Keys to Victory

The test center the day before the test. The tables and chairs are in place. This is roughly two thirds of the total room. About 80% plus of the seats were taken and you heard nothing other than tapping on the calculator and coughing.


So it's now almost July. Nearly a month after the exam. A couple of weird things have happened. I thought that there would be good days and bad. Some days I would be certain of passing and others certain of failure. Actually, after the first week I have been analyzing the thing so much that my confidence hasn't wavered as much as I thought. I can't promise I have passed, but I am more confident than last year at this point. My analysis has come down to several yes or no questions. There is no way to know the answers before they release the results, but the answers to these questions will determine the answer to the most important question – Pass or Fail?

1. Did I get in the right hand column for corporate finance? I always feel strong in corp fin, but I have always performed much worse than I thought because of small mistakes and trick questions. On the practice exam I thought I got 10 of 12 right. I got 6 right and one of the 6 was a guess. If I got in the right hand column on the real exam, I will get FSA, equity, corp fin, and probably fixed income all in the right hand column. That would be over half the test and make it hard to fail.

2. Did I get more than 2 subject areas in the left hand column? If I got lucky economics was not in the left, but the CFA exam is not for lucky people. Study session 17 was a disaster that probably pulled session 16 and thus all of derivatives over to the left. There were other tough parts of the exam that I think I did moderately well on. For instance, quants. However, the difference between the left and middle columns on quants is one question. I think if I get 4 subject areas in the left column I am guaranteed to fail.

3. Other than derivatives, are there any subject areas where I scored worse than last year? This is the most important question. Last year I got 6 areas in the left hand column. Two of them (PM and AI) I wasn't prepared for at all last year and certainly improved. I can also say that econ probably stayed the same unless I'm lucky - which I am not since I'm taking the test a 3rd time. Derivatives moved to the left, but I don't believe anything else has moved to the left.

I almost feel like a football announcer going over the keys to victory at half time. If nothing other than derivatives moved to the left, I was able to stay out of the left hand column, and they didn't trick me too bad on corp fin, I will pass easily. If two of those questions are answered wrong, then I have failed with flying colors.

Exam Recap

OK, so it is over. I took the test in Tampa on Saturday. Now comes the hardest part of being a CFA candidate - waiting for the results. The test center was at a local catholic school and wasn't as big as Chicago or Atlanta but still much larger than Jacksonville. The test itself was tough but fair. Ethics was much more difficult than the practice item sets they have given before, but last year I got in the left column and I think I improved on that not so much because I did well, but because I didn't do bad. Quants was pretty much right down my aisle. My biggest fear was that they would ask about time series, but they asked about regression so I am sure I got at least 4 right. Right now I'm thinking economics is structurally unfair. It is such a long study session with both conceptual and calculation stuff, it seems at lot to effectively cover in 6 multiple choice questions. Of course, I would probably feel different if I felt that I got more than 3 or 4 right. 4 if I'm lucky. The CFA exam is not for lucky people.

FSA was an area I believed I had to over perform and I did. There is no question I got the right hand column there. Corporate Finance is the standard problem. I feel pretty confident, but from my experience that is where they use the biggest tricks. There are some subtle differences between cash flow numbers and accounting numbers and corp fin features those differences more than anywhere else in the level 2 cirriculum. Now equity on the other hand is pretty straight forward for me. I think out of 4 item sets I may have missed 4 questions total. They have to work hard to beat me in equity. This year I expected them to come correct with fixed income because of the whole economic situation and they did. They didn't even give me a question on binomial valuation. That was a major surprise. However, I am pleased to say I felt prepared overall. I know I got most right and maybe even more than 70%. The same thing with portfolio management. I think I was able to work my way up to a 4 of 6 right. That really the best I could have hoped for walking into the exam. The one area where I really screwed up was the item set for study session 17. I thought I would be ready, but the CFA intsitute had other ideas. I don't really remember the specific questions, but this is the one area where I can definitively say that I performed worse than last year.

I am in a weird position here. Last year I got better than 80% of the people who failed according to the institute. Logically, I know I performed better than last year. In economics I think I stayed the same and most likely went down in derivatives. Just about everything else I improved in - I think. However, emotionally I am scared to death. I never really recovered from failing last year and failing again this year would be devastating. I have spent the last few days on an emotional roller coaster that promises to make the next two and a half months last even longer than last year.

Quick thoughts

Just back from the exam. I just want to talk about two special events today. First, the genius moment. They gave me the current book value, the current residual income, and the current dividend. They wanted the next year book value. It took me almost 3 minutes to figure out that they wanted me to figure out the profit first before I could answer the question. It was actually a pretty clever question. I think it waqs the most clever question of the day.

On the other hand was that quesiton on cash flow. There are about 1 million formulas in the level 2 cirriculum. It is impossible to memorize all of them, so sometimes I use short cuts. One of the shortcuts is to memorize about 6 different ways to compute FCFF and 1 way to convert FCFF to FCFE. That way I don't have to remember 6 different ways to compute FCFE. Anyway, there was one question where they wanted me to compute FCFE. Of course to compute FCFF you need interest and I spent a solid 10 minutes thinking the quesiton couldn't be answered without interest expense. Of course it could if you knew the formula directly for FCFE. I got it right but questions on the level 2 exam shouldn't take 10 minute just to figure out how to answer the quesiton. I'll write more about the exam in a couple of days.

T-minus 2 days and counting

Well, my mind is a big bowl of mush right now. I have been cramming like crazy this week and I still am not done. I have reviewed the mock exam from this weekend and most of the material, but I still need to review derivatives and ethics by sundown tomorrow. However, I must admit that I am pretty confident. Of course the mock exam helped, plus I have gone over just about ever item set in the texts so I know some of the tricks they might use. I believe that the key for me is to over perform on equity and FSA. Those two areas are a minimum of 30% of the exam and I believe I can get better than 80% there. I don't think I will have too many weaknesses unless they ask really hard on the PM and an item set on time series for quants (my two biggest weaknesses).

My plan is to leave here tomorrow morning and drive to Tampa for the exam. I will be able to study all evening while being left alone. I will be in a mindset that won't be too appealing to the family anyway. As far as I can tell, the test wil be given at a high school or college near the airport. I am up by 7. Shower and check out of the hotel by 8. In the seat by 8:30. The test runs from 9-12 followed by a two hour lunch and an afternoon session from 2-5. Chances are I'll finish both sections early (most people in level 2 don't need a full 3 hours). I'll post next week on how it goes.

I friggin passed!

Ok so here's the deal. The CFAI offers a full length exam that they say is of comparable difficulty to the real thing. Two sessions of 10 item sets each. I wanted to take the exam this past weekend after I had the chance to review the entire cirriculum but still had enough time to learn from the questions I missed. I even made sure to take it in the conference room of a local hotel to try and simulate the environment (as best as possible without spending money). I allowed 3 hours for the morning and 3 for the afternoon, though I didn't need the 3 hours for either half. Anyway, I got 71%! It may not sound like much but the last 3 exams have shown an improvement and don't forget the scoring. No one knows what the minimum passing score is but it is probably in the mid 60s and is always less than 70%. That means if I get 71% next Saturday I will definitely pass! Of course I haven't actually taken the real thing yet.

Out of an abudance of caution in respecting the code of ethics I won't go into the specifics of what was tested, but I will say they tested every study session and I didn't do well in all of them. I thought I performed adequately in derivatives and great in corporate finance. Those were the two areas I got less than 50%. In corp fin in particular there were about 4 questions I was confident I got right and they offered me the wrong answers which I happily selected. If I performed as well on corp fin and derivatives as I thought I would have gotten mid 70s.

The schedule for this week is simple. Today will be reviewing the results of the exam. Then review the last third of the cirriculum. Then the middle third, and finally the first third. Most of the focus will be on the main concepts and all of the formulas. I won't even try to pick days to go along with it. The schedule is simple. Study until I get a headache. Relax until the headache goes away. Study again. On Friday I get in the car and drive to Tampa for the test. I am really starting to feel good about this year's exam.