How to avoid failing the level 2 CFA exam

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. 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 details 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. Hypothetical 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 the course and instead quiz you on the common name for a random bond that you’ll never have any contact with.
  • A very solid understanding 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.

8 thoughts on “How to avoid failing the level 2 CFA exam”

  1. hi boss
    I have recently cleared CFA level-1 and have completed my mba in finance recently.
    What are the opportunities for CFA level-1 cleared candidates?

  2. It’s a shame that the testing didn’t match what you expected and it sounds like you’ve certainly made a real effort and probably learned far and above what was required, only just along the lines that interested you and not so much what the examiner was looking for. I’m sure that you’ll probably be better equipped if you decide to resit the test. I guess you wouldn’t want your efforts to date to not be reflected in a qualification although I’m sure you’re already putting it to good use. Looking forward to hearing about it :)

  3. Hi James,

    I found this link when I saw that your name was associated with TII on the Dodsville blog. I don’t remember meeting you so you may be a more recent starter (apologies if you aren’t). I have known a few of the other guys at TII for a while now and have been reading what they say for a long time – in fact I have learnt a lot from some of them and still do.
    Anyway I was attracted to this post because of the mention of your LVL II CFA studies and then read with interest your comments.

    I finished my CFA last year (2009) so you can take what I say any way you choose because I understand it is easier to be more insightful after the facts i.e. 20/20.
    I too failed level II after level I presented not much of a problem – I had 11 years derivatives trading experience so I had a head start. I also know I failed level II because I cut corners and left certain topics completely out and bang there they were again and again on the exam, for me it was around quant and few areas I didn’t care about as well. I just didn’t make the time for 350 hours but I guess it didn’t help going to Omaha in May! (ask the lads about Hawaii). Having read your comments and what you did I would have been happy to have laid your chances at even money – you know they don’t give out CFA’s for nothing. Anyway I was as indifferent about keeping going as you sound for your exact reasons – I had learnt what I wanted so forget the rest.
    But then I came to the conclusion I wasn’t going to miss the accreditation I wanted because of something I didn’t believe in or want to learn. So I in rolled and decided to study those topic first and if I got through them it I would keep going. The real plus of repeating level II was not only did I gain a deeper understanding of all the things I don’t believe in (know your enemy) but I really got to repeat what I did believe in and really think about it. The result was writing what was my effective investment philosophy. I put this into paper and ask Greg if he still has a copy.
    My point is there is an advantage of repeating and reinforcing that those who pass first time possibly miss. My advice is do the 350 hours this time and nothing less. I never started a level before March so you have plenty of time.
    Level III is different but don’t think because it is based around portfolio management you can’t learn something – you will be surprised. Is it harder than level II? – only to people who have passed level II and are now doing level III!
    With regard to your comment on the depth the CFAI go into questions at the expense of other broad areas then I can’t agree more. In the feedback article after Level III I basically said the same thing but calling it CFA lotto, I’m suprised they let me in…it shouldn’t be this way. Unfortunately and fortunately it is and they have their reasons for it.
    Anyway take a leaf out of Nathan’s book – he showed commitment and is an inspiration for having done it. As for others who dismiss the relevance; who cares, as B.Graham said you ahve to put your own value on something independant of anyone else – I still have a smile every time I think about having passed level III and I’ll put my knowledge up against anyones.
    Hope there is something you can use in this.

    Justin J O’Kane, CFA

  4. I was searching for inspiration after my miss in CFA L2 in June 2011. I fell in Band 10, so will ask CFAI to reevaluate, not that something would change, nevertheless.

    Your prep sounded exactly like mine, 5 weeks of dedicated effort, close to 150 hrs of study is all I did. 2012 it is!!

  5. James- i can totally relate to what you experienced- from the last 5 week crash study attempt, to leaving out swaps, not paying attention to all those detail n the list goes on. I too have failed the L2 exam this yr and reading your blog was like you stole everyone of my thoughts!

    Loved the blog. very humourously written.

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