I Regret to Inform you...

I didn’t pass the exam. This one really hurts. I have failed before, but this one was worse. I felt that I was really prepared this time. I spent a great deal of time studying and felt I knew the curriculum pretty well. Walking out of the exam I thought I had done my best performance ever on a CFA exam. It turns out that I wasn’t close. Anyway, I don’t want this blog to be about pity or any of that sentimental crap. I will do an analysis here soon on where and why I messed up. Of course, I will be taking the level 2 exam in June 09, but the only silver lining here is that because I’ve taken the exam before and know most of the material, I won’t have to start preparing as early. If I was taking level 3, I would have started preparing in September. Since it’s only level 2 I’ll probably start around election day. I will definitely use this as an educational experience in preparing for the next exam.

Level 1 results

The level 1 results are out today. Of course being level 2 this doesn't affect me much, but it's still another milestone in this interminable wait. The level 1 results are out early because if you fail, you need enough time to prepare for the next exam which is now four and a half months away. With level 2 and 3 the next exam pass or fail isn't until June 09. It's a good thing that they are giving the people who failed time to prepare because according to the website two of every three test takers at level 1 failed. The total pass rate was 35% which is the lowest ever in any year for any level. I'm not too surprised about that.

There are two factors I believe lead to that pass rate (or is it failure rate when it's that high?). First, the popularity of the designation has greatly expanded over the years. Employers want people with the designation and that leads more people to make the attempt. However, employers want the designation because it is hard to get and too many candidates don't respect that. Take it from me, someone who has failed level 1 before, it takes over 6 months of hard studying for at least 200 hours. People constantly ask for shortcuts or ways to not have to study. It doesn't matter how much you know, or how smart you are. The main factor is how hard you work.

The second factor is that the universe of finance is constantly growing and the knowledge that they test is also expanding. 20 years ago derivatives was a very small part of the financial universe so one didn't have to know much about them to earn the charter. Today derivatives are much more popular in the real world so candidates are tested more now than before. There are something on the order of 20 times as many hedge funds today was there were 15 years ago, so now a candidate must learn about those as well.

Learning Outcome Statements

A week ago today the 2009 L.O.S. were released. I don’t know if I ever mentioned it before, but the los stands for learning outcome statement and they are the key to passing the exam. Long story short, the LOS tell you what you need to do to pass. I’ll give an example. The institute tells you to read chapter 4 in a particular book. That chapter has a section that goes over 3 different ways of computing an average (this actually happened to me). One might assume that means you have to be able to compute an average using all 3 methods. However, the LOS might only say that you need to compare the 3 methods. That means you have to know how they relate to each other and some other aspects, but you won’t have to compute or calculate unless they say so. In the long term, if definitely focuses studying in various areas. There are entire reading where you can get bogged down in memorizing when they want you to understand concepts, and times when you can focus so much on the concepts that you forget you are just supposed to memorize a list.

However, this list isn’t really for me yet. I haven’t gotten back the 2008 results, so I don’t know which test I’ll be taking. The list is released early because there are some people who may not have taken the 08 exam but who already know what exam they’ll be taking in 09. The LOS however are totally useless without the list of the readings. If the LOS says know formula X, they mean the formula listed in the readings. If you get it from some other source there are enough small differences over time that you would find it impossible to pass. I’m not in any rush to get into the material, but I did read through the level 3 LOS. I have heard some people say the level 2 is harder, and it might be true for me based on the LOS. The hard part for me was the calculations and number of formulas, but there are very few level 3 LOS that say compute or calculate. There is still plenty of reading to go over though. I don’t plan on getting fully into the studying until September or October, so I won’t be reading any more LOS at least until the results come out. We are down to 1 month remaining.

There's a first time for everything.

I have taken the CFA exam before. Let's just say I've taken it more than once before. Every time I have taken it, they have given me an estimate of when the results will come out. They have always said the results would come out by the end of month X. For level 2 and 3 they always given the exam the first Saturday in June and the results would be out by 'the end of August'. They would never state the day so starting around the 15th until the results come out, I just check the website at least 5 times a day. Today they sent me a email for the first time ever stating that the results will be out August 19th at 9am. They probably did that because they were tired of having me and everyone else hitting the refresh button every 5 minutes. I alled them to confirm the email and it's legit.

I have never known before hand when the results would come out. Now I know. On one hand, it eliminates uncertainty, but I am going to be a nervous wreck on August 18th. It's kind of like being pregnant, but knowing for certain the date the baby will be born as early as the 2nd trimester. I'm not counting down to a particular week or trying to manage my nerves for the long haul. By lunchtime on the 19th, I'll know the results. I can't wait.

Hating other Players

The main reason that I am doing this blog is that to earn a CFA charter is a unique experience. It is an experience that requires several years - more if you fail the exams. It is also a relatively lonely experience of self study and most people haven't heard of it. If you are doing it toimpress family or friends, you are wasting time. You earn the charter to get a good job in investment banking. On the internet there are discussion groups for a great many things, but there aren't many outlets for CFA charterholders or candidates. If I wanted to chat with another candidate about the recent exam, there are very few choices. Google CFA and you will find mostly ads or study materials.

One exception to talking with other candidates is a website called analystforum.com. This is the biggest forum I have found thus far devoted to CFA candidates. I do not like this website at all. it's a personal thing, but if you wish to check it out, please feel free to do so. I don't like it for several reasons. First of all, they tend to destroy my confidence. Everyone has their personal strengths. For instance, I have had trouble with derivatives in the past. Go to this forum, someone will post a question on derivatives asking for help. Derivatives are a weak area for me, but not others. There will be 20 people with answers to the question I can't answer by the close of business. That tends to make me feel dumb and unlikely to pass.

Another problem I have is that some people are just jerks. To get my self motivated for the test I think of my past bosses who have fired me, and think of my baby boy. That motivates me to study and probably to pass. Others get motivated by convincing themselves that they are the best. They do this by actively putting down others. 'You are stupid for not knowing portfolio management and seeking help. I just did portfolio and got all of the practice questions right. You have no chance at passing, don't even bother showing up.' I don't need to hate on you to perform my best. I enjoy a little smack talking during a card game or sporting contest, but I'm not going to take time out of my day to expressly try to talk smack to you so that you fail. Hell, if I get 70%, then the other candidates might as well not be there as far as I'm concerned.

Then is the main reason I don't like analystforum. That friggin idiot. As it gets closer to results release, I am going to be on pins and needles almost constantly. I will be checking the results page at least hourly in a couple of months. There will also be that friggin idiot on analystforum who falsely says that the results have been released at least twice a day. I don't know who that idiot is, but it shows the maturity level of a 7 year old. It's kind of like waiting for a college acceptance letter as a high school senior and your younger sibling goes through the trouble of mailing you an envelope with college letterhead and all that's inside is a letter saying 'Gothca!' I think an adult resorting to that level of immaturity with a bunch of emotionally unstable candidates should be a felony.

This is the room I took the exam in. It was in the convention center in Chicago as it is in most big cities. I took this the day before the exam just while they were finishing the setup. You see two rows of tables with each table sitting 4 people. What you see here is pretty much what I got. This picture is taken from the entrance. There are restrooms on both sides of the hall as well as water coolers. That way, they lock the doors and no leaves until they are done with the exam. They give you a chair and you share a table with someone else. You bring your own pencils and calculators. “The time is now 9 o’clock. You have 3 hours to complete this portion of the exam. You may begin.”

The two most common questions that I get asked at this stage are ‘Did you pass?’ and ‘When do you find out?’. The third most popular question is ‘What is a passing score?’ or some other variant. Let me answer the simplest question first. The test is administered the first Saturday of June every year without exception. The results for level 1 are released around July 18th or so, and the results for Levels 2 and 3 are about a month later. Please understand that the results dates are rough estimates. If you try and visit cfainstitute.org today you will see the website operates very smoothly and quickly. If you try it starting around August 15th, it gets progressively slower and slower as a hundred thousand people from around the world check the site every hour or less to see the results. It’s kind of funny until it’s you waiting for the results.

The CFA institute passing score is like Bigfoot. A few people claim to have seen it, and there are reports all the time from people claiming to have proof, but those people are usually drunk, a-holes, or sometimes both. First I will go with the facts, then some theories. First, no one has ever gotten a perfect score. Second, the passing score is fluid. It changes between levels and years. The passing score for level 2 in 2008 will be different than the passing score for level 1 in 2008, or level 2 in 2007. However, CFAI does state that the passing score is adjusted according to the difficulty, and that the passing score is never higher than 70%. That means if I got at least 70% right, then I automatically pass. However, I will never know exactly what I got. The results are released in a bit of a grid. On the left hand side list the different subject areas of the exam (ethics, econ, derivatives, etc.). Along the top is a column for 50% or below, between 51% and 69%, and 70% and above. Then there is a grid with the appropriate marks for what you got in a specific area. There is an introductory sentence that begins with either, ‘We are pleased to inform’, or ‘We regret to inform’. That means for corp finance, I only will know whether I got above 70% right, below 50% or in between. I won’t know exactly how many I got right on any specific area of the test or the test overall. Last year I was asked 12 questions on derivatives. I don’t know whether I got 6 right or none right, but they did tell me it was 50% or less. That hardly seems fair to me, but I am positive I got more right this year. I have heard from some people that a passing score is 70% of the top 1% of test takers, and since no one has ever gotten 100%, that the number is usually in the mid 60’s. I don’t know how they figure it out, but ultimately I can’t spend too much time thinking about it. That would only matter if I stopped answering questions after answering the first 70%. I tried to get the best score I could. If it’s good enough I’ll pass. If it isn’t I’ll get pissed. Passed or pissed I still have over 2 months to go.

The Day After

So it’s finally done. I have finished the exam. This is always the weirdest part of the process for me. It’s like being driving all day long cross country and then when you finally get to the hotel and sit down on the couch, part of you says “Time to go. We have to keep moving!” I spent over 20 hours of studying last week and at least that much the week before. Now, I have no studying. I have gone from full speed to stop. For the last couple of months all my free time has been spent studying or getting mad at myself for not studying. Now what? I don’t know what test I’m taking next June, and they haven’t told what will be on the test yet. However, my brain is saying that it’s a rainy Sunday afternoon with no good sports on – the perfect time to study. I know I need some time off; it will just take a few days to get used to it.

The biggest problem that I have with the test is that it’s multiple choice. There are 4 choices and you are either right or wrong. If I am computing the formula for DDM and for get to use next year’s dividend instead of this years, I am 90% right, which on a multiple choice exam is 100% wrong – especially when they will have the dummy answer as a choice so that I think I got it right. No one ever answers a question on a multiple choice exam intentionally getting the wrong answer. Either you think you got the question right or you guessed. For me, I think I performed well. I know I did much better than last year and guessed relatively rarely. Out of 120 questions, 12 are ethics (which is entirely another beast). That leaves 108 questions and I guessed on less than a dozen of those. If I got all of the other ones right, then I passed with flying colors. As a practical matter I certainly think I passed. However, there were 2800 other people in the room who also think they passed and most of them won’t. Anyway, there are no results yet. Not until much later but I’ll go into that another time.

Full Steam Ahead

This is always an interesting time during the preparation. I have 9 days to go. I will quickly forget the last bit of preparation before the exam 6 months from now, but this is the time that determines whether I pass or fail. This week I have reviewed derivatives and portfolio mgmt. Today and tomorrow is fixed income securities. I think derivatives may be the most important of the 3, but that's more of a feeling based on what I know about myself and my history. Anyway, next week is just reviewing the major concepts and all of the formulas.

Last weekend I took a practice exam just like the last post. Both exams are administered by the CFA Institute and are supposed to mirror the difficulty of the real exam. In reality, CFAI is jst really stingy about releasing past exams, so the practice exam is just a potpurri of past exam questions (including several I remember from last year). Anyway, out of a 60 question test I don't know the odds of receiving the exact same score two weeks in a row but I did it. At first, i was disappointed about my failure to improve, but the 2nd exam since it was actual past questions, tested me on past subjects. There were 2 questions on calculating a franchise PE. This year they changed calculate to analyze. There were 3 questions on levered Beta. This year levered Beta is not in the cirriculum.

Anyway, there isn't much going on with me right now at home other than studying. This weekend is a full length exam (120 questions), and review on Sunday. Then next week is the final sprint to the finish. I like my odds for this weekend's practice exam.

Equity Valuation

I took a practice exam this past weekend. I will go more into passing scores after the exam, but for right now I’ll say that I probably didn’t pass but I’m pleased with my performance. I am reviewing a part of the curriculum every weekday. On the areas I have reviewed thus far, I did well. On the areas I have not yet reviewed I didn’t do as well. Since I am on schedule for the milestones I have set, I am satisfied with that. The idea is for me to spend the rest of this week reviewing equity valuation before taking another practice exam this Saturday. Next week I review fixed income and derivatives and the following Saturday, I’ll take my last practice exam. That means I’ll be done with reviewing the curriculum in about a week and a half.

This week is really special though. If Level 2 was a seven course dinner party, equity valuation would be the main course. Without going into to much detail I’ll say the fundamentals of equity valuation reach throughout the rest of the curriculum so this is by far the most important stuff I have left to review. It is also an area I felt really comfortable in when I learned it 2 months ago. If I can just refresh myself on what I have already learned, equity will be a fun part of the exam for me. This past week I missed passing by 4 questions, and I missed 2 of the equity valuation questions. I am well on my way to where I want to be, but I’m not there yet.

This is Where I Pass or Fail

I have finished reviewing portfolio management. That was the last area I had to learn before the exam. For once, I am not entirely satisfied with my performance. I spent a great deal of time working on the material and have enjoyed PM in past exams. However, this year they added a really long reading which I am certain this will ask some questions on. Mentally, I was prepared to review PM, not learn it. My schedule beyond PM was written in stone and I won't push it back. That means that I feel somewhat prepared for PM, but this is the one area of the exam where I didn't feel 100% test ready at the end. I will make some time to review and learn what I can, but I'll have to go to war with the weapons I have, not the weapons I want.

Now I have 31 days before the test. I have spent the last 5 months learning material, and at the end of learning the matrial, I felt really confident. However, some of that material is stuff I learned in January. I have certainly forgotten some of it. Now is the time to review. It took me a week and a half to learn economics. I have given myself today to review it. The next two days are ethics (more important part of the exam). If I give myself a weekday to review each study session I will need 18 weekdays - the exact number left in May. Each Saturday I will take a practice exam, and on Sunday I will review the parts of the exam I missed. That should take me through the 1st of June. Then that week I will focus on individual concepts that I have trouble with. I will be taking the test in Chicago (visiting in-laws) so I will arrive a couple of days early. If I remember everything that I knew when I finished learning the material, I should be in a solid position to perform well. I will keep updating on my review. The review for the rest of May will determine whether I pass or fail the Level 2 exam.

OK, maybe they don't totally suck

I don't know what it's been but I've been doing a really good job with studying this time around. I finished futre and forwards, which is half of the derivative material, and I am in pretty good shape. I still have to do options which will be harder, but I am pretty solid on forwards and futures. If I can do options and swaps as well as the rest then I should be able to do some damage on the derivative portion of the exam. Who knows it may even become a strength.

Derivatives Suck

In the past, there has always been a part of the exam that I had trouble with and tried to over compensate in other areas. Last year I found derivatives to be that area. Truth be told, Derivatives were tough at level 1, but level 2 is an absolute beast. Some level 2 candidates say they don't find derivatives to be the toughest part of the exam. As far as I'm concerned unless you work with them in your job it is the toughest part of the cirriculum or you are on drugs.

Anyway, as you can see, I am working on derivatives right now. This should be about 10% of the exam and it will be hard to pass without getting at least half of this section correct. This is the only section of the exam that I have trouble following conceptually. I know what derivatives are, but valuing them and exploiting arbitrage opportunities at this level has proven hard for me. Right now I am finishing up futures and forwards - both of which I am minimally prepared for. I still have some conceptual problems, but I can value and price them pretty well. Next I go to swaps and options. Last year, I found them to be painful. My performance on derivatives will be the primary determinant of whether or not I pass. The maximum passing score is 70%, though in practice it will probably be closer to 65% or less. Ethics will be 3 or 4 item sets and I will get about 60% of that. Most other areas I should get about 70% - more if I do well. However, the 2 item sets on derivatives could sink me if I don't get at least half right. I will be reviewing heavily over the coming days and probably have an update next week.

Crunch Time

Frequently in the past, I have had trouble focusing during certain stretches of preparation. There have been weeks where I had scheduled myself to go learn a certain subject, but I just haven't been able to concentrate enough to learn the material. This time has been different. Maybe it has to do with having a new baby. Maybe it has to do with some recent changes at work. Whatever it is, I am getting a lot of studying done this time around. I'll describe last week for example. My normal studying is at home during lunch (up to 45 minutes), and an hour or so at home after work except for Thursdays (home alone with the baby). Charitably, that's 2 hours a day. However, I am taking an online course to help prepare, and that course is 3 hours per week. Also, at work I have been working a lot of practice questions lately. I conservatively estimate I did at least 3 hours of practice questions while at work last week. Also, 2 days last week I did some extra practice questions after dinner. All told I did about 17 hours plus between Monday and Friday of last week. In the past that would leave me feeling burned out. This time it was a warm up for the weekend.

Saturday morning I did an online practice exam offered by the CFAI (the people who administer the real exam). I got 60%. I wanted at least 70%. I wasn't pleased with the score, but I was satisfied overall with my performance. The thing is, that the test was 5 item sets. 1 each for ethics, statistics, and economics. I got 50% on each of those. I was pleased with that because these are areas I haven't even looked at since February. I was able to remember half the stuff from nearly 2 months ago before even reviewing any formulas. There was also an item set from statement analysis where I did 3 of 6 and an item set on equity valuation where I got 5 of 6. I spent another 90 minutes reviewing what I missed in statement analysis. Then, after dinner I did the next reading so that I would stay on schedule. Long story short, I got in some 7 hours of prep over the weekend. I don't get that much in most weeks, but I have been somewhat enjoying this over the last few weeks and I don't want to lose a good thing.

How do you get one?

To get the charter is not too complicated. The rules are very simple. First there are three exams, which must be passed sequentially. Second, you need at least a Bachelor's degree. Finally, you need 3 years of experience in finance. The exams must be taken and passed sequentially, and you need the Bachelor's degree before you take (but not necessarily enroll) for the first exam. Sound simple right? Not even close. As I have said before, it really is a quest.

Imagine you are in college. You go to class on the first day. The teacher gives you the text, and tells you the learn the first 5 chapters. Then tells you the final is on day X. Then the teacher leaves the room and you don't see him until the final exam. Now imagine if every teacher did that. Now imagine if all of your teachers got together and decided to combine their exams in to one giant super exam. That in many ways is a CFA exam. The cirriculum is based on several subjects. Ethics, statistics, economics, financial statement analysis, corporate finance, equity valuation, bond valuation, financial derivatives, and portfolio management. The cirriculum is presented in 5 texts, which should be read from cover to cover to be prepared for everything. That's the worst part of the cirriculum. I read over 100 pages of material for statistics for the level 2 exam, and they ask me 6 multiple choice questions. At most these questions can cover about half of the statistics material.

The level 1 exam is 240 questions all multiple choice. If you pass that, level 2 is item set. They give you a page of information. They ask you 6 multiple questions for each page of info. That is an item set. The level 2 exam is 20 item sets for a total of 120 questions. The level 3 exam is 10 items in the same format as level 2 and several essay questions. Each exam is 3 hours in the morning, a two hour lunch break, and 3 hours in the afternoon. The level 1 exam is offered on the first Saturday in December and June. The level 2 and 3 exam is offered on the first Saturday in June only. It takes about 50 days to get the results from level 1 and about 80 days for level 2 and 3. That means if you take level 2, you won't find out until the middle of August if you passed, and if you don't you must wait until June to take it again. That is where I am.

It took me 3 tries to pass level 1, and I already failed level 2 once. I am in the middle to studying again, but this time I am getting help. If you ever took the SAT in high school, then you know Kaplan offers study aids to improve your performance. Kaplan has a subsidiary named Schweser that does the same for the CFA exam. I actually do an online class with them that I think has helped me a lot. I'll go into more detail about my study schedule in a later post.

So what's the big deal?

Why does earn want to earn the charter. I can't answer for everyone. Hell, my answer is different than most. It's actually a key to a dream. Ever since childhood I grew up wanting to work in one of those big gleaming office towers downtown. I wanted to be the guy working on Wall St. before I knew what they did. I have since refined my desire to be a great analyst. I want to be the talking head on CNN talking about th airline industry and why this new merger is / isn't a good idea. Will the charter get me on CNBC? Nope. However, it will get me a job as an analyst - even if not the chief industry analyst. Right now I am working as an accountant on Florida's atlantic coast. In fact, in a suburb of Daytona Beach. A charming town, but no investment bankers here. Plenty of accounting jobs, but not finance.



I have a BA and almost a decade of experience, but that is my weakness. I apply for positions as an analyst, my resume gets scanned into a computer which looks for keywords. It sees all the experience I have as an accountant and the computer sends my resume to HR. HR calls me back and says they have an opening in accounting that would be perfect for me. That's not what I applied for, but it's what they call about. With the charter, they will call me back for the job I want. What I want is quite simple really. I want to move to Atlanta (one of my favorite cities). I want a job as an analyst. I want to have at least the same standard of living after adjusting for the cost of living. I want to be involved in decision making. I want it all in the next few years. The CFA charter was the only thing I could find that can get me those things.



Most people who earn the charter already have jobs in finance. It's kind of like accounting. Most CPA candidates are already accountants, but they want more. I have nothing against CPAs, but it's about accounting and I want finance. No other designation is as valuable as a CFA in the field of finance.

First Entry

Welcome to my new blog. This blog is about my quest to earn the Chartered Financial Analyst designation - also known as the CFA designation. For those who don't know, the CFA is a professional designation used primarily in corporate finance and investment banking firms. This designation is held by approximately 70,000 people worldwide and at most there are 30,000 people who are candidates. Between those 100,000 and maybe another 100,000 who may be considering earning the charter, we are talking about a very smal percent of the world's population who might be interested in this blog.

I am writing this blog for several reasons. First, anyone who is attempting the charter feels lonely. Some more than others, but all are lonely. This is a written record of my quest so that others may know what it is like. Second, for my benefit. My son was born very sick and I needed an outlet for my thoughts and feelings. I created another blog on the matter and now that he is healthy, I sometimes will read my past entries to remember the feelings. It is fun now, but it was hell then. Finally, to provide a decent record. If you search for CFA blogs in a search engine, many blogs compare the charter to other things. Some blogs are posted to for about 2 months and that's it. Most others to put it bluntly are incoherent. They start right in responding to some esoteric article or posting DIY notes on the cirriculum. That's not going to happen here.

Everything I post on my blog will be my opinion, and I readily acknowledge that. If someone else has a different opinion than me, or facts that prove me wrong, please post them. Maybe we can start a discussion. However, realize everything I say is with my own personal bias.