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Preparation for the CFA exams

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Moraen View Drop Down
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    Posted: Sep/08/2010 at 3:52pm
I've noticed that there are quite a few people on the board who have expressed interest in the CFA exams and would like to know more about the process, so I thought I'd write a little blurb about it.

Step 1:  Signing up. 

- Being approved for the CFA program (i.e., becoming a CFA candidate) is a fairly easy process.  You can go to the website (www.cfainstitute.org) and sign right up.  The approval process is fairly quick.  Your first set of fees is for registration, the Level I exam, and the Level I curriculum.  You can now opt for e-books (which would have been my original choice), hardcover books (which are a pain to lug around) or both.  If you get ONLY the e-books, all in, signing up will be about $900.  With regular books probably about $60 extra.

- The requirements for earning a CFA charter are fairly straightforward.  Be a member of the CFA Institute (totally worth it IMHO) and pass the exams.  You can become an associate member before you pass the exams and then request the upgrade to full membership when you pass your exams.

Step 2:  Study for Level I

-  Think of level I like senior level business, economics and accounting classes.  The focus for level 1 is on Ethics (in fact, you can fail any other portion of the exam and still pass, but if you fail ethics, you FAIL).  That said, it will still only be about fifteen percent.  There is also a fair amount on GIPS now (you have heard Wet blanket talk about these).  These are the Global Investment Performance Standards.  The part that is testable is very short, but heavily involved and part of the ethics portion of the exam (say, 3-5 percent). 

-  Ethics - straightforward in concept, but can be difficult in practice.  While it may be easier to always go more restrictive and choose the answer that is the "safest", it isn't always the correct one.  Spend a lot of time reading the code and standards and also taking practice exam questions (this goes for every category).  It can be confusing.  And some of it you may find REALLY stupid.  For example, if you choose the answer "Ron 14 is a CFA", it WILL be wrong.

-  Economics - Comprehensive basic Micro and Macro economics.  Probably would be considered senior level at the collegiate level - or early grad school.  10-15% of the exam.  You'll need to have a fundamental understanding of economics.  Which you should anyway.

-  Quantitative Analysis - includes basic TMV calcs (annuity, annuity due, present and future values, etc.).  I hope you know these already.  It also gives a good amount of statistics (some of which are graduate level), and a smattering of technical analysis (yep, technical analysis).  This will make up twelve percent of your exam, although you will use ALL of the techniques in this part on the rest of the exam as well, so it's more like 25%.  Learn statistics!  You WILL fail if you don't.

-  Financial Statements Analysis - This is basically accounting and covers 20% of your exam.  Make sure that you have a good grasp of accounting concepts and study this section over and over.  It can be ridiculously hard, as the questions are can all be very confusing

- Corporate Finance and Portfolio Management - Easy for me, but people who have never worked in corporate finance may have trouble.  Remember your NPV and IRR calculations and you should be fine.  This part of the exam is around 10-15%.  Continue to do practice problems.  Much of the portfolio management info you will already know, so it isn't a huge deal.

-  Equity and Fixed Income Investments - Starts getting into the nitty gritty now.  Fixed income is a PAIN!  It is easily one of the most complex sections - even worse, this is Level I - it only gets harder.  It is not heavily tested, but you need to make sure you study it.  Failing is one thing.  Bombing this portion is another.  Plus, you will need a good foundation going into Level II, where the focus is Investments.

-  Alternative Investments and Derivatives - Not heavily tested, but can get pretty complex.  Also doesn't make up a very large portion of the exam.  Study.  Study.  Study.  Practice problems.

**** There are many prep courses.  I have never used one.  I failed Level I once.  I honestly don't think prep courses will help you.  All the information you need is in the Curriculum.  That said, I did start using Allen Resources audio series.  You can listen to it anywhere.  It is a $200 app and you can pick up things sometimes before you go to sleep.

-  Step 2a - Study at least 300 hours.  This means weekends and every day.  Try to get at least two hours a day in.  If you can block of some time in the office or work quietly in the morning before others get in, this will help.  The key is to find the time to study. 

-  Step 2b - Practice problems.  Ideally (and I know this is an exaggeration), you should take over 2000 practice problems PER discipline!  Sounds like a lot?  One thing I know you won't say after finishing the exam - I wish I hadn't done so many practice problems.

-  Step 3 - Take the exam.  You will feel like you just got strip searched.  They think you are trying to cheat - automatically.  Put it out of your head.  Do not think about them.  Concentrate on what you are doing and if you are not cheating, you don't really have to worry about it.  They know who is cheating.  Eat a light, but filling breakfast.  Don't drink a whole lot, but don't get dehydrated.  You need every second in the room.  Get a good nights' sleep the night before.  Some sex if you can get it.

I'll write on Level II next.

Edited by Moraen - Sep/08/2010 at 5:39pm
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Guests Quote  Post ReplyReply Direct Link To This Post Posted: Sep/08/2010 at 4:22pm

Great stuff Mo. I hear a lot of guys say this but if you were planning on getting the CFA would you just go for it and never bother with getting your CFP? I always thought that if you were going to stay on the advising side you should do it incrementally as such even though I know the two are very VERY different.

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Post Options Post Options   Thanks (0) Thanks(0)   Quote knuk Quote  Post ReplyReply Direct Link To This Post Posted: Sep/08/2010 at 4:37pm
I'm not having a great month so far so am waiting till the CDN$ is at par. Another 3.7c to go..will save me a little over $30 on the enrollment. I'll give it about a month.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote knuk Quote  Post ReplyReply Direct Link To This Post Posted: Sep/08/2010 at 4:38pm
BTW thanks Mo, I'm going to print and save this. 
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Moraen Quote  Post ReplyReply Direct Link To This Post Posted: Sep/08/2010 at 4:50pm
I would never get the CFP after the CFA.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Ron 14 Quote  Post ReplyReply Direct Link To This Post Posted: Sep/08/2010 at 5:31pm
Mo- Have you looked at the CFA exam info on Investopedia? I know it is probably 1/100th of the material on the exam, but it does seem to summarize the material. It seems like you have to know 50-100 formulas cold.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Moraen Quote  Post ReplyReply Direct Link To This Post Posted: Sep/08/2010 at 5:41pm
Left out Economics - updated.

Ron - Investopedia's questions actually closely approximate some of the questions you will get on the exam.  Great free study tool.  You can keep taking those practice problems over and over.

The overview is a close approximation.  Some of the info is not quite true.  Also, it does NOT give you enough of an implication of how difficult it is.  You don't know until you start taking practice problems.  By then it's too late - you're screwed.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Ron 14 Quote  Post ReplyReply Direct Link To This Post Posted: Sep/08/2010 at 5:59pm

This stuff makes cold calling look fun.

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Ok, so you passed Level I and are ready for Level II.  Basically, you just finished college and maybe your first one or two years of grad school (I would say it approximates a Masters in Securities Analysis).  Now you have level II. 

Step 4 - Celebrate.  Level I is an accomplishment no matter what else happens.

Step 5 - Get the Level II materials as early as possible.  Two weeks after passing Level I, see if you can get an old copy of someones Level II materials.  Tell someone you will pay them $100 for them.  Do NOT take Level I in December and Level II in June.  If you are in production, two things will happen:  Your production will suck and you will fail the exam.  So, get the materials early.

Step 6 - Get the updated materials.  You actually have no choice.  When you sign up for the new exam, you have to get the new curriculum.  You now have a good two or three months lead on your studies.  That said, the updated materials will ALWAYS have something in there that wasn't in the previous years' exam.  Count on it.

Step 7 - Study half again the amount you studied for Level I (for those of you who don't know what that means, take half of the time you studied for Level I and add it to the full time you studied for Level I).  I honestly do not see how you cannot pass if you study this much. 

Step 8 - The materials

Ethics - Ethics is pretty much the same, although the questions are a little more difficult and a little more convoluted.  The scenarios are not easy to decipher and remember that the right answer isn't always the best answer (if that makes sense).  When you are doing practice problems, you will shake your head like "I shouldn't have gotten that one wrong" and then when you see the explanation, you will recognize why you got it wrong.

Quantitative - More of the same, more complex.  What is interesting is that while less of this material is tested on in this exam, it's more difficult.  Think graduate level statistics for a non-statistician.  Luckily, no qualitative, but there is some non-parametric info.  Practice problems.

Economics - Assuming you have retained the information from Level I, I feel that Level II should prepare you to actually BE an economist.  You will know more than many "chief economists" at some of the smaller firms, and while you haven't completed a dissertation or contributed to the body of knowledge at this point, you should have a great understanding OF the body of knowledge.

Financial Reporting and Analysis - Here we go again.  Heavily tested.  Since so much of securities analysis relies on information provided a companies financials, it is heavily tested.  Still, most of the exam is actual securities analysis (50%).

Corporate Finance and Portfolio Management - Much more portfolio management than corporate finance.  Still, stuff you should know by now, but you will pick up tidbits here and there and go "wow, I wish I had known that before....".

Equities and Fixed Income - By far the most heavily tested area of the exam.  You will still need to have a strong quantitative background and KNOW it cold and you will be using techniques learned in Financial Reporting and Analysis and Quant and Econ.  After level II, you should have at least as much knowledge as an actual analyst.  Fixed income is still the bear and you will hate yourself for years to come and want to have nothing to do with Fixed income (which is why all of the really ugly people are Fixed Income people). 

Derivatives and Alternative investments Analysis - If you are in to learning about different securities and always want to be able to smack a client down when they come in with a, "What about a forward swap with an option to sell to another player if it's not profitable for me at two months to execution?  How would you price that?"  Take out your pen, run the stupid fucking numbers and smack the shit out of them with your HP12C.  It is actually fun to learn about.  And while you may NEVER use any of the info in there, it is actually pretty interesting.

Step 9 - Did I say 2000 practice problems per module?   For level II, I mean 3000 problems.  You cannot do enough practice problems.  Do them until your eyes bleed?  If there are no more problems to buy anywhere, make some up.

You can get practice problems from

allenresources.com (buy them on a Tuesday and they are 66% off - no shit)
analystnotes.com (these are free, but if you pay $99, you get unlimited access).
investopedia.com (free as well, but the interface sucks).

Step 10 - Take the practice exam offered by CFAI two weeks before your exam.  Then take the Investopedia practice exam a week before. 

Step 11 - Good night's sleep yaddayaddayadda, sex, light breakfast, hydrate.

Step 12 - Pass the exam
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Wet_Blanket Quote  Post ReplyReply Direct Link To This Post Posted: Sep/09/2010 at 9:31am
Nomination for lobby anyone?
When money is speech, speech isn't free.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Debolt Quote  Post ReplyReply Direct Link To This Post Posted: Sep/09/2010 at 10:37am
Just Mo's posts? If yes then second
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Ron 14 Quote  Post ReplyReply Direct Link To This Post Posted: Sep/09/2010 at 10:52am
I actually just bought the Level 1 official books off some dude on craigslist for $50. I need to take a real hard look at the material to see if I have a prayer. I may have to go to the local JC to brush up on some statistics and accounting classes first. 

Edited by Ron 14 - Sep/09/2010 at 10:53am
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Chief Quote  Post ReplyReply Direct Link To This Post Posted: Sep/09/2010 at 2:40pm
Morean... how much have you passed all levels are up to Level III
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Ron 14 Quote  Post ReplyReply Direct Link To This Post Posted: Sep/09/2010 at 2:49pm
huh?
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Moraen Quote  Post ReplyReply Direct Link To This Post Posted: Sep/09/2010 at 2:51pm
Originally posted by Chief Chief wrote:

Morean... how much have you passed all levels are up to Level III


Yes?

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Chief how was your liquid lunch?
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Post Options Post Options   Thanks (0) Thanks(0)   Quote JackBlack Quote  Post ReplyReply Direct Link To This Post Posted: Sep/09/2010 at 3:09pm
I think what Chief ment was
Morean: How much have you spent, to pass all levels up to level III?
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Moraen Quote  Post ReplyReply Direct Link To This Post Posted: Sep/09/2010 at 3:18pm
Including hotels, prep materials, curriculum, testing fees (I took Level I twice, Level III twice and will ultimately take it again), gas, Society dues, society luncheons, society test groups, precisely $3,284.26 according to Quickbooks.


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Post Options Post Options   Thanks (0) Thanks(0)   Quote Moraen Quote  Post ReplyReply Direct Link To This Post Posted: Sep/09/2010 at 3:21pm
More info:

http://news.nyssa.efinancialcareers.com/newsandviews_item/newsItemId-27863
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great info
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