Hi everyone, long time lurker, first time poster here. I’ve been checking in on AF for a while now to get insights, tips, explanations, advice and all manner of information regarding the CFA program. It’s been a very useful tool for me and so I wanted to put together an in depth post about my experience going through the three levels in hopes that it might provide some insight, tips, explanation, advice and information to those of you just beginning your work, in the middle of it or nearing the end. I was very fortunate and was able to pass all three levels on my first attempt and in close to the shortest amount of time possible. The time between when I started studying for L1 and taking L3 was ~20 months. Exam 1 to Exam 3 was 18 months. What I put together below is an attempt at a walk-through of each level including how I prepared, the tools I used, my perception of the test itself and a recreation of my matrices. Basically, I want to provide others with what is one of many possible blueprints for success in this program – and I phrase that deliberately. There are many ways to succeed, this is just one of them.
So let me start by providing some of my educational background, as I view this as 100% relevant for each candidate – some backgrounds are (obviously) better suited preparation for the CFA than others. Mine was a natural science and astronomy bachelor’s degree and an MBA from a mid-tier institution. During the MBA, I had 1 semester each of accounting and econ and 2 semesters of finance during that program. Overall, they were only moderately useful. My first job out of the MBA program was as a financial advisor, which was, in my opinion, of little to no help at all, other than understanding the benefits of diversification. It focused on the planning aspect more than anything else. However, my next job was as an equity research associate, which obviously was helpful (although it’s not like I spend my days pricing forward rate agreements or determining how to issue synthetic floating rate debt). I started that job in January 2015 and took Level 1 in December of 2015. In the interim, I studied for and passed my series 7/63/86/87. The 7 and 86 were useful, the other two were not.
So let’s look at Level 1. I passed the December 2015 exam. I put my matrix below. The range listed is the range I scored. I didn’t pass my Series 87 (the last one I took) until the end of August. So I didn’t get the chance to start studying for Level 1 specifically until September (i.e. I had roughly 2.5-3 months). I would argue that the licensing exams I took were good prep, particularly the 86 but I would estimate that the overlap between my licensing exams and CFA 1 was only roughly 30%, and most of that was in the 86. I used Schweser notes exclusively. I never touched the CFA institute materials (the same was true for L2 and L3). This approach has mixed reviews on AF. It worked for me, but I’ve seen many posters saying that without the CFAI materials, they’d have been up a creek. So don’t interpret this as my saying Schweser is the only option, but nor should you take it as written-in-stone-truth when someone says that you have to read CFAI material to pass. I read all the S notes in about 4-6 weeks, and then pounded the Q-Bank like a mad man for 4-6 weeks. I didn’t use the Blue Box problems or the EOC problems, although I imagine that they can be a useful tool. I started taking QB practice tests that were only ~20 questions. One of the most valuable things I learned while prepping for my licensing exams is that, when starting out, don’t create practice tests that are 50-60 or 100 questions. You’ll get mentally fatigued and frustrated. At the start I also customized the tests so that answers were graded immediately and explanations given. This was a great way to learn the material. Hammer the 20 q tests for a few weeks and when you feel more confident, start to build the number up. The QB also has a great feature that allows you to see how you are scoring in the various topics. If I was scoring below 70 in a particular topic, I would do a bunch of quizzes that covered that topic only until I learned the material. I got to the point where I was doing 60 question tests ~3 weeks before exam day and I was scoring mid-80s consistently, if not mid-80s then low 90s. I set a floor for myself of 75, and tried to stay above that all along, assuming that if I could score an “actual” 75% on my practice tests then I would certainly be safe on the real thing when the grades are “curved”. I made notecards with equations that were common and/or complex (variance, convexity, GG model etc.) and memorized those. But beyond the QB and my notecards, I didn’t do much. Level 1 is basically about formula manipulation, logic and algebra. One thing I did NOT do was take several days off leading up to the test (same for L2 and L3). I know it may work for many people but I advise against spending the one or two weeks before the test cramming and pulling marathon study days. In fact, before each level I actually ramped DOWN my studying for the week or two directly prior to test day to make sure I was mentally rested. Football teams don’t have two-a-days the day before game day, don’t wear yourself out before you’ve even started the test. The test alone will stress you out and exhaust you, you don’t need to help it. As for the test itself, during the morning session I felt like I was having to make educated guesses on the majority of the questions. Some of them I outright guessed on. That messed with my head, and my confidence. In the afternoon, though, I cruised through. I knew many of the answers and on those I did not know, I could logically eliminate 2 of the answers to come to a conclusion. Don’t ignore this method, by the way. If you don’t know an answer, then try to determine which options cannot be true. This is an invaluable skill on CFA tests. It is important to note that the mental frustration will happen to (basically) everyone who takes these tests. There will be questions that catch you completely off guard and you will flat out not know them. But you are training to be an analyst, so do the math! There are 240 questions on Level 1, if you encounter 24 questions that you have no idea on, you are still looking at a 90% overall, and if you score 90% then you’re golden. So do NOT let yourself get bogged down, stressed out or have a panic attack if you encounter a question you don’t know. In fact, if you encounter 20 questions you don’t know, you’re still in really good shape! The test is a marathon, no single question is make or break.
Alternatives – 51-70
Corp Fin – 70+
Derivatives – 51-70
Econ – 51-70
Equity – 70+
Ethics – 51-70
FRA – 51-70
Fixed – 51-70
Port Mgmt – 70+
Quant – 70+
Now for Level 2. I passed the June 2016 exam. The hell of it is that you don’t get your Level 1 grade until late January, and if you want to try for the June exam, that means you’ve effectively wasted 6-8 weeks. Well CFAI realizes this and provides you access to the first book of the Level 2 curriculum for free until January 31st. If you’re planning to sit in June, TAKE ADVANTAGE OF THIS. Don’t catch yourself complaining in July that you could have put in more time. I did this and knocked out ~15%-20% of the reading for Level 2 before I got my grade for Level 1. After I found out I passed, I ordered the Schweser notes again and proceeded to follow the same strategy as for L1. I read the material in a month or two, started doing shorter practice tests until I had gotten comfortable with the material, then increased the size of my practice quizzes and focused on the areas where I was weakest. With each level, though, the information gets more complex and I had to add layers to my study habits. For L1 I used the QB and my notecards. For L2 I used the QB, my notecards, some of the Bluebox questions and I attended a weekend long crash course a few weeks before the exam. I’m not sure the crash course was totally worth it. We spent a lot of time going over concepts that I had not seen in my preparation using the QB – side note: just so you know, when I say I hammered away the practice questions, I really really mean it. For all three levels, I ended up answering somewhere near 85%-90% of the available practice questions on the QB (and each level has like 2500+ practice questions on the QB). OCD, I know, but I didn’t want to retake these things – So anyways, what the crash course did provide, though, was a roughly 48hr study session that I most likely would not have done otherwise. Our instructor also introduced me to another piece of simple but invaluable logic – negative NPV questions. L2 is the first time I felt like this was relevant. Negative NPV questions are those problems that are multistep, intricate and difficult (e.g. recalculating the forward rate after a certain number of days into a forward rate agreement). These questions are really easy to miss, require a lot of time and count for the exact same point value as every single other question on the exam. In other words, when I encountered problems that I considered negative NPV, I literally chose a random answer and moved on. These are not worth stressing out about and not worth the potentially 4-5minutes required to answer. Remember, what you’re really shooting for is to Pass, not to Ace, the test. So the one caveat for L2 is that the format changes from discrete MC questions to item sets. Again, there is a mountain of practice questions available from CFAI, Schweser and others. Use them. The QB was useful to me again, as it had plenty of item set type questions mixed in with the regular discrete questions. I memorized the temporal vs. current rate methods of FX accounting. These are sure to show up. Put in the time to learn them. Also, I had gotten the impression that L2 generally had more derivatives and quant than people tend to expect. So I spent extra time on these two sections, and it helped bc L2 DOES have more of this than you’d expect. As with L1, I ramped DOWN my studying the week or so before hand. And again, during the morning session I felt like I was getting raked over the coals, but in the afternoon session I had a fairly smooth experience. Of note is the fact that the majority of the people I spoke to felt the opposite. Don’t get discouraged if you find yourself in this position. Think about it. If you felt good about the AM and bad about the PM and everyone else felt good about the PM and bad about the AM, that’s almost the best possible outcome. Because that means that everything will likely average out to neutral. So don’t start thinking that you have to feel the same as everyone else about the relative difficulty of each session.
Alternatives – <50
Corp Fin – 70+
Derivatives – 70+
Econ – <50
Equity – 70+
Ethics – 70+
FRA – 70+
Fixed – 70+
Port Mgmt – 70+
Quant – 70+
The finale. Level 3. I passed Level 3 in June of 2017. This one is a different animal. Superficially, it’s just like the other two: you order your books, read them, study the material, take the test. However, right off the bat you’ll notice that the volume of reading is probably ~20%-30% less than Level 1 or 2. Don’t let this deceive you. Whereas the materials for 1 and 2 were basically like 1300 page lists of information to memorize and understand, 3 is about 1000 pages of a giant information web, where many concepts are interrelated and most (if not all) refer back to things you’ve previously learned. However, this round was different for me bc I had a full year to study (or at least ~10 months, which is roughly twice what I had for L1 and L2). I kept to my same pace, though, and got through the reading in roughly 2 months. This may seem like overkill but I knew I had the chance to be totally done with this thing if I didn’t procrastinate and put in the necessary time. So after I did the reading, I went through and made notecards out of any equations, lists, terms etc. that I could find. I then set to the QB, following the same strategy I followed for L1 and L2. As I went through the QB, I would come across questions that involved lists of things I didn’t know, or the answer explanations would provide lists that I had missed in the book. When this happened, I turned that list/equation/pros/cons into a notecard (for example, factors affecting repo rate, influencing factors on corridor widths, rebalancing strategies etc.). And as I said, with each level I added a layer of study prep. For L1, Qbank and notecards. L2, QB, notecards, crash course. For L3, I did QB, notecards, retook previous exams for the morning session (graded myself conservatively, i.e. hard) and got a small whiteboard and had people ask me definitions/equations to write out. Every Saturday I would wake up and devote my morning to taking an AM/short answer practice test. Schweser provided 6 and CFAI provides three. There are many ways to get more than 3 of the actual past tests. I went back to 2010 but be careful, some of the concepts change or are omitted so research the tests you’re using. But find some. Take them. Grade yourself harshly. Once you’ve taken them all, take them again. See if you can improve. That’s what I did. I did not opt for the cram session for L3, simply because I didn’t find it particularly valuable for L2. Other opinions may differ but I was able to pass without doing it. The added layer for L3 for me was the Saturday mornings and the white board. The AM practices on Saturday mornings were invaluable. I got to the point where I could get through an entire AM practice session in about 1.5 hours and, even grading harshly, was scoring in the high 70s to low 80s. You have to get used to writing direct, concise and acceptable answers. That is the biggest hurdle. One problem/issue with L3 is that those negative NPV problems still exist…but you cant really skip over them. The reason is that they can show up in a morning session short answer question, and instead of saying “screw it – A” and potentially losing 3 points, you might see it show up as an 8pt question, and forfeiting those wont help you pass. So when I encountered a complex calculation, I unfortunately had to spend the time to figure it out. For example, the annual effective rate for hedging interest rates with options involves somewhere around 4-5 steps and each one is intricate. I had to learn this. So will you. It’s no fun but that’s just the way it is. I would pick these questions out of the QB and show the answer/explanation and walk through the calculation. I did this several times before I grasped it. I also want to outline some very serious pointers for this short answer portion of L3.
- They are NOT – repeat, NOT – “essay” questions. I cant stress this enough. Everyone who has ever passed L3 can attest to this. Do not write multiple paragraphs for each answer.
- Identify EXACTLY what the question is asking for and answer that and that alone. If it asks “Assess how Mr. Johnson’s liquidity requirement has changed?” your answer should be “It has increased from 100 to 200 because he now has a car loan” or something along those lines. Nothing more is needed. And the more you write, the more likely you are to write something incorrect.
- Write in bullet points, incomplete sentences, phrases etc. There is no reason at all to make your answer sound eloquent. Graders want you to demonstrate your knowledge, not your writing ability.
- There will be a short answer question about creating an IPS. Memorize the IPS components of major investor types (individual, institution, pension plan, insurance co etc.). These are free points.
- THE MINUTES = THE POINTS. If a question is allotted 4 minutes, it is worth 4 points. If it is allotted 8 minutes, it is worth 8 points. If you cant figure out a question that is allotted 2 minutes, MOVE ON.
I typically saved my short answer/constructed response practice for the weekend and spent the week going over notecards and QB questions. Don’t neglect the multiple choice and item set practice. As was the case in L1 and L2, I felt very differently about the morning vs. the afternoon session. Contrary to the typical test taker, I actually felt great about the AM/constructed response session and felt like I got crushed in the PM session. I felt like I had to make modestly educated guesses on probably 1/3 of the questions in the afternoon, which was very discouraging bc the PM session is generally perceived as the driver behind a passing paper. High scores in the PM tend to average up low scores in the AM. However, as was also the case with the prior levels and as I highlighted previously, most of the people I spoke to felt the exact opposite. Bingo. As you can see below, I did indeed do better in the morning than I did in the afternoon, but most people I’ve spoken to had the opposite results. So remember, it all washes out to fairly neutral. Don’t be discouraged if you feel bad about one of the sessions, bc there’s almost guaranteed to be someone out there who feels the other way, and your two scores will even each other out.
AM Session
Alts – 51-70
PM – Inst’l – 70+
PM – Perf Eval – 51-70
PM – Ind – 51-70
PM – Ind/Beh – 70+
PM – Ind – 51-70
Econ – <50
PM – Asset All – 51-70
Fixed – 51-70
PM – Risk Mgmt – 70+
PM Session
Econ – 70+
Equity – 51-70
Ethics – 70+
Fixed – 51-70
PM – Asset All – <50
PM – Ind – <50
PM – Monitor/Rebal – 51-70
PM – Perf Eval – <50
PM – Risk Mgmt – 70+
So that’s my two cents. Good luck to everyone working through it now and thanks to all those who have posted helpful information for the community.
Cheers
