By Dave Kaczorowski, CFA® charterholder and Adjunct Professor & Academic Program Manager at Golden Gate University
At a recent CFA Society San Francisco (CFA-SF) event, I caught the eye of a few people across the room, and we gave each other a friendly look. They too, are CFA® charterholders. Passing the CFA exams is a hard mountain to climb, but it places you among the elite in your profession. My friend loosely compared it to being a war veteran. You may not use everything on the exams – which is everything! – on the job, but you will have a lasting camaraderie. Having “those three letters” after your name means you have gone through something hard – and you have beaten it.
What will be on the exams?
Now that I have become an instructor for CFA® Program Exam Preparation Classes for Equity Analysis, people ask me what will be on the exams. I tell them that it’s all fair game. You need to know as much as you can and ask yourself how you can accomplish learning that much material. It’s all about detail and memorization. In general, studying is the only thing you should be doing besides your job.
The volume of questions on the exam is heavy. You will see questions that you can’t remember anything about, but you have to minimize those occurrences. Level II is the same topics as Level I, and the material goes a lot deeper. Candidates should know that Level II is the most dreaded and stops many people from getting the CFA® designation – but it is not impossible if you are willing to prepare.
Another secondary issue to consider is time management on the day of the exam. The first two levels are two sessions of 180 questions, and Level III has an essay portion and a multiple choice portion. That leaves you with just a few minutes per question. Some you get right away, and some are going to take a long time. Don’t get too wrapped up in the time and freak yourself out about the pace. It’s not about answering the most questions, but about getting the most correct answers.
How to Study for the CFA Exams
The best way to study is the best way for you. Everybody’s brain works differently. My advice for students is to think back to college and remember, in four years, what became their most preferred study style. Some people find a study group to be crucial. They might form close relationships that last long after becoming charterholders. If you are a CFA® Program candidate, you may have been working in bonds, real estate, or equities. There are some sections you will know better than others because you do them for a living. Maybe you want to juice that more, to get more points, or study that section less because you think you can get by with what you know.
In my working and study style, I like structure; so I took a review course from CFA-SF in 2015 and 2016 to prepare for Levels II and III. I passed both of those exams.
Getting My Three Letters
Because all paths are different, I will tell you mine. One way I like to study is by drilling: doing the questions over and over. I gobbled up questions from a variety of sources. The CFA Institute website has practice questions, and I probably used all of them. I also took prep courses. But unfortunately not for Level I!
I started an MBA in 2005 and took Level I in the summer of 2006. I didn’t open the CFA Level I CFA Program exam books at all until my MBA classes ended in May. The exam was early to mid-June. I had only three weeks of study. That was a terrible idea, but I had no choice since I had to finish off my classes. Ironically, I passed because there was so much overlap between Level I of the exam and my recent MBA. In essence, I spent the whole year studying the core concepts of the exam like financial statement analysis, economics, and statistics. I look back on those three weeks as hell, but I was able to pull it out. I do not recommend that way of studying!
In my working and study style, I like structure; so I took the review class from CFA-SF in 2015 and 2016 to prepare for levels two and three. I passed both of those exams. The biggest benefit of the classes was helping me stay on track. I started studying before Christmas for the June exam. When classes started in January, I had already studied the material covered in that class. That gave me the chance to go over it again in an entirely different environment.
In 2007, I got a sell-side job. I took Level II in 2008 and 2009 and failed both times because I simply did not have the time and energy I needed. I decided to put it down and focus on my job. (I also joined CFA-SF as a non-charterholder in 2007. I became an active volunteer, which was a huge help for my career.) I left the capital markets business in 2012 and got a job managing a private portfolio. It had been in the back of my mind to finish the exams. When I got a job with a better quality of life, I decided to take another run at it.
I became a CFA exam-taking machine. God bless you if you are the kind of person who is naturally good at taking exams; but for the rest of us, that’s what we have to do.
Beginning in 2015, I took a CFA review class in San Francisco. For several months you have to give up your life. I accepted that. I became a CFA exam-taking machine. God bless you if you are one of those people who are naturally good at taking exams; but for the rest of us, that’s what we have to do. I passed Level II that year. I replicated my process for Level III and passed it in 2016.
How I Teach Exam Prep Classes
Now that I have my “three letters,” I hope to make this process a little less difficult for the next person.
The review class divides each of the 18 study sessions into one, 2 ½ hour class. While that’s not enough time to cover every detail, it is enough to teach the core concepts that underpin the lesson. For example, the study session on discounted cash flow analysis looks like a million formulas and models in the textbook. It can feel overwhelming. When I deliver the material, I concentrate on the idea that a company’s future earnings dictate its value. It’s a simple concept that is the foundation of the lesson. We dig into the different ways of calculating all of the components like free cash flow and discount rate, but keeping an eye on the relationship between future earnings and value helps the students keep it all in perspective.
Another part of that study session covers valuation ratios, comparing the value of an asset to its price. I developed an explanation for this concept in an undergraduate finance class I taught early in my career. I refer to a valuation ratio as a “price per pound” where the price is expressed per unit of benefit. It makes it clearer when you keep people’s minds trained on the relationship between the price, and what you’re getting for that price.
About the CFA Program Exam Prep Courses
Aside from structure and the big-picture view, you can also learn from working professionals who have been teaching exam prep courses for years. For example, Johnathan Masse, CFA has been teaching for 15 years and explained in a recent post on this blog that he knows how the exams have evolved and that some, like him, learn best in a sensory environment. Vincent Deluard, CFA, a Global Macro Strategist for the broker division of INTL FCSton, who has written for Forbes, will also be teaching.
About David Kaczorowski, MBA, CFA®
Dave (David) Kaczorowski has worked in finance for more than 13 years. An experienced investment manager of private and family office portfolios, he has investment expertise in all the five major asset classes and experience in the holistic management of a family office. His most recent position was as the primary investment manager for a highly diversified family office portfolio. Prior to that position, he spent five years in the investment banking industry as an equity research associate, covering technology companies. His resume in the industry includes Signal Hill Capital, Wedbush Securities, and Stifel Financial. He also spent seven years as a financial analyst in the actuarial department of Liberty Mutual Insurance Group. Currently, he is an Adjunct Professor of Finance and Academic Program Manager at Golden Gate University. He is a CFA® charterholder.
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