Last week, I listed out the things I wish I knew before each level of the CFA exams. For the most part, these were the general ideas that relate well across all three levels. This week, I am reminiscing back to those bygone days of the Level I CFA exam.
I remember it well, o.k. probably because it was only few years ago. So naïve and full of mistakes, mistakes that hopefully you will not have to make.
It’s Not like College
I may be wrong and it just may be my cynical side but most public education seemed to me more about getting grades than learning. You showed up, took the tests and that was it. And the tests really were not that difficult. School was fairly easy, even up to my bachelor’s programs. Sure there were some tough spots when I would put off a semester project but a couple of late nights and it would be easy again.
That’s not the CFA exams and most people get this rude awakening in Level I. If you are going to remember enough to answer 240 questions in six hours, you will need to do more than just open the books. You are going to need to do some detailed learning. While the first exam does not require the synthesis required in the Level III CFA exam, you will need a solid understanding of the material. Take it seriously and put in the time.
- You Might Not be as Ethical as You Thought
Ethics is probably the topic that catches the most candidates off-guard in the CFA Level I exam. You do not lie, cheat or steal so you assume that you can pass the topic area with relatively little studying. How hard can the questions be, right?
Then you get to the exam and find out how masterful the exam writers are at making a seemingly easy topic complicated and subjective. Of the three possible answers on the exam, there are usually two that sound like a legitimate solution. It gets even worse when one of the possible answers is, “no violation.”
Do not neglect the Ethics portion of the exam, especially since your score on the topic will determine a pass or fail if you are close to the passing score overall. Go through the practice problems at the end of the chapter several times. This will help you understand the Institute’s way of thinking about these ethical dilemmas.
Financial Statements are Your New Religion
The material on Financial Statements and Reporting is the single most important, points-wise, on the Level I CFA exam. It is also in the top two or three most important in the second exam. For many, the material on the first exam is fairly basic, just a review of the financial statements and some common ratios. They skim through the material, skipping the more difficult detail, and move on to other topics.
Financial statements are the heart of what you will be doing as an analyst. Spend all the time you can on this topic. Not only is the topic absolutely key to passing the exams, and you absolutely must have a strong understanding to handle the detailed material in the Level II exam, but you will need all the material daily in your professional career. You might get away without using much from some of the other topics on a daily basis but you will always need to know how to read and analyze a financial statement.
Learn it early or you’ll find yourself continuously coming back to review.
No Substitute for Practice Problems
O.k. this one is applicable to all three exams but it catches most by surprise in the first exam. Most of us are fairly intelligent and, until the CFA exams, have been able to get by easily by just reading through textbooks or listening to a lecture.
This will not work for the CFA exams. There is just too much information that you need to remember to have a superficial understanding. The practice problems serve two purposes. Most importantly, they drill the information deep enough into your memory that you can reproduce it on the exam. Only through actively thinking about the curriculum are you going to remember all that information. Just read through it and half of it is going to go in one ear and out the other.
Practice problems also help you physically and mentally prepare for the exams. Six-hours of sitting there scraping your brain for information can be extremely tiring. If you have not exercised your brain and body to do this kind of thing for consecutive hours, you will be surprised and disappointed.
A Mile Wide and an Inch Deep
When I finally got to the level I exam, I was surprised that the questions did not go as far into the detail as I was expecting but the breadth of material was amazing. This is a tough one because I cannot tell you not to worry much about the details, you’ll need a strong base in the material to understand the Level II curriculum, but the first exam seemed to only test a basic understanding of the material.
If I knew that while I was studying, I probably would have used the study guides more rather than the curriculum. These are not going to go into the detail to the extent that is in the official curriculum, but they will help you cover all the material multiple times.
Hope this helps you on your Level I CFA exam. Next, we’ll look at the five most important study ideas for the Level II exam.
‘til next time, happy studyin’
Joseph Hogue, CFA