Unfortunately, I am not writing this from the perspective of someone who passed the level 2 CFA exam on their first attempt. Recently, I got news that I failed level 2 (June 2009) and have decided to write down some tips for those who are considering attempting the level 2 CFA exam.

To explain how I approached the exam, I really begun studying with about 5 weeks to go and put in a solid 10-15 hours a week (my friends still recall missing me) until the last week when I put in around 35 hours. I watched each of the Schweser videos and made my own personal notes of most of the areas of the course (at least the parts that didn’t totally bore me to death - we’ll get to those later). I did not read the CFAI material or the Schweser notes. In total, I did all the CFAI practice exam questions and a few other select questions for a total of around 200 questions. Whilst I knew this was less than recommended, I was focusing on learning the information myself and hoping an understanding of it (rather than a drummed in repetition effect) would get me through.

This amounted to far less than the CFAI recommended 300+ hours but I thought I stood a somewhat decent chance of passing the exam with this amount of study regardless. This belief was based on my performance in level 1 with a similar amount of work. Additionally, I was learning the information because I was interested in it and found some sections of derivatives, portfolio management and alternative investments particularly hard to find the motivation to study - as they don’t particularly interest me. Though I did find the ICAPM model particularly humourous.

Obviously I was proven wrong; though narrowly. I performed well in the areas I was most interested in (equity valuation, financial statement analysis, and economics; average in ethics (a dart may have assisted me here) corporate finance and alternative investments; and poorly in derivatives, portfolio management and bonds. Of particular interest, my punt not to learn swaps particularly backfired on me with 3 of the 20 sections of the exam dedicated entirely to derivates. Bad punt.

The exam itself was difficult for me for two reasons. Firstly, I felt they left out alot of what I see to be the more useful ‘big’ parts of each different section (except those I mentioned that I didn’t focus on). Instead of these areas, they focused on minute detail from the depths of the CFAI curriculum (this, I was obviously underprepared for).

Secondly, to an even greater extent than in level 1, the questions were particularly well written to confuse the living hell out of you. I have no issue with testing in this way as it obviously awards attention to detail. When thinking about several questions after the exam and comparing my response to those being discussed on analyst forum, I realised that i in fact had the correct answer figured out but was misled by the wording in the question to record a different answer. E.g. “Which of the following is not likely to be greater than the ROE of company A?” - here I would miss the “not” or do something stupid like that.

Overall, I feel very happy that I completed the level 2 CFA exam and learned alot from it. In particular, I enjoyed the debt vs equity financing material, the competitive forces material, the aggressive vs conservative accounting material (save the pension accounting), all the equity valuation material, the balance of payments, import / export and the foreign exchange material.

I may have another go at the exam but I feel I have got most of what I want out of the level 2 CFA material. Completing it would just allow me to do level 3 which I have heard is 50% portfolio management (not something i’m sure I could handle). As stated from the beginning of my CFA quest, the plan was to learn the information I wanted to and give myself a deadline, not lock myself in the portfolio delusion, i mean management, gaol. So we’ll see what happens next June.

In terms of tips for those completing the level 2 CFA exam:

• The minute details matter, nothing is sacred. They are more than content to not test massive sections of equity valuation and accounting and instead quiz you on the common name for a random bond that you’ll never have any contact with. This method may in fact weed out the people like me from those who put in the real work (please don’t take my sarcasm as contempt).
• A very solid understand of every section is required - don’t take punts by leaving out sections if you want to be sure to pass.
• I imagine that lots of practice would have improved my chances (rather than just learning).
• Do practice questions that involve word and syntax tricks under exam conditions.
• Practice darts for the ethics sections.

As I am about to go on my second trip to the USA this year, I thought some advice on accessing your cash overseas would be helpful to those out there wishing to avoid the hundreds of dollars in fees you can pay. I am not usually one to shamelessly promote a product, but when they are saving me hundreds of dollars in light of no clear reason to do so, I am willing to oblige.

Cliff notes : If you are not interested in the details, just go get yourself a GE Money Clear Advantage MasterCard (I am in no way affiliated with them and I don’t get a cent either way). As discovered by Choice and my trip to the USA in Feb 09, it is the “only credit card with no currency conversion fee and it absorbs the MasterCard charge so the exchange rate you get shpiould be close to the market wholesale rates”. It also has no cash advance fee or annual fee unlike other credit cards. But, as with all providers, daily interest applies to cash advances until you pay your bill (this can be avoided - see below).

When i recently went overseas, I loaded my credit card up with cash before I went so i didnt even have to pay interest on the money taken out. The only fee you pay is that of the ATM you are using. Usually 2-4 dollars in the USA depending on whether or not you are in Vegas. This fee is paid regardless of what method you use if you are using an ATM.

[x] Success
[  ] Fail

For some more details on your other options, read that choice link above. Or see my summary below:

• Bringing cash - If you buy around $1,000 worth of dollars before you get the airport, you are looking at around 2.5% worth of fees. Should you run out, or forget to do it before you get to the airport like most of us, expect fees between 7 and 11% (on a good day) from the kind folks at Travelex. Then enjoy the fun of keeping $1,000 safe, getting pickpocketed or needing more money at some stage (as you see below - it won’t come cheap).
• Travellers cheques and DCC - Both come with decent sized fees (2-4% + )and are likely to be accompanied by more fees when you attempt to use them. Plus, they are annoying. Avoid.
• Prepaid or Cash passport style cards - These are my favourite. Well, my favourite waste of money aimed at seducing the masses (see the google ads hitting you in the face when you search cash overseas - they dont come cheap but you pay for it). By pre-converting dollars onto a card,  ”expect exchange rate margins when you load and close the card: these are not specifically disclosed by the providers (always nice), and vary from day to day, fees to load the card: up to 1.1%, or a flat fee of up to $15 (you pay for the right to give them money), ATM withdrawal fees of up to $3.75, An exchange rate conversion fee when you use the card: varies between providers. With Travelex the cost is from 5.95% to 8.45% when the withdrawal is in a currency other than what you loaded to the card.” Also please don’t forget that $23.45 that is left on the card when you get back. Good luck getting that back. If you reload or close the account, further fees apply (up to $10 to close the account).
• Credit Cards - The friendly folk at your local bank would love you to use their card overseas. With currency conversion fees of 2-3.5% from the major banks (to give you the right to use the exchange rate they choose for you - which i have observed is worse than the rate that the GE Clearadvantage gives me the right to use for nothing). Remember to add to that 3-4.5% an ATM cash withdrawal fee and then interest on the money you are taking out and on your $3,000 holiday, you have kindly donated around $150 to your local bank for giving you the right to access your money overseas.
• ATM and Debit cards - These used to be great. The secret trick of overseas travel. Until the local bank whacked a massive minimum charge of $20-25 for each ATM withdrawal. Now as much as I love withdrawing 2,500 from an ATM in Vegas (where I would have to pay the greater of $20-25 or 2.5% with most banks), usually I find myself withdrawing more meek amounts. With 5 withdrawals on your trip (plus some lovely 5% fees credit card dinners), you are again up to $150 wasted.

After doing each of the 2009 CFAI mock exams and sample exams following my CFA level two strategy with 14 days left, here are the points that I made a note for myself to remember. I hope they are of use to someone out there…

Alternative Investments

Altinv (bonds) The purpose of credit tranching is for the subordinate tranche to absorb credit losses.

Alt inv (bonds) Non-amortizing assets, prior to the lockout or revolving period, principal repayments can be either paid out to security holders or reinvested in additional loans.

Alt inv (bonds) The main parties to a securitization are the seller or originator, the servicer, and the issuer or SPV.

Alt inv (bonds) The insurance protection provides for the timely payment of principal and interest payments as due.

Fixed Income

Bonds CPR (conditional prepayment rate) = 6% X t/30 X PSA (public sec association prepayment benchmark) / 100

Bonds months elapsed = number of months - WAM

Bonds agency securities still have credit risk

Bonds excess spread accounts don’t pay out all interest to security holders - can cover future defaults

Fixed income succession plan –> character

Fixed income USE quick and current ratios for liquidity

Fixed income high bank loans mean junk likely, high bonds issuance means higher rated likely

Fixed income don’t easily place things on negative outlook

Fixed income larger PAC collar equals more certainty payment schedule will be satisfied, therefore largest prepayment protection - The narrower the PAC window (labelled Expected Principal Repayment Dates in Exhibit 1), the more likely an MBS will behave like a bullet corporate bond.

Fixed income If mortgage rates rise above the contract rate, the expected cash-flow improves, but the cash flow is discounted at a higher rate. The net effect may be either a rise or a fall in IO value.

Fixed income REVISE OAS / volatility / option costs etc for bonds - You would want to own a security with the lowest option cost, a relatively high OAS if volatility decreases and higher OAS as volatility increases, and relatively better price performance if volatility either decreases or increases.

Fixed income Evaluating MBS and other structured securities subject to prepayment risk requires a model that reflects that cash flows are ”interest rate path-dependent”

Fixed income Cash flow duration is an inferior form of effective duration. Even if advanced analytics are used to determine the best prepayment assumption, it will not be as accurate as building a Monte Carlo simulation which determines prepayment rates stochastically given various interest rate changes to determine the average price of the MBS.

Corporate Finance

Corporate finance excessive compensation is asset risk

Corporate finance target payout ratio stuff - = last div + increase in earnings X target X 1/number of years)

Corporate finance value of firm is maximised when WACC is minimised

Corporate finance (S-C) x (1-t) + Dxt

Corporate finance Be very careful for economic vs accounting income

Corporate finance Econ income = cash flow - (ending MV-beginning MV)

Corporate finance greater risk reduces NPV

Derivatives

Derivatives learn the probability up move / down move formula

Derivatives revise meaning of gamma delta bs

Derivatives remember the put call parity thing

Derivatives revise swaps

Derivatives revise swaptions

Derivatives SWAPS _ REVISE = Calculate and interpret the fixed rate on a plain vanilla interest rate swap and the market value of the swap during its life

Derivatives While there is no credit risk at contract initiation, the potential credit risk of an interest rate swap is greatest at the middle of its life; it does not increase throughout the life of the swap.

Derivatives A receiver swaption is equivalent to a call option

Derivatives REVISE SWAPTION PAYOFFS - Calculate and interpret the value of an interest rate swaption on the expiration day -Using the information in Exhibit 1 and Howell’s sixth statement: [4.32% - 3.90%) * (90/360)]= $105,000 () = 1 / ( 1 + 0.0400*90/360) = 0.9901 () = 1 / ( 1 + 0.0435*180/360) = 0.9787 ($105,000 * 0.9901) + ($105,000 * 0.9787) = $206,725

Derivatives F = S x 1+r f / 1+r base

Derivatives learn to price forward contracts

Derivatives learn the derivative % up / down formula

Derivatives Only the position owing money has credit risk near expiry.

Derivatives F0,t = So - PVD x (1+r)^t OR F0,t = So x (1+r)^t - FVD

Derivatives Value (fwd) = So-F / (1+r)^t

Derivatives F = So e ^-cd c^rcT - go over continuous fwd pricing

Derivatives F(o,t)= S0 (1+r for) / 1+r base - DONT FORGET THIS FORMULA

Derivatives to convert given rates to continuous rates do ln(1+rate)

Derivatives convenience yield will decrease the futures price - Fo(t) = So(1+r)^t + FV (CB) - CB = costs of storage minus convenience yield

Economics

Economics external factors in porters framework are government , social changes, technology, demographics and foreign influences

Economics graham and dodd want to buy cycling businesses at bargain prices and growth stocks at or under intrinsic value

Economics prem / discount = fwd rate - spot / spot X (12/number of months) X 100%

Economics revise international Fischer relation

Economics Triangular arbitrage

Economics go over uncovered IRP

Economics F=So x (1+Rforeign)/(1+rbase) (IRP)

Economics S1=S0 x (1+Iforeign / (1+Ibase)

Economics foreign/base, base:foreign is how they do quotes. Spastics.

Equity

Equity EVA = NI - $WACC (or ke x equity capital)

Equity Value = book + [(ROE - r )/ (r-g)] X book

Equity higher values of tax and interest burden (EAT/EBT and EBT/EBIT) mean lower burden apparently

Equity operating margin is EBIT / rev and pre-tax margin is EBT /rev

Equity Franchise Factor = 1/r – 1/ROE

Equity Sustainable Growth Rate = Retention Ratio X ROE

Equity Growth Factor = g/(r-g)

Equity Franchise P/E = Franchise Factor X Growth Factor

Equity Intrinsic P/E = Franchise P/E + Tangible P/E = (26.66 + 6.67) = 33.33 Tangible P/E = 1/required rate of return = 1/.15 = 6.67 Franchise Factor = 1/r – 1/ROE = 1/0.15 – 1/0.18 = 1.111 Sustainable Growth Rate = Retention Ratio X ROE = (1 - .20) X .18 = .1440 Growth Factor = g/(r-g) = .1440/(.150 - .1440) = 24 Franchise P/E = Franchise Factor X Growth Factor = 1.111 X 24.0 = 26.66

Equity REVISE FRANCHISE FACTOR P/E RUBBISH

Equity Intrinsic P/E = (1 – retention ratio) / (required rate of return – sustainable growth)

Equity Sustainable growth = (retention ratio * ROE) / ((required return – (retention ratio * ROE))

Equity Intrinsic P/E using prospective earnings: / = 1/ [ρ + (1 - λ)I]; ρ = r – I ρ = 15% - 5% = 10%; / = 1 / [0.10 + (0.40 x 0.05)] = 8.33.

Equity Absolute valuation models specify an asset’s intrinsic value and relative valuation models specify an asset’s value relative to that of another asset.

Equity READ the QUESTION = asset turnover is not the asset multiplier

Equity higher intrinsic P/E’s are LESS attractive

Equity use cost of equity for residual income (not about financing decisions)

Equity use FCF when capacity to pay dividends differs from dividends

Equity FCFF is better than FCFE whenever the capital structure is changing

Equity FCFE = FCFF - int(1-t) + net borrowing

Equity Net borrowing is the change in long term debt

Equity make sure to use end years dividend

Equity GO OVER EQUITY HARD

Ethics

Ethics need consent before working for someone else,

Ethics client accounts have priority of account where employees have beneficial ownership

Ethics must provide research reports to audience members at reasonable price

Ethics do not provide other client details to clients

Ethics don’t have to disclose soft dollar arrangements just need to ensure quality blah blah

Ethics can’t have compensation tied to investment banking clients

Ethics Funded status = plan assets - PBO (which SFAS is this? )

ethics can’t communicate a rating different to current rating

ethics issue final report if there is doubt

Financial Statement Analysis

FSA revise consolidation / pc and equity method (incremental effect on NI = total - minority interest for consolidation)

FSA balance sheet carrying values year on year are cost + share of NI - dividends received

FSA equity income is only from those you control (consolidation) or JVs (not equity or small investments)

FSA only include dividend income from AVS, HTM, trading and equity method (check last bit)

FSA all current method (all assets convert at current rate (year end), all income statement converts at the average rate)

FSA PBO - learn the stupid SFAS numbers - Under SFAS No. 158 the pension liability recognized is the ending pension obligation minus the ending pension assets without any adjustments for unrecognized amounts. 972-604 = 368

FSA ECONOMIC vs expected pension expense - be careful - it’s easy - The economic pension expense would include service cost plus interest cost less actual return on assets: 60 + 54 – 56 = 58. Alternatively, it is the change in the pension obligation less the change in plan assets adjusted for cash contributions and benefit payments. [Change in benefit obligation + benefits paid (non-expense item)] – [Change in plan assets – (contributions – benefits paid)]

FSA don’t forget to get Fcinv from investment in fixed assets regardless of fixed asset sales, WCInv from CFS

FSA [NI - (CFO+CFI) / (NOA end - NOA beg / 2)]

FSA Advances from customers are a legitimate liability and should not be part of an adjustment of the firm’s debt. Guarantees represent a contingent liability and need to be included in a firm’s adjusted debt level. Sale of receivables (with recourse) can be thought of as collateralized borrowing and needs to be part of the adjustment to the debt level.

FSA Sweet Home’s reduction of the accounts receivables’ allowance should be reversed; this would increase the allowance for doubtful accounts by 150 and hence reduce the net receivables balance. So total assets decrease by 150. The adjustment would also require an increase the bad debt expense of 150 which reduces net income by 150(1-.35) = 97.50.

FSA Quality of earnings refers to the degree of conservatism in reported earnings. Accelerated depreciation methods are an indication of high earnings quality; both sale of receivables with partial recourse and guarantees of unconsolidated subsidiary debt represent off-balance sheet financing techniques, which lower the quality of earnings.

FSA Go Over equity method and consolidation method.

FSA pension expense reported vs underlying pensions expense — service cost + interest cost -EXP return + amortization of unrecognized loss or prior cost

FSA functional / local / presentation currency. All current (funct + local same), temporal (functional presentation same)

FSA remember which things to translate at which rates

FSA influence but not control is minority active investment

FSA Go over question 20,21,22 for the workings of the equity method

After completing the CFA level one exam last December, this is my first post about Level two of the CFA which I am taking on the 7th of June 2009. Click here to see my update 1 day before the exam about the CFAI sample and mock exams.

I have just finished my first run through of the material for the exam - 40 hours of videos, some audio tapes and a bit of reading here and there. I now have 14 days to revise it, practise it and somehow remember the increased amount of formulas required when compared to the level one exam (something i didn’t previously think possible).

At this stage, I feel very comfortable about my understanding of almost every concept in the course. There was very little that simply didn’t make sense to me when I went through each study session. Regardless of this, more so than in the level one exam, passing will require much more practise and memorisation of intricate formulas - something i unfortunately do not have alot of time for.

In terms of comparing level one and level two of the CFA exam, so far I have found level two to be:

• Much more focused on understanding and applying concepts rather than rote learning or memorisation (although there is still a mountain to memorise),
• A much more useful course in terms of valuing assets and understanding the impacts of the industry and the economy that a company operates in,
• Much longer and more difficult to master. The question format change - 20 vignettes of information followed by 6 questions each rather than 240 individual multiple choice questions - means much more practice is required to succeed in the exam.

With 14 days left, I don’t rate my chances of passing above about 30-40%. Whilst I feel I understand the material, whether i can get it all to stick in 14 days and have it ready to assault the demands of time pressure, crazily confusing CFA questions, and exam day stress is another question.

That said, my approach to the next 14 days is below (or it will be once I’ve thought about it - which is why i am writing this):

Things that need to be done - My ideal preparation for the CFA level 2 exam

• Revise all material using either the notes i made watching the videos or the secret sauce by Schweser. I will probably go for the later due to time pressure but I may do both if time permits.
• Start doing some practice questions. It is far too late for this really but If i can do 1000+ questions spread well across the different areas, I will be happy. I should note here that i typically spend more time learning than doing practice questions and this usually works for me (who knows what will happen with level two though)
• Do the 3 CFAI level two sample tests and the CFAI level two mock exam and then spend plenty of time revising answers and analysing weak spots (I used a spreadsheet for this is level one and it was particularly helpful in finding commonly tested item sets and in revising).
• Go over weak areas and make a formula sheet / level two summary sheet. My version of this for level one was 2 pages in tiny writing.
• Make sure I read a little about each area of the course every day. This is something i didn’t do for level one that i believe will help. Even if it is just a skim over the material, the repetition will help me.

Good luck to all others doing the course and I’ll write more about my experiences as I get closer to exam day.

When analysing the financial statements of companies, consider the implications of the methods of accounting that a particular company chooses. Unfortunately, using acceptable accounting practices does not always reflect economic reality. Companies often have the discretion to manipulate their earnings to reflect the reality that they wish the rest of the world to see them in.

Have a look below for some of the signs to look out for in the financial statements of companies you are interested in investing in:

Conservative Accounting Practices:

•    Choosing LIFO as opposed to FIFO accounting for inventory in an inflationary environment (this leads to ending inventory being lower from higher COGS, and lower operating profit)
•    Rapid write-offs of intangibles gained through acquisition
•    Lack of nonrecurring gains (no regularity of weird gains from unusual or infrequent items)
•    Expensing of initial start up costs (should be expensed as opposed to being capitalised)
•    Minimal software capitalization (again should usually be expensed unless it is going to provide an on-going future economic benefit)
•    Minimal capitalization of interest and overheads (again should be expensed)
•    Accelerated depreciation methods (this leads to higher depreciation in early years thus decreasing net income in early yearly and increasing the reliability of the earnings) (this also has the benefit of decreasing taxes payable)
•    Short asset lives – depreciation (using a small useful life leads to a bigger depreciation expense and again a smaller net income)
•    Using the completed contract method for revenue recognition rather than the percentage of completion method (this ensures all revenue has been earned)
•    High bad debt provisions
•    Little use of off-balance sheet finance (eg operating leases or using the equity method to account for associate companies)
•    Clear accounting policy disclosure
•    Net income approximate to CFO (higher earnings quality)

Aggressive Accounting Practices (mostly the opposite of above):

•    Lengthening asset lives (will reduce depreciation charge)
•    Using straight line depreciation (lower depreciation in earlier years)
•    Choosing FIFO as opposed to LIFO accounting for inventory in an inflationary environment (this leads to ending inventory being higher from lower COGS, and higher operating profit)
•    Insufficient acquisition disclosures
•    Capitalisation of operating costs (this can be fraudulent - Anything that doesn’t lead to future economic benefits must be expensed)
•    Recording investment income as revenue (Think: is management masking a decline in sales?)
•    Recording revenue prematurely (percentage of completion incorrectly used, bill and hold)
•    Manipulating discretionary expenses (big bath provisioning so future years look better - this involves taking an extra hit in the bad years so the future years look better)
•    Manipulating reserves (impair an asset one year and reverse in future periods – only available under international accounting standards, not US GAAP, as you can reverse impairments)
•    Adopting new accounting policies early/late depending on the the impact of the policy
•    Frequent changes in auditors (why are management changing auditors, is there something to hide? always a warning sign)
•    Selling assets/investments to generate gains/losses (these are one off gains)
•    Accelerating/decelerating sales activities (incorrectly reporting sales, bringing forward etc)

December 7th 2008:

2:37am - After finally getting to sleep approximately 7 and a half hours before the Level One CFA examination was set to begin in Sydney, I received a phone call from a good friend of mine asking me to meet him at bar nearby. It’s saturday night and for the fourth weekend in a row, I am unable to agree to his request. The CFA preparation process had been grueling and I had not put in anywhere near the recommended 250 hours. But somehow I felt I had come as far as I could have - 2 weeks of solid study had blended the 18 study session curriculum into some sort of continuum of finance knowledge - in short, I felt I was ready.

6:30am - Having managed to get some level of sleep (I dont believe it was of the REM kind), my mind is mapping out the day ahead. I’d been thinking about this day for at least the last week and despite not being as prepared as I may have dreamt, I couldn’t wait for it to be over. Cook and eat breakfast, follow instructions on the list that I had magnetised to my fridge - “can of tuna, apples, pencils, calculator, eraser, etc..”, get in pre-ordered taxi to the exam and pass. How hard could it be?

7:55am - Other than waiting in a line for 10 minutes to go to the overpopulated toilet, things have gone smoothly thus far. I am outside the venue, frantically reading over my CFA in two pages cheat sheet, and hoping that the 9 hours ahead of me passes me by as quickly as possible. Interestingly, having completed two other degrees, I had probably put in the most study that I ever have for one exam. More interestly, save for the dark depths of administrative law, I also felt that despite this fact I had the greatest chance of failure in any one exam that i’ve ever done. The weight of the course materials is perhaps greater thanmost people realise and is siply exhausting to try and learn in a shot amount of time without prior knowledge or working experience.

10:00am - One hour into the paper, I have completed around 75 of the 120 questions. I am well ahead of time. At this stage my reflections on the paper are that it is far more qualitative than I had believed it would be (despite having been told otherwise). I have probably used my calculator 4 or 5 times by this point. Knowing the intracacies of each study session (at many points including trivia-esque details) has been required many a time to narrow the answer down from 2 options to the correct one. The CFA Institute seems to believe that instead of asking two questions, they will ask two questions in the form of one question (see made up question below):

In periods of rising prices, inventory will least likely be overstated and COGS will be maximised when:

a) LIFO is used for both purposes

b) LIFO is used and FIFO is used respectively

c) FIFO is used for both purposes

d) FIFO is used and LIFO is used respectively

1:00pm - I managed to get a small amount of study done during the break on areas that were not tested heavily during the morning session. I also ate my prepared can of tuna (gourmet I know) so that I didn’t fall asleep in the afternoon session. I decided it was smart not to arrive at the exam when they said to in the afternoon (1 hour early) and returned with about 15 minutes before the next exam was due to start. I was feeling very confident at this point.

3:30pm - Thank you CFA for making me feel so confident - why could you not have been so kind in the afternoon? Like some crual set-up, sometime around 60% through the afternoon exam session, I was just about ready to committ exam suicide. I felt it was a very tough afternoon paper and often I found myself down to a choice between two options in one question (which was really two questions). I was usually sure of one answer out of the two you needed to know to get the answer correct and close to sure about the second. I estimate that I got a maximum of 24 questions wrong in the morning paper compared to around 45 in the afternoon paper. With 40 or so questions to go, I remember feeling absolutely drained (180 questions in) and thoroughly ready to go home and relax my brain. No such luck.

6:00pm - Overall, I’d say the paper was far less quantitative than I may have hoped or planned. I was ready to calculate the depreciation in year 27 of a 40 year capital lease and instead I was instructed to decide what quintile a random score fell into. All I can say about my experience in level one is know the concepts, know them in detail and be very sure about everything. The CFA Institute has a way of making you doubt even the most concrete parts of your knowledge. How well do you know what you think you know? Do firms really need to lodge a statement of changes in owners equity under US GAAP or is it optional - their questions will test knowledge qualitatively and you must be ready if you wish to have a chance. I don’t believe time was a problem at all but I did do 2 practice quizes timing myself accurately (less than the ~10-15 I heard others doing). Overall I completed a breakdown of how I think I went and even in my most conservative assessment where I got all the 66 questions I checked as possibly wrong wrong, I still got greater than the 70% that is needed to pass. Here’s hoping but the fatigue of it all may have messed up my assessment.

2:01am Thursday 29th of January - Results have just been released (later due to the time difference in Australia). I am very pleased to communicate that my study has paid off and that I passed level 1 of the CFA. Not sure what happened to my corporate finance results but beggars can’t be choosers I guess…

My results in the difference sections are below:

save

save

save

Seeing as I have managed to document my thoughts throughout my CFA level one study so far in my CFA Blog updates and my original CFA Level One Study Plan, I figured an update 4 days out from the exam is in order. I write this update knowing full well my time could be better spent studying.

Biggest points of interest

• Very interesting course. it all comes together at some point. highly recommend skimming the whole course with schweser secret sauce to get your head around all you have to know. Once you do this, it is easier to focus on weaker areas.
• Boredom of doing questions that you can do is a problem. circa motivation too. but must continue to do them or will forget.
• Need to focus on problem areas.
• Need to do practice questions.
• Must do ethics material from CFAI, schweser Q bank or some other source of questions, all the practice Q’s you can get your hands on.

A post I made on Analyst forum is below with the results further down.

After going back and forwards on different plans and strategies for weeks (I think I have written at least 6 plans in excel and or word), I think i have finally found one i like. If it helps others, fantastic, if not it provides great procrastination time as i try to put off the 60 derivatives questions i am about to do after i write this…. This may not provide much value to most and is fairly elementary (i wish i had come up with it earlier).

Once you are fairly comfortable with the majority of the workload (which i assume most of us are by this point), there are going to be gaps in our knowledge which we need to improve. Simulating test conditions may also be important to some if time is an issue for you.

I have been taking the CFAI samples (nothing new here) but actually working through my results in a systematic way. I chose to do the CFAI samples first before i take the Schweser ones as they are obviously more representative of the exam.

My ’systematic’ way is as follows (sounds stupid but i hope it helps)(also note i have the tests on my computer but it would work just as well for schweser etc)..

1-creating an excel spreadsheet for my answers numbered 1–>x
2-input answers as i do the test (put a star on the questions i know need revision on as i do the test or that I am totally guessing - also write the topic of the question in the next cell as a primer for later)
3-mark the test
4-go through with answers and identify problem areas.
5- create a “must revise”, a “forgotten formulas” and a “should revise” list in the same spreadsheet
6- add areas that you need to work on to the list and repeat this process for each of the sample exams and the Schweser exams and you will have a fairly comprehensive list
7- Revise key areas and question bank or some other way test yourself on these areas.
8-pass.

Here is a link to what it looks like - hope it helps someone - glad i wasted time not thinking about swaptions.

I have made a list of stuff I need to work on before the exam. It is below and the spreadsheet that I made it from is here. It is unedited.

Thanks have to go to Wallstats.com and blog.mint.com for creating this amazing diagram.

Following on from my previous CFA Blog updates on my CFA progress, I have spent the last month working hard at work, studying the CFA and not finding much time to update this website. My original CFA Level One Study Plan seems far off and I find myself less than 30 days from the exam…

The title of this post is somewhat misleading as I have not yet passed the exam and I am probably far off being able to claim such a feat.

I do however, feel that I have come up with a strategy that will enable me to use approximately 6 more weekend days, 15 or so after work nights and 5 full days off before the exam to have a good shot at passing the CFA level one exam.

The strategy is as follows:

1. Read learning outcome statements in Scheweser Question Bank program. This program is amazing
2. Complete practice multiple choice questions relating to each LOS in the same program
3. Maintain a simple spreadsheet with key new concepts learnt in super summarised form - refer to this each day until the exam
4. Complete practice CFAI exam papers 2 weeks before the exam. They are apparently much harder than the Schweser material
5. Rinse and Repeat

So far, I feel comfortable that I can answer the economics, ethics, quantitative methods (50%) and financial statment analysis (50%) sections of the exam.

My only other feedback at this point is that the CFA program has thus far served the exact purpose I had intended it to. It has forced me to study a very wide range of business/ finance / economics topics in a systematic manner. It has been highly enjoyable and whilst doing it as well as working full-time is not a walk in the park, I highly recommend giving it a go.

My blog will not be updated as often over the coming month.

Speak soon.

Here is another CFA link that may be of some use to those doing the exam.

How Many Days Do You need to Pass the CFA Level One?

Six weeks on from my first CFA Blog update and my original CFA Level One Study Plan, I am now 67 days from the start of the CFA exams on December the 7th, 2008, in Sydney.

So let’s hope the answer to the question above is less than 67 days as this link on How to Pass the CFA in 50 days implies.

In terms of progress since my last update, I am feeling much more comfortable with some of the economics material and have revised the quantitative methods topics a few times. I have not yet done many practice questions at all as I have decided to get a good understanding of each of the topics before I do this - this is perhaps not an ideal tactic for all but it works for me. Unfortunately due to work and procrastination, time is running out and it is not looking like I will have a full month to do practice questions as planned.

I have now listened to all the audio tapes (except for some of ethics and alternative investments tapes) several times over between work and home. Just the sound of those two monotonous voices repeating “Question” or “Answer” or reading out a complicated formula makes me shudder at the thought of plugging my iphone headphones into my ears.

As a result of my new found hatred for listening to the audio tapes, I have switched to using a combination of the Schweser “Secret Sauce” (a summarised 220 page version of the 3200 page CFA material which I read on the way to and from work) and the Schweser video lessons, which include videos, the corresponding slides and a navigation mechanism. This switch will hopefully suit my studying technique of taking in little bits of information regularly but I do find it quite painful sitting my room alone, distractions rife, watching a 10 X 10 CM section of my LCD screen tell me about Financial Statement Analysis.

On that point, I have started the Financial Statement Analysis, Debt Investments (bonds) and Derivatives sections of the course. I believe the FSA stuff will be the most challenging for me because whilst none of its is particularly difficult, it is like learning a new language with no accounting and finance background.

I have nine weekends left before the weekend of the exam and am finding that I can make time to study two nights per week. I am obviously going to have to increase this as we get closer to the date and stop hosting Argentinian couch surfing girls at some point soon but overall, I think that whilst I could be further ahead, I am learning the information well and am close to where I would want to be at this point.

The following is an update of how far comfortable I am with each of the topics that I have studied so far:

Ethics - 50%

Quantitative Methods - 60%

Economics - 45%

Financial Statement Analysis - 25%

Debt Investments - 40%

Derivatives - 25%

Corporate Finance - 20%

Other - 5 %