that tell me they passed, the average number of practice problems completed is around 900. Of those in the fail bands, it seems the average is just under 500 problems.

Not a formal study and probably some biases in the data (you tell me which ones), but there is definitely a difference. It doesn’t take any leap of imagination to figure it out. Practice makes perfect, right? 900 practice problems is about five full exams worth of problems. If you can do this many practice problems, learning from your mistakes, then you should have picked up enough to get more than two-thirds on the actual exam. Of course, learning from your mistakes is important. Sitting there getting 30% on each round of practice problems without reviewing the answers isn’t going to help anyone, but that’s another topic.

Your challenge for the next exam!


My challenge to you is this, for the next exam, do 1,440 practice problems. That’s about 8 full-length tests and more than 1.5 times the average number reported to me by successful candidates. It may seem like a lot but its still less than half the number of practice problems in the Finquiz Web-based Test Banks. For the first four, do not worry too much about your score. Do the practice problems and review any incorrect answers. Make sure you review the questions that you guessed correctly as well because you may not be as lucky the next time around.

After your first four exams, start keeping track of your overall score and your percentage score within each topic area. Plan out your study schedule so you finish the last set of practice problems approximately two weeks before the exam.

If you finish the last problems with an average score of at least 75% over the last 360 questions (2 full exams), then you can relax and just do some maintenance studying up to the exam. I hesitate to talk about an alternative because if you have finished more than 1,400 problems and are not scoring very well then a few more hundred problems are probably not going to help.

You will want to check your average scores in the individual topic areas. If you are scoring less than 60% in any one area then you’ll need to work on it regardless of your overall score, but after 1,440 practice problems I have gotta believe that you are going to be golden for the exam.

I can’t give you any guarantees but if I wanted just one way to assure myself that I would pass the exam, it would be the 1,440 challenge. For you December testers, that’s about 40 problems a day with a week left to the exam. For June testers, you could start in February and do just 96 problems a week.

You will need to do the readings or at least read the study guides to be able to work the practice problems but achieving your 1,440 should be the goal.

That’s it. Seems easier when you can focus on just one goal rather than trying to elaborate on a lengthy and intricate study plan. Work those practice problems, meet your goal and you will not be disappointed!

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

Last updated: July 18, 2016 at 16:41 pm

Your Exam Goal for the Day: Learn 5 Formulas

With just three days left before the exam, you really don’t have a lot of time to review the entire curriculum. In fact, if you are studying more than 8-10 hours each of these last few days you are probably setting yourself up for burnout before the exam.

You can actually make these last couple of days a fairly relaxing break from the last few months of ‘round the clock studying. The trick is understanding the topics in which you have a real weakness and setting a goal that can get you the max points with the least study time.

If you’ve been taking mock exams and question banks, and I really hope that you have, then you should have a fairly good idea of where you stand in each topic. You also need to look back to the topic weights for your exam to get an idea of where you should be spending your time.

Ethics and Financial Reporting are must-know topics on the first exam, with equity/quant/fixed income a close second. Equity and Financial Reporting are your big money topics in the second exam, with the possible points from other topics varying widely. The third exam is all about the essays and you should be working the old exams provided by the Institute.  If you have not mastered the ‘core’ topics within your exam yet, spend your time there.

Formulas or Concepts
A common question this late in the game is whether you should be focusing on conceptual material or just hitting the formulas.

Concepts are extremely important for the first exam, but unless you have a good idea of which topics you need to study then reading through pages of text might not be a good use of time. If you have a condensed study guide or a one-page summary sheet, you might want to review that for your conceptual material.

Formulas are quickly covered and a big part of all three exams. The last few days before the exam can be a great time to wrap up any formula work you need to do. Set a goal of learning 5-10 formulas that you have had trouble with over the last few months. Put practice problems on note cards and drill the cards until you can easily do the problem. Make sure you work the problems, don’t just look at the cards!

Go back through the formulas the next day to make sure you still remember but you shouldn’t have to relearn them. The whole process shouldn’t take more than a couple of hours and can be less stressful than trying to fit in 8 hours of studying.

Almost there! Just three days left! Stay strong, keep focused and will have no problem on Saturday.

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

Taking a Break from Studying, Without Taking a Break

I don’t know about you, but with 12 weeks left to the exam and about half way through our 21-week study plan I am tired of talking about the CFA curriculum! It was always around this time when studying for the exams that I started feeling a little burnt-out and needed something to give my mind a rest.

One of my favorite past-times (if not a way to procrastinate) is by following some of the financial blogs on the internet. With upwards of 15-20 hours a week spent studying the CFA curriculum on top of whatever else life throws at them, candidates have a tendency to feel out of touch with the current world. Following a financial blog is a good way to keep updated on the mood in the markets and the practical side of the curriculum. Following the financial sites gives you the opportunity of taking a break from the curriculum, but still keeping your mind on the industry. It always motivated me by giving me a glimpse of the world for which I was studying so hard.

Below are my favorite resources for light reading or learning outside the curriculum.

https://www.blackrockblog.com/
Most of the contributors to the BlackRock blog are charterholders and I’ve noticed that BlackRock must value the designation for as many charterholders that work there. The blog covers a range of topics including the economy, ETFs, fixed-income and general investing.

http://blog.alliancebernstein.com/
The
AllianceBernstein blog is another favorite of mine. The posts generally focus on more generalized issues than the iShares blog and do not recommend specific funds.

http://blogs.wsj.com/
The
Wall Street Journal publishes 27 blogs on its website under three categories: business, news & politics, and markets & economy. The posts tend to be a little longer than other blogs but still fairly light and quick reading.

http://www.cfainstitute.org/learning/Pages/index.aspx
The
Institute website hosts one of the best and largest libraries of research and advice you’ll find on the web. Most of the resources are free with your candidate login and ranges from brief 15-minute videos to full research publications. The search tool is a little clunky but just about every topic search results in many sources.

Bloomberg has always been my go-to source for news. They’ve got a pretty cool radio app that comes in handy on those long commutes as well.

Would love to hear your favorite sources for financial news and analysis. Connect with us on LinkedIn or use the comment section below.

We’ll start study session 10 next week across the three levels of the CFA exams. Let me know if we need to review any of the prior readings or if you have any questions.

Until next week, happy studyin’
Joseph Hogue, CFA

How to Find Time for the CFA Exam

Since our first child was born in August, I have repeatedly thought of how fortunate I was to have taken the CFA exams when I had a little more time. Sure, I was working a full-time job and married while studying for the three exams but at least I didn’t have to balance my CFA study plans with changing diapers.

Come June, time is what many candidates will say held them back from doing well on the exam. More specifically, the lack of study time in their busy schedule to prepare sufficiently.

Thinking about this and my own situation, I realized that it is just another excuse. Those with families wish for more help with the kids. Those with jobs envy the students. The student-candidates wish they didn’t have to juggle studying for the CFA and their other academics. There is never enough time.

That’s why, you have to MAKE time!

Taking a ‘no excuses’ look at my own schedule, I found plenty of time that I could rearrange and devote to studying for the exams.

I found that a few of the below were my best sources of ‘found’ time to study:

  • Flashcards are probably the best resource for finding extra time to study. Anytime you have a few minutes, you can run through a couple of topics. If you can stomach taking the bus or train to work, that can be a huge boost to your total prep time.
  • During my three years studying for the exam, I made a list of ‘essential’ tv shows (Simpsons!) and cut out all the other crap.
  • Encourage the rest of the family to take up activities or classes. This will give you an extra hour or two per week of alone time.

A lot of the exam prep is just finding the time and using it wisely. Practice problems are always going to be time well-spent and study guides are a good source of the important stuff. With the right level of commitment, you have to make it your second ‘job’ to study for the exams. Set a reasonable schedule and meet it every week.

It’s only three years and time sacrificed now will be rewarded.

Good luck. We’re almost half way through our 21-week study plan and will start study session 9 across the three exams next week. Let me know if you have any questions.

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

Level III Review, Ethics in Practice

Study Session Two in the Level III curriculum consists of a review of the Code and Standards, two cases and a reading on the Asset Manager Code. We covered the AMC (linked here) briefly last week so will use this post to go over the cases. There really isn’t any new material here, just more detailed practice into the Code and Standards. If you spent enough time on the material in the first two exams, you shouldn’t have a problem. Use the cases as practice to understand how the Institute interprets and tests the CFA Code and Standards but you will not see questions relating to specific details of the case.

Ethics in Practice

Just review material here and you shouldn’t have a problem with it at this point. Review the first three posts of our 21-week plan which covered the Code and Standards. Suitability and the fiduciary duty to clients is a focus in the CFA Level 3 curriculum so make sure you practice questions around these standards.

The Consultant
Conflicts of interest can be tough on the exam because even the perception of a conflict may be a violation. Look for investment holdings or relationships with management or others in the industry. Disclosure is always required and avoidance is recommended.

As supervisors, members are required to make sure those under them acting in compliance with the Code and Standards. Supervisors or firms should have a written set of procedures and guidelines for ethical behavior and procedures must be in place to spot potential violations. Should have known or should have had a procedure to spot violations is an important part of the supervisor’s duties.

Pearl Investment Management
Members must know the law and follow the most strict in cases of overlap. While supervisors must have procedures for monitoring employees, they are not liable for actions that took place if they had proper monitoring in place. You should take reasonable steps for employee monitoring but you do not need to be clairvoyant.

Always pay attention if a case on the exam talks about an employee making trades in their own account or in a family member’s account. Remember: Client, Employer then Self and all personal trades should be cleared through the compliance department.

Diligence and reasonable basis is often a question when an analyst takes over coverage from another. You cannot simply rely on the work of another and must do your own research. Looking through a few brokerage reports or analysis by others is not sufficient.

Study Session Three in the Level III curriculum includes three readings on behavioral finance. The material can be pretty interesting but the terminology can be confusing at times. Be sure to check out last week’s posts on the Code and Standards if you missed them.

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