Study Groups | candidates probably making the same mistakes that you are making

One of the most difficult aspects of the CFA exams is that you are basically on your own. Sure there are study groups but these are composed of candidates in the same exam level and probably making the same mistakes that you are making.
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How NOT to be Surprised by the CFA Exams!

Less than half the candidates taking the CFA exams each year pass. It’s a statistic most of you know but never ceases to amaze me. How can an exam be so difficult that less than half pass each year?

You could blame the CFA Institute for making it so difficult and adjusting the minimum passing score but the fact that no one with an average of 70% has ever failed takes some of the blame off the Institute’s shoulders. Having to answer about two-thirds of the questions correctly doesn’t seem like too much to ask for a professional exam.

What if it’s something else? What if candidates just aren’t prepared for the exams? Spending upwards of 300 hours doesn’t seem like a lack of preparation to me so maybe candidates just aren’t preparing correctly for the CFA exams.

Each exam can be surprising for its own reason. This specific challenge in each exam catches candidates off guard and leads to a ridiculously-high rate of failure.

Learn what to expect on each CFA exam and how to study for it, and you’ll be better prepared than half the candidates already.

CFA Level 1 Exam: Information Overload

The first thing that surprises candidates on the CFA level 1 exam is the sheer amount of information they are expected to remember. Through undergraduate studies, most of you have been responsible for textbooks of information but you haven’t had to master all the material for one mammoth-size exam.

The CFA Institute doesn’t feed you the information in manageable chunks and then ask you focused questions every couple of weeks. The Institute turns on the firehose and drowns you in knowledge of which you’re supposed to drink every last drop.

Maybe the firehose analogy is a little extreme but it seems that way at times.

The trick to passing the CFA level 1 exam is that you don’t need to know every excruciating detail within the curriculum. Much more important is the basic ideas and concepts around each study session. Understanding the qualitative ideas in the curriculum is much more important than being an expert in one topic. This means reviewing every study session and getting a basic understanding across the entire curriculum.

Understanding the main ideas will help you immediately eliminate at least one potential answer for each question and should help you pick out the most appropriate answer.

It also helps to use multiple resources when studying for the CFA level 1 exam. Getting the curriculum from several different perspectives, i.e. official text, study notes, videos, flash cards and practice problems, helps to build repetition and memory.

CFA Level 2 Exam: A Quantitative Monster

After figuring out that the first exam is all about basics and qualitative information, the CFA Institute throws you a curve ball with the CFA level 2 exam.

The second CFA exam is all about formulas and quantitative detail!

While the CFA level 2 exam includes the same topic areas as the first exam, the topic weights clearly show a focus on three subjects. Financial Reporting & Analysis, Equity Investments and Fixed Income will account for up to 65% of your exam score and a large chunk of that is in quantitative calculations.

Top it off with the fact that you have a different format in the vignette questions, having to read through a story and then answer a set of questions.

Avoid being surprised by the quantitative material on the second exam through understanding the conceptual reasoning in the formulas and repetition.

Try memorizing every formula on the CFA level 2 exam and you could end up in an asylum for the criminally-insane. There are just too many letters, abbreviations and craziness. 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.

Understanding the conceptual reasoning behind each formula will help you recall it on the exam and you won’t drown in a sea of math.

The second trick really is no trick at all. You just have to work those practice problems over and over again. Use flash cards to write out the especially-difficult problems so you can review them several times a day until you’ve got it down. Work the end-of-chapter questions for each study session and use a question bank of problems if you’ve got one available.

CFA Level 3 Exam: Essays are a Physical, Emotional and Intellectual Challenge

Most CFA candidates understand that the essay section will be difficult but few realize how difficult it’s going to be until they’re half way through the morning session and sweating through their shirt.

The three-hour morning section of the CFA level 3 exam is a physical, emotional and intellectual challenge for which few really prepare well. It isn’t about just understanding the material, it’s about being able to construct your own answer and being physically able to write for three-hours straight.

There is really no better resource than the old exams provided by the CFA Institute. The Institute releases the last three years’ worth of morning essay questions on its website along with guideline answers.

  • Don’t just review these past morning sections, actively work them as if you were sitting for the exam. If you haven’t prepared the muscles in your hand to write for three hours when you arrive at the exam, you are going to regret it.
  • Learn how to bullet-point your responses to include all the relevant information. This will save you a ton of time on the exam. See how it’s done in the guideline responses.
  • When you’re writing out your answers on old exams, practice writing out your thought pattern. The CFA Institute awards partial credit for the essay portion but you have to demonstrate a certain point within the answer. Writing out your reasoning makes it more likely that you’ll hit on a few of those points and get the highest score possible.

Passing the CFA exams means being prepared for each exam and not being caught off guard by differences on each. Ask other candidates what surprised them most and understand how to study for each exam.

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

Last updated: July 18, 2016 at 16:34 pm

100 hours of CFA Study in 3 Weeks!

I took an informal survey of my CFA candidate contacts recently and was pretty happy with the outcome. Of the nine candidates I talked to, most had started studying for the 2015 CFA exams sometime between late January and early March. Candidates reported spending around 10 or 15 hours of studying and had just over 200 hours total on the CFA curriculum.

There were a few outliers in the group. One candidate had started studying in December and had been over the curriculum for more than 400 hours so far. She was very confident she wouldn’t have a problem on the exam.

Another candidate though was not as confident. He was one of those starting later and had not devoted as much time. He estimated that he had only spent about 150 hours studying and wasn’t quite through the entire curriculum yet.

Asked if I thought he could still pass, I told him that I would not feel confident going into the CFA exams without at least upwards of 250 hours of studying under my belt. To which he replied, “How do I get 100 hours of studying in just three weeks?”

CFA Study-thon Weeks One and Two

Studying 100 hours for the 2015 CFA exams, or even more, in three weeks may not be a problem for some candidates. If you can put other classes or responsibilities aside for a few weeks while you cram for the exams, then it doesn’t even amount to a full-time schedule.

Other candidates are not as fortunate. Devoting all your time to the CFA exam isn’t possible when you have a full-time job, a family or a full schedule of college courses.

But you can still get in another 100 hours of studying before the exams, picking up a ton of additional points and maybe putting you over the pass-no pass level.

Many candidates are expecting to take the last week before the exams off to study but would find it hard to take the whole three weeks off work. It is still possible to spend around four hours a day studying over six days a week. This would accumulate 48 hours of study time over the next two weeks.

I wouldn’t recommend you study all seven days of the week. You need time to relax and studying every single day is just going to leave you strained and not retaining information. I would take one of the weekend days off from studying. It may be tempting to take a workday off from studying but it is much more relaxing if you have one day where you don’t have to work or study. You’ll come back to your schedule much more recovered.

We’ve talked about ways to find more time to study for the CFA exams here on the blog before. With just a few weeks left, you will need to find more time and use that time as efficiently as possible.

Start your week with a full-length mock exam or a full set of questions, hitting every topic area from the curriculum. After working through the questions you missed, remember to review the ones where you got lucky guessing, you will review the percentage score in each topic to guide your studying over the week.

If you are consistently scoring less than 50% on any topic area, you will need to go back to the curriculum or summary sheets to review. Even on the non-core topics, scoring less than half of the points available will severely drag your overall score down.

For those topics in which you consistently score above 80%, I would review a one-page summary once or twice a week just to keep the material fresh.

In those topics where you are scoring between 50% and 80%, you will want to work out a schedule of flash cards, summary sheets and practice problems. Time spent on these three resources is about as effective and efficient as you are going to find. Use all three resources and cover a topic area each day, finishing up with a small set of practice problems. Do another set of practice problems on the following day, before you start the new topic area, to make sure you retained the information.

You might have to stretch it a little and get a little less sleep, but studying four hours a day should not be impossible for most people.

Your CFA Last Week Study Plan

Longtime readers of the blog will know that the last week before the exam was my favorite time of the year when I was a candidate. Not only is the excitement of the upcoming test like chugging a keg of coffee, but really devoting the week to the curriculum is a lot like being a professional analyst.

You are going to be spending around half your time as an analyst researching and reading information about your coverage universe. Really digging into the curriculum and studying for eight or ten hours a day is a lot like that and you may be surprised how excited you feel to get started every day.

I’ve covered study schedules for the last week before the CFA exam as well. There are really two key points you want to build into your schedule.

  • First, treat your study schedule like a job. If you can take the time off work for that last week then the CFA exam will become your job. Put in at least an eight-hour workday, stopping for a five minute break each hour and half an hour for lunch.
  • Second, don’t stay home to study. There are too many distractions at home and you need a more test-like environment. The public library is usually a good place to study since it is fairly quite but has some background noise that will simulate the actual exam noise.

Start each day with an hour or so of practice problems. Too many candidates put practice problems off until later in the day and end up either not having the time or are too tired to really do their best. Do a few sets of practice problems early to review the previous day’s information and to make sure you get them in. You retain much more information when you use active learnings strategies and practice problems are some of the best.

The rest of the day’s studying will be a lot like your previous schedule, just at a longer interval. Try hitting one or two topics in detail each day and review another one or two topics. You don’t necessarily have to review every study session over that last week but should cover at least 12 to 15 of the sessions.

If you studied for four hours a day, six days a week during the previous two weeks then you’ll need about 52 hours to meet your 100-hour study mark over the week to the exam. That amounts to just under nine hours a day over six days. These will be long days, especially towards the end of each day but you have to stay focused. Just keep telling yourself that it is only a few days to one of the biggest exams of your life.

This is only an example of what you might do to prepare for the 2015 CFA exams over the next three weeks. Your own plan may differ and you may find it easier to do more or less studying. Spending 300 hours isn’t a formal rule for the CFA exams, just an average we’ve seen across successful candidates. More important than the total time you spend is how well you do on practice and mock exams, so use them as a guide.

The countdown is on! Just 26 days left to the 2015 CFA Exams! Good Luck!

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

Last updated: November 21, 2016 at 2:53 am

Which Level of the CFA is Most Difficult?

Logging in to the CFA Program Candidates group on LinkedIn last week, the first post I saw was a common question I get from candidates. The candidate had been preparing for the Level 3 CFA exam and was wondering how it compared to the first two exams.

I get this question, or variations of it, quite a bit. Candidates want to know what they’re up against with the next exam and everyone wonders which is most difficult.

As usual, candidates on the LinkedIn Group came through for their peer and the post had 21 replies in about a week. I thought I would address the question here on the blog as well.

Are the CFA exams as easy as 1 -2 -3?

My own experience was that the first CFA exam actually seemed fairly easy. The second exam, living up to what I had heard from most other candidates, was much harder. The amount of formulas and detail you are expected to remember seems to increase by ten-fold from the first to the second exam. Unlike the third CFA exam, where you know some topics will appear in the morning section, you really have no idea what will be on the level 2 exam. This means you really need to spend a lot of time covering as much of the curriculum and in as much detail as possible.

I’ve heard a lot of candidates say that the level 3 CFA exam seemed more difficult than the second exam. I think this depends greatly on your preparation and comfort for the essay section of the exam. The afternoon section of the level 3 exam is no different than the second exam in format or difficulty (in my opinion). As for the morning essay section, I was actually surprised how easy it seemed after studying prior years’ exams.

You’re experience may be different but I would say the second exam was clearly the most difficult for me. The level 1 CFA exam was the second most difficult but only because you have no idea what to expect so you’ll need to study more to cover the uncertainty. The third exam can actually be relatively enjoyable if you study the prior years’ essays.

Do you need the same amount of studying on each CFA exam?

When it comes down to answering how much time is needed for each exam, it’s not really about time but about how you study. Each exam is a little different and requires a different approach to studying.

I spent way more time than was necessary studying for the first CFA exam, but then it is always hard to say how much is going to be enough. Between reading the curriculum, study notes and watching videos, I covered the material seven times and that’s not counting practice problems. When I got to the exam, I was surprised how easy and generalized the questions seemed. Knowing now that the CFA level 1 exam focuses on general concepts, I would suggest that you cover everything multiple times but don’t worry as much about the details. Understand the idea behind each LOS and broad concepts in each section.

The CFA level 2 exam is very different from the first. You will need to know deep details in the LOS to do some of the longer calculations and process. For this exam, I would concentrate on really mastering the more important topic areas. Using the topic weights for the exam, make sure you are scoring above 80% or higher on the most important topics. To get to this level of mastery, you might have to spend a little less time on other topics.

Responses from CFA level 3 candidates on the forum post were typical of what I usually hear and easily remedied with a smart adjustment to your study plans. More than a few of the candidates ran out of time or did really poorly on the morning essay section of the exam. While I thought the CFA level 3 exam was much easier than the second exam, it would have been impossible if I hadn’t spent so much time practicing prior years’ essay questions. This is something we talked about in last week’s post and absolutely critical to your success on the last CFA exam. If you spend your time studying the essay questions from prior exams, you can spend less total time than on other exams and still do well.

Last month ahead of the exam. You’re almost there!

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

Last updated: July 18, 2016 at 16:22 pm

10 Weeks and 10 Goals for the CFA Exams

Ten weeks left to the 2015 CFA exam and it is time to start really defining what you are going to do to get there. As CFA candidates, most of us are driven and goal-focused people so I thought I would set a challenge for you. Give yourself 10 goals to accomplish over the next 10 weeks to make sure you pass the CFA exam.

Study Goals

1) Read through the six most difficult study sessions of the curriculum, one last time. You may not have time to hit every page of the curriculum again, but you should try to cover your sticking points. Candidates typically do really well on a third of the material, o.k. on another third and then not so well on another third of the curriculum. Figure out where you are having trouble and really hit it hard so you can get at least some of these points.

2) Read the study notes one last time. You should be able to get through the condensed study notes one last time to review all the study sessions. This is going to keep everything fresh so you don’t go into the exams with a long lag between the test and covering any specific material.

5) Master 10 concepts or problems with which you’ve really struggled. Even if you’ve avoided them, you know which parts of the curriculum are giving you real problems. These are the problems or LOS that you have basically given up on and that you’re just hoping do not come up on the exam. Pick one a week to finally master.

6) Do 2,000 more practice problems. Whether from the end of chapter sets or from a question bank, practice problems are one of the best ways to study for the exam. Make sure you really read through the answer to make sure you didn’t just guess correctly and really understand the material.

7) Take at least 6 mock exams. Sit down for a practice run at least six times, using either test bank questions or actual mock exams. Building an average across the six mock exams will help to see where you are on each topic area. Besides helping you learn the material this is really going to put you in shape for the real exam. Sitting for a six-hour exam can be physically taxing and you need to be prepared.

8) Spend a week super-studying! Believe it or not, this was always one of my favorite weeks within the CFA study schedule. Spend a whole week devoted only to the CFA exam. Go somewhere on a study vacation for the best vacation you ever had, something I detailed in a prior post.

2) Spend less time worrying about the exam and know you will pass. The stress leading up to the exam is a killer. Resolve to worry less about passing the exam. Whenever you feel the anxiety building or find yourself questioning how you’ll do, just take a deep breath and relax. Remind yourself all the hard work you’ve put in studying and know that you will pass the exam.

8) Put all your test materials together a week before the exam and check your route to the testing facility days before the exam. Being prepared for the exam doesn’t just mean knowing the material. Have everything ready and know your way to the testing site well before exam day. It’s rare but there are candidates every year that miss the CFA exam because they were late or couldn’t find their identification.

Networking Goals

Anyone that has read the blog for a while knows that I am a big advocate of networking and using the CFA exams to reach out to the rest of the financial community. You can pass all the exams but if you’ve been in a shell for three years, you’re still going to have trouble getting a job if you don’t know anyone.

9) Answer at least 10 questions from other CFA candidates. Getting help when you need it is about being ready to give someone else a hand when they need it. The CFA exams are a great time to help out your fellow candidates.

10) Attend at least one local CFA society event or CFA Institute event. These last few months before the exam are a great time to network because the local societies get a little more active with events and people are still sticking with their resolution to be more active in the community. Attend at least one event and get to know a few of your colleagues.

Don’t stop at just 10 goals. Set mini-goals each week that you can achieve if you push yourself just a little harder. Set larger goals for the year that you can really reach for and make a bigger difference. Don’t get frustrated if you miss a goal, just learn from it and push on.

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

Last updated: July 18, 2016 at 16:49 pm

Using WhatsApp to Study for the CFA Exams

How times have changed since I took the CFA exams. Even though it was only six years ago that I sat through the Level 1 CFA exam, the change in technology has been dramatic. When I first started studying for the exams, online groups were still growing but not widely used among candidates. Now I see that WhatsApp messaging is quickly taking over as a way to group study.

The top three posts on the LinkedIn CFA Program Candidates forum are all WhatsApp study groups and have nearly 2,800 comments, most of them numbers of people wanting to sign up.

But is a WhatsApp group worth your time? How can you use the messaging service to best prepare for the CFA exams?

The Benefits of a WhatsApp CFA study Group

I’m too old for these new software programs so I talked to a few candidates that are using WhatsApp to connect and study for the CFA exams.

The most common response to the main benefits were:

  • The ease of sharing audio recording and pictures of materials. Users really like the fact that they can share short notes they record or a picture of the material they are studying. This really helps those of us that are not as comfortable with typing out text messages.
  • Others like that WhatsApp can easily share contacts around a group. This is one benefit I had never heard of and could be a new networking tool.
  • Users in CFA study groups liked that WhatsApp can be used across different devices so they can transition pretty easily across their laptop to their phone. Being mobile also helps candidates study on the go and when they have time.

Looking through the comments from happy WhatsApp users, I’m a bit jealous that we didn’t have the service to use when I was a candidate. I like the fact that you can quickly share voice recording and add many people to the group. I think the networking aspect could be something that a lot of candidates do not yet fully appreciate.

And the drawbacks of using WhatsApp for CFA study groups?

Using WhatsApp wasn’t all they hoped for some CFA candidates that wrote back that they preferred more traditional study groups.

  • The size of groups and geographic differences annoyed some candidates. They may be exchanging some really good notes with a sub-group of candidates but had to scroll through all the other comments and talk from other members. Candidates also commented that messages to their questions would appear hours, even days after they posted because everyone is on different schedules for when they study and post.
  • Some have reported that WhatsApp was automatically saving stuff to their memory and slowing down the performance of their phone. This should be a relatively easy fix but is still something to think about.
  • The most common complaint was the cross-talk and unrelated conversations that plagued some groups. It is pretty easy for a couple of candidates to start an unrelated conversation that can pull others into it. Pretty soon, everyone is spending an hour gossiping or just texting and not really studying for the CFA exam.

With the benefits and drawbacks in mind, we can start to put together the do’s and don’ts of using WhatsApp for CFA study groups.

  • Try to keep the conversation relevant to studying for the CFA exams. This is a big one for any study group and can save you a lot of time. Getting to know each other and building that relationship is important for networking but you are there for a purpose.
  • Avoid one-on-one conversations with other people in the group. These are just annoying and detract from the efficacy of the group. If you want to talk directly with someone, call them or send them a private message.
  • Understand that WhatsApp messages are public and do not send anything out that you would not want others to see. I’m always amazed at how quickly seemingly private messages go public and hurt someone or the firm at which they work.
  • Don’t assume that everyone understands your texting abbreviations. Most people understand the common LOL and other abbreviations used but there are those of us that are still neophytes to texting and need things spelled out more completely.

WhatsApp is a tool and like any tool, it must be used correctly. Make sure you are using it for all the right reasons and getting the most benefit for your CFA study schedule.

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

Last updated: July 18, 2016 at 15:57 pm

Make Study Groups Fun with the CFA Trivial Pursuit Game

I’ve always had a mixed opinion on study groups for the CFA exams. They can be a great resource, breaking up the monotony of self-study and making the time more enjoyable. They can also be time-consuming between traveling and those tangent conversations too many groups fall into.

Talking to a candidate this week about working in a group, an idea occurred to me on how to really focus your study time and make the study session more fun.

Why not make a game out of it?

Introducing the CFA Trivial Pursuit Game

One of the biggest problems for study groups is that it is so easy for conversation to start on unrelated topics and to eat up your study time. By making a game of it, you have a goal to work to and may be able to stay focused.

The idea for the game is based on the board game Trivial Pursuit. In fact, you might want to grab the Trivial Pursuit game so you can use the board and the playing pieces.

In the game, each person gets an empty playing piece with six spots for the wedges. In the original game, the six pieces represent: geography, entertainment, history, arts & literature, science & nature and sports. In our CFA game, each of the wedges will represent three of the 18 study sessions.

The board is divided into colored spaces, with an equal number of spaces for each color. Players roll a die and move their piece around the board. The color of the space they land on will determine the study session for their question. Instead of trivial pursuit questions, you will need flashcards with questions from each study session in the curriculum. You will need at least 15 flash cards from each study session and more if you plan on playing multiple games. Players must answer a question from each of the three study sessions to collect a colored wedge.

Games of trivial pursuit can easily go about an hour with 30 questions or so during the game. You can play in teams or individually and the game is suited for as many players as are in your group. You can fine-tune the game with your own details like how to determine which of the three study sessions to choose when a candidate lands on each color. Play with one die instead of two so the game will last a little longer.

As with normal use of flash cards, work through the problem and make sure you discuss any incorrect answers.

I’m not calling up Milton Bradley just yet to sell the idea but I think it’s an interesting idea to build into your study plans. Studying for the CFA exams is too solitary at times and you need the interaction and support system you get with groups. By playing a CFA trivia game, you help to keep the group focused on studying and it sets a defined goal for the study period.

Try it out and let me know what you think.

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

Your 2015 CFA Study Schedule

The end of January marks the unofficial launch of the 2015 CFA Exam Study Season. You’ve got just four months to soak in all that great information, shunning friends and family alike to get one step closer to the designation.

While many will choose to wait a little longer, despite the considerable risk of waiting too long, the 18 weeks you’ll have starting February is just enough for a low-stress study schedule. Eighteen study sessions and 18 weeks left…seems like an obvious choice to me.

Changing up the Schedule

I posted last week on how the changes to the 2015 CFA curriculum could change your study plans for the exams. While most years do not see enough changes to the curriculum to really make a difference, we saw some big changes to the upcoming June exams. Besides a change to some of the readings at each exam level, the CFA Institute changed the topic area weights as well.

For the most part, changes to topic weights leveled the playing field for the topics in the exams. Those topics that always got a big weighting were mostly downgraded while previously less important topics picked up a few percent of your total score. This may mean that you need to spend less time on any one or two topics and spread your study time out evenly. No longer can you spend all your time on a focus-topic and rely on a big win there to cover a potentially lower score in other topics.

Fight Burnout with Diverse Resources

One of the biggest challenges you’ll face in your study for the CFA exams is burnout. An 18-week study schedule requires around 15 hours per week of studying to even approach the average 300 hours most candidates spend studying. After a full day of work, another few hours of reading and problem sets can seem like capital punishment.

Of course, you’ll enthusiastically dive into your CFA texts for the first couple of weeks. You’ve had months to relax and now you are ready to dive back into the professional course. It’s usually in the fourth or fifth week that candidates start feeling the sting of burnout.

Everyone faces burnout and you’ll need some strategies to control it when it happens but there is one way to delay or minimize curriculum fatigue, mixing up the resources you use in studying.

Anybody trying to read the 1,000+ pages of curriculum every day and doing nothing else is going to get burnt out very quickly. The CFA curriculum is written by some of the best minds in finance but can get extremely dry and academic in some places. You need to be able to put the books down and still study for the exam.

One of my favorite resources for studying is flashcards. I highlighted how to make your own flashcards in another post but the process is pretty easy. The idea in making flashcards is that you first get exposure to the problem by writing out the card, then later by working the problem. Make sure you write out a full question problem just like you’d see on the exam. Flash cards are great because you can carry them around and get some valuable study time in whenever you’ve got a couple of minutes.

Study groups are another good resource to break up the monotony but can be time-consuming. Keep your group small, less than five or six people, and make sure you stay on task. Talking about your job or other things is fine but save it for after the study session. Online study groups have been popular lately but I still prefer in-person groups. They are easier to manage and you get the chance to network with other professionals in your community.

Studying for the CFA exams is all about working practice problems and they are a great way to break up your time from reading. Stop to do some practice problems for every 30 minutes of reading. It will help reinforce the concepts and avoid going into that zombie-like reading trance where you really don’t remember what you read.

Videos are a great way to use another medium to help explain tough concepts. Almost every concept on the exams has a YouTube video that will help walk you through it. I would look for shorter videos that just help with the general idea. You don’t want to waste 20 minutes on a video that really wasn’t worth watching.

FinQuiz offers condensed study notes for each CFA exam. The study notes are unique from other providers because they are meant to be used in conjunction with the curriculum instead of replacing it. Don’t expect study notes (from any provider) to be able to cover all the curriculum material. Read the curriculum and use study notes for review.

CFA Study Schedule Blueprint

After six years, three as a candidate and three writing about the exams, I’ve crafted a pretty good blueprint for a CFA study schedule. You’ll want to modify your own schedule to fit your needs but this blueprint works pretty well for most.

I’ve found that a five- or six-day schedule is the best since it allows for at least one day of rest and doesn’t require long hours of studying. If you plan for a five-day schedule, stagger your days off so they are not together.

I always like to make one study session the focus each week and another study session a secondary review. By including the secondary study session, you get a chance to review the material you studied in the prior week. I’ve seen a lot of candidates go the entire 18 weeks studying one session per week and never reviewing, only to find in June that they’ve forgotten the material from the earliest study sessions.

A good plan might go something like:

Day 1: Reading curriculum
Day 2: Review study notes for the previous day’s curriculum and practice problems
Day 3: Make flashcards of most difficult material and review the focus study session
Day 4: Practice problems on focus study session and review study notes on secondary SS
Day 5: Practice Problems on secondary SS and study notes for focus study session
Day 6: Take a practice test on both study sessions from question bank or practice problems

This format gives you exposure to each study session twice and helps emphasize actually working the problems and testing yourself. A review of your flashcards is not included in the schedule because they can be reviewed during the normal course of your day. Make it a point to carry some flashcards around with you and review them quickly when you have a minute or two.

I’ve gotta say, even though I’m not a candidate anymore, I am excited to get the 2015 study season underway. It is going to be a tough road along the way but it is so very much worth it. You are going to be opening yourself to a whole new level of professional knowledge. Stick with it even when you feel burnout creeping up behind you and you’ll make it through to June. Start early enough and stick to a sensible plan and you’ll go into the exam with the full confidence that you’ll pass.

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

FinQuiz2541

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

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

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

Last updated: July 18, 2016 at 16:40 pm

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

Last updated: July 18, 2016 at 16:12 pm

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

Last updated: July 18, 2016 at 16:05 pm

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.

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

Three 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

Last updated: January 23, 2017 at 8:29 am

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

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

Changes to the CFA Level 1 Exam for 2014

The curriculum changes for 2014 CFA exams are now available on the Institute’s website. The changes are important, not only for repeating candidates but also for first-time testers as well.

Obviously, those repeating a level will need to know what material they will see again and what has changed. For the most part, you can use last year’s curriculum to keep the material fresh in your head until the new curriculum is delivered. You will want to check out the changes so you aren’t wasting your time on stuff that won’t appear on next year’s exam.

First-time testers will want to pay attention to changes as well. The Institute doesn’t talk about it but many believe that new readings or LOS have a better chance at showing up on the exam. Briefly skimming the LOS will also help you get an idea of what depth and material the Institute wants you to know.

A Tale of Two Changes
There are basically two types of changes in the LOS from year to year. There are always minor revisions to wording and some LOS may be split or combined. These aren’t a big deal and most candidates wouldn’t notice the change on the test itself.

The biggest changes are in the dropped or added LOS due to changes in the curriculum readings.

Every year presents some changes to the curriculum at all three levels, but rarely do they change a great deal. A complete list of LOS changes are available for each level of the CFA exams on the FinQuiz website. Looking through the list at least once is an absolute MUST for all candidates. Whether the Institute wants a different direction in a topic area or just wants to update the material, a change in readings is a big deal.

2014 Level 1 Changes
The level 1 curriculum and LOS didn’t change much from 2013 to 2014. There are the perennial wording changes with the readings remaining exactly the same.

The requirement to determining the business cycle phase based on an economic indicator has been removed from economics.

The LOS requiring candidates to describe DC and DB pension plans has been moved from reading 32 to reading 42.

LOS 34 has been added to: Describe reasons for investors to assess the quality of cash flow statements.

The biggest change in the coming year’s curriculum is to the fixed-income section. Readings by Frank Fabozzi CFA, a long-time contributor, have been replaced with new readings. The old readings 52-58 have been replaced with the new readings below:

Reading 52 Fixed- Income Securities: Defining Elements
Reading 53 Fixed-Income Markets: Issuance, Trading, and Funding
Reading 54 introduction to Fixed-Income Valuation
Reading 55 Understanding Fixed-Income Risk and Return

All the LOS associated with readings 52 through 59 from last year have changed along with the readings. The new Fixed-income material is covered in reading 52-56.

Reading 57, Derivatives Markets and Instruments has been revised but remains largely the same.

Reading 67, Investing in Commodities has been dropped from the Alternative Investments topic readings, leaving only the introduction material in study session 18.

Make sure you put in the time to cover the new fixed-income material. Not only will it help to set you up for the points in level 2 and 3, but it may be a focus in this year’s level 1 exam.

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

Last updated: July 18, 2016 at 16:25 pm