My Guide to the CFA®

Hey Monkeys, with the new year fast approaching and many of you starting to prep for the June exams I thought now would be a good time to describe my study process, tips, advice, etc. for others to use. This will not be “step by step” instructions but rather what has worked for me. Please feel free to add your unique tips, tricks, etc. Hopefully this is useful!

My Background: I am currently an Associate at a MM Investment bank, I have a background in research primarily in the energy and industrial sectors. Both my work experience and undergraduate education have helped me prepare for the CFA®.

First off, there is no ONE way to pass. No tricks, no magic bullet or perfect cramming guide. Everyone is different and will require more/less study time to pass. But first, what is the CFA®?

CFA® Overview:
The “CFA®” or Chartered Financial Analyst designation is a designation given out by CFA® Institute and is widely recognized as the gold standard among financial professionals. To receive the CFA® designation, each applicant is required to pass three levels of exams and four years of relevant experience. Level 1 (“L1”) is offered in twice each year, once in December and once in June. Level 2 & 3(“L2” & “L3”) are offered once each year in June. L1 is a 240 multiple choice exam (A,B or C). L2 is a 120 multiple choice exam (A,B or C) with half based on multi-page “topic readings”. L3 is half essay based and half “topic readings” like L2. L2 is commonly cited as the most difficult followed by L3 and L1. Pass rates for L1, L2 and L3 are around 43%/46%/54% as per CFA® Institute. The previously cited passing scores do not include those who do not physically sit for the exam.

I recommend Schweser notes for L1 and CFA®material for L2 & L3. Pet peeve, CFA®requires that you purchase the official CFAI ebook material which is a waste of money for those who use third party material or buy the physical books.

CFA® Sections: Ethics, Quantitative Methods, Economics, Financial Reporting and Analysis, corporate finance, Equity Investments, Fixed Income, Derivatives, Alternative Investments, portfolio management and Wealth Planning.

GRADING:
The lack of transparency regarding the exam standard setting frustrates many if not most applicants. You will receive an email of your results telling you if you have passed and a break-down of each section by three bands 0-50/50-70/70-100. Should you fail you will be informed the “band” 1-10 that you failed in, with 10 being the highest.

STUDYING:
One of the biggest concerns most have is how to block out enough time to study all the material. Take a moment to evaluate your position. Are you getting crushed at work every night and weekend? Is your boss understanding of the value of the CFA® designation? What are your personal commitments like? This is not to dissuade you from taking the exam but you need to account for these things. Individually, each question on the exam is not difficult but the shear amount of information and the detail required can make even diligent students nervous. My goal while studying is to be in a position where one month prior to the exam, I can study 30-40 hours and pass.

Read the material while taking notes on what you are reading. Make notecards on key terms, formulas, etc. Do not take notes on what you know… it is a waste of time, write down what you found unusual, would not have guessed as the correct method and did not know. The same thing goes for flash cards. Gross Profit / = (Sales – COGS) as a flash card does not help you. Although throwing in a few easy ones can be motivating. If you come across a large section of formulas, mark it and make note cards for them later, you do not want to mess up your studying groove writing 15 minutes of flash cards on random ratios.

Do yourself a favor and do the end of chapter practice questions if possible, personally I did EOC questions only on sections I was weak in but I believe my background in finance helped me require less practice. So one month prior to the exam, you have read all the material, created concise notes and have hundreds of flash cards prepared. Now you need to evaluate your position, do a practice exam and find out which section(s) you are weak in and evaluate their weighting. You need to do well in ethics, a high score there will always help you. Personally I hate doing timed full practice tests. I recommend going through a section/topic and then reviewing it for your mistakes and questions you guessed on. That said, I always try to finish the section that I am doing in half the time allotted so when exam day comes there will be plenty of time. The half time practice exam thing also helps because while I know I could brute force some of the calculation problems, that approach kills time and it is not a productive study method. Your goal should be to quickly understand the question and the correct method to efficiently identify the answer. I used excel to track my answers and % correct across multiple practice exams by section. If you are consistently doing bad on a section you need to go through your notes thoroughly, and possibly back to the book to do additional practice questions.

TIMING:
When should you take the CFA®? If you are like most people, you will be spending many months to prepare for the exam. That said, it is important to plan your studying well in advance of the actual exam. One of the biggest mistakes I see people make is they set a timeline and have not selected what material they will be studying with! Most people say you need to put in approx. 300 hours per level, in my experience that is about right. If you have a strong background in finance, accounting or economics then you will need less. If you plan on using the official CFAI materials, you should give yourself approx. 6 months of prep per exam. 5 months to get through all the material and 1 to review and study for the exam. If you are using notes you can get away with less, much less, but that one month of review is important. Also make sure to schedule appropriate time to relax, I try to grab a beer or dinner once a week with friends regardless of what’s going on.

In my experience around 2.5 months before the exam is when most people fail. Because they fail to prepare. This is when people realize they are falling behind their study schedule, they are debating if they should skip a book to save time and generally the quality of studying drops. Do not fall behind your schedule.

MATERIALS:

I use Black n’ Red Business hardcover 11-x 8, ruled 96 pages. Buy one for each book. If you are going to be taking notes for the next few months you might as well do it on something high quality. Also, if you are doing over 96 pages of notes per book you are doing something wrong. I prefer Pilot G2 Gel Ink Roller Pens.

Letter notepads: Pick up a couple of these and carry one around to do your calculations and practice questions on. This helps avoid a bunch of incorrect practice questions in your valuable study notes. They are also cheap and usually kept well stocked in your office supply cabinet.

Headphones/Music/Earplugs: I switch between regular and noise cancelling headphones. I know a lot of people like earplugs but I am not a fan. I suggest classical and instrumental music when studying as anything with vocals tends to distract me. Spotify has a bunch of great focus/studying playlists.

Fuel: Try to stick with water and pick up a good water bottle. If you drink coffee go black. I avoid energy drinks while studying but will always have a few leading up to the exam.

Calculator: I recommend the TI BA II Plus, be sure to spend some time learning all the shortcuts and tricks as they will be very helpful on exam day. You could go for the HP 12C but Reverse Polish Notation takes time to learn. Some people recommend bringing two calculators for the exam in case one dies, I do not.

WHERE:
I highly recommend that you identify a few different places you can block out time to study. For me, studying every day in the same place is boring. I would walk 30 mins every Saturday and Sunday morning to a local college library or head to the office to study all morning. Grab lunch nearby, preferably with a friend and then head back to the library to study for a few hours. Walk back home and stop by the coffee shop to plug in another hour or so sipping coffee and go home to relax. Generally, I tried to avoid staying up late to study and found myself much more productive doing 1 hour chunks of dedicated studying. Try to get up early to study on the weekend, the world is quiet and slow and it helps you be more productive.

EXAM DAY
Finally, the day you have been waiting for, exam day. Do yourself a favor and confirm the exact location of your test center right now. Plan to be early for arriving early. The exam start time is when the exam starts, doors close 30 minutes prior to that. Months of your life should not be wasted because you went to the wrong place at the wrong time.

Exam Strategy: Be confident. By this point you should have a good grasp on your likelihood of passing. If you come across an answer that you cannot do, or would need to brute force, write down your brief thoughts quickly, mark it and come back later. It is better to do the bulk of the questions first and come back to others that way you do not fall behind on time. Also make sure to mark the ones you guess on as you may have time to look them over again if you finish early.