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CFA Level One Results and Exam Day Reflections – December 2008

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. 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 do unexpected things. ¬†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). My study has paid off and I passed level 1 of the CFA program. 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:



CFA Level 1 Update – 4 Days Left Until the Exam

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.

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.

Must Revise
E GIPS only apply to investment management firms
E - Under GIPs: composite must include all fee-paying discretionary accounts. non-fee paying can be added if disclosed. non-discretionary cannot be added.
E ETHICS – you cannot have unfair allocation methods of shares even if you disclose
E cannot knock people over on trading floor
CF calculating NPV practice cashflows
CF NPV profile – steeper slope = more sensitivity
CF mismatching strategy for short term forecasting
CF CAPM vs Bond Yield for Cost of Equity
CF effective cost of financing (73 mock 1)
CF discounted payback period (77 mock 1)
CF FCFF + discount rates
CF project sequencing
CF profitability index = 1 + NPV / initial cost
CF no tax deduction for preferred stock
CF MMY / Discount basis yield
CF DDM approach – cost of common equity = div yield + growth rate Q76 M2
CF 5 part dupont
D graphs + put call parity / prot put, covered call
D maintenance margin
D covered call and protective put. Covered call reduces upside and protective put reduces downside minus costs.
D FRA, swaps and different types
D covered call + protective put (96 m2)
AI Alternative investments (everything)
AI property valuation methods
AI commodities with stocks and inflation (111 m2)
AI emerging mkts (114 m2)
ECO Economic Profit vs Accounting Profit
ECO okup + inflationary gap
ECO government spending – budget deficits –> more loan demand —> IR higher
ECO structural unemployment = changes in technology , frictional = influenced by unemployment compensation
ECO The quantity of land and other renewable natural resources (37/mock 2)
ECO Phillips curves – REVISE – 39 / mock 2
ECO feedback rules (40/mock 2)
ECO Marginal cost pricing (42/ mock 2)
ECO nom IR = real Ir + expected inflation
ECO demand pull inflation leads to increase in price level and real GDP (44/m2)
ECO McCullum = Monetarist (new). Taylor = Keynesian (new)
ECO constant vs increasing cost industries
FE forward rate calcs / options / swaps
FE bootstrapping – forward rates
FE different term structure theories (expectations, liquidity preference + ..)
FE Zero volatility spread (103/m1) + OAS (104/m1)
FE increasing yield curve = bigger spread between nominal spread and Z spread
FE duration of portfolio is best described as % change in portfolios value if interest rates change by 100 basis points
FE different types of risk (98 m2)
FE Defaults rates + recovery rates (105 m2)
FE spot rate final for Z coupon bond – dont forget semi annual compounding
FE price sensitivity is negatively correlated coupon rate and level of mkt interest rates.
FE SPV vehicles are rated abased on collateral and credit enhancement mechanisms sued
FSA change in Lifo reserve due to change in inventory
FSA discon items, other comprehensive income, extraordinary items
FSA gaap vs ifrs
FSA CFO direct / indirect
FSA 5 component dupoint’
FSA DTA?DTL accrued warranty
FSA depreciable lives in high inflation times
FSA expensing vs capitalising r&d
FSA Treatment of Intangible Costs under GAAP(LOS 36b)
FSA % of Completion vs Completed Contract – revise
FSA net income –> FCFF
FSA FSA phases of analysis
FSA intangible assets and impairment
FSA Calculations on leases (q59 moxk 1)
FSA growth rate does not –>DTA/DTL (Q 60 mock 1)
FSA treasury stock method (!65 mock 1)
FSA Lease payment calc (Q66 mock 1)
FSA actual vs incurred expenses DTA / DTL (Q67 mock 1)
FSA always compare interest expense as a % of sales NOT total debt
FSA remember to put dividends paid into net income if from year before
FSA tough question on LIFO / FIFO COGS (51/m2)
FSA if there is no change in lifo / fifo, net profit margin is the same
FSA Q59/M2 – A=L + E… A= L + (Cont cap + ending retained earnings)…. A= L + [(cont cap) + (beginning retained earnings + Net income – dividends)]
FSA Discount Bonds = CFO Overstated, CFF understated
FSA Premium Bonds = CFO Understated, CFF Overstated
FSA Zero Coupon = CFO Severly Overstated, CFF Severly Understated
FSA treasury stock method
FSA The tax expense less DTL = Tax payable less DTA
FSA trading sec / available for sale + HTM securities effect on BS / IS
M/E time weighted return (GM) vs moneyweighted return (IRR)
M/E price weighted / value weighted unweighted indexes
M/E investments in diff bus cycles
M/E porters five forces + industry life cycles
M/E statistical models for long term projections, models for medium term
M/E commodities with stocks and inflation
M/E Technical Analysis
M/E projection models, averages and statistical techniques
M/E types of indexes (Q79 / m1)
M/E intrinsic value calcs (Q84 mock 1)
M/E bias (behavioural, survivorship, arbitrage)
M/E end of year dividend!!!!
M/E price weighted index and stock splits (Q79 / mock 2)
M/E calculating P/BV (85/82/90 m2)
M/E equivalent number of firms = 1/ HHI
M/E valuation using FCFF (84 m2)
M/E call markets no primary mkt (87 m2)
M/E FCFF (88 m2)
PM Relaxing of CAPM assumptions
PM Portfolio management (everything)
PM not compensated for risk that can be decreased by diversifying
PM people dont ask for risk
PM Market risk = systematic risk = non-diversifiable risk = risk you are compensated for.
Q roy’s saftey first
Q probability inc bayss theorem
Q correlation
Q Monte Carlo vs Historical Simulation(LOS 3.9.i)
Q Random Sampling
Q harmonic mean
Q portfolio variance, correlation and covariance
Q hypothesis testing
Q roy’s safety first vs sharpe ratio
Q Mean average deviation
Q confidence intervals
Q consumer surplus calculations
Q EAY / EAR / compunding freq Q
Q money weighted return = IRR, time weighted return = geometric mean
Q positively skewed distribution has a long tail to the right. Therefor mean >median>mode
Q Probability) P(a or B) = P(a) + P(b) – P(ab)
Q standard error (s.d/root n
Q hypothesis testing process (32 mock 2)
Q 1st: cov(a,b) = corr x stddev(a) x stddev(b)
Q 2nd: cov(A,B) = E[R(a) – E(R(a))]E[R(b) – E(R(b))]

How to pass the CFA level one exam in 30 days working full-time (Update 3#)

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.

CFA Level One Studying Update #2 – 67 days to go

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 %

CFA Level One Studying Reflections – Part One

Excited by a delivery I received a few weeks ago whose packaging better resembled that of a fridge than what I would have expected of a curriculum for the CFA, I now find myself stunned by the realisation that weekends are out of stock until December if I wish to pass the CFA.

As I discussed in my CFA Level One study plan, I do not have a finance background short of a bit financial mathematics and general knowledge about particular areas. I hadn’t intended to be able to cruise through the CFA as everyone that I had spoken to had suggested that it was one of the most challenging courses out there. Having said this, I was not expecting the full extent of the enormity of information that I will need to take in before December in order to have a chance on the day.

For those out there who are considering having a go at passing level one of the CFA, consider this: 18 topics spread across mathematics, economics, accouting, financial statement analysis, fixed income securities, derivatives, portfolio management and corporate finance. You are allowed to bring a calculator and pens into the exam, but are not allowed notes or formula sheets or any other aids. You then have 6 hours to answer 240 questions spread across all these topics.

My most relevant initial reflections on my study so far include:

  • I have decided that reading all the CFAI Curriculum (3000+ pages) that they sent in the Fridge packaging is simply not possible by December in addition to working 40 hours a week and staying sane. I have decided to use the Schewser course notes, video series and audio files as planned.
  • The Schweser Video series that I got my hands on are particularly helpful and I am finding it makes the information much easier to take in if I watch the video, take notes about the concepts in the video at the same time and then read the Schweser course material following this.
  • The Audio files that discuss each topic in a question / answer manner, whilst being mindnumbingly monotonous, are very helpful and are good to listen to on the way to work. Especially when combined with my iPhone.
  • Ensuring that I think about at least one or two topics every day is important to ensure I committ recently learned information to long-term memory and to stay on top of things. My skiing trip to New Zealand today should make this interesting.
  • The prereading that is required for Economics and Financial Statement Analysis (i.e accounting) is looking like it is actually going to be required. I was hoping this would not be the case but it does appear I will have to start at the bottom. This is going to be a challenge!
  • The first two books which include Quantitative Methods, Economics and Ethics have so far been relatively straight forward short of my lack of a foundation in economics.
  • In particular, Ethics will be very straightforward I believe (helped by my legal background I think).
  • Quantitative methods will just be like throwing in first year university advanced maths and stats degree and will be tough but definately doable. I am not yet far enough into Economics to make a judgment.

I plan to continue giving updates about my progress as I continue into to CFA information vault so please sign up to my RSS feed (www.jamescox.com.au/feed). Here is an updates CFA level one exam – 4 days before it.

If anyone else in Sydney is doing the CFA exam in December 2008, get in touch with me if you so wish :)