Exam strategies - 1

Today I will start a series of articles on study tips and strategies. To start, let’s put things in perspective, the CFA Institute published historical pass rates started in 1963, and they first adopted a three-exam structure in 1964. Almost everyone (94%) passed in 1963, which was the first and only year just one exam was required for the charter. In 1964, 79% of all candidates passed the level 1 exam. These numbers look shocking today, in fact historical level 1 passing rate has been well above 50%. Today, we are seeing a ten-year average of 46% pass rate.

What intimidates most people I’ve talked to in all levels is the sheer volume of study material. Coming from a business background, I felt level 1 was somewhat equivalent to a finance major undergraduate curriculum give and take some topics not directly related to finance. Keep in mind the authors of CFA curriculum are mostly hired with some academic background and are given a clear mandate specified in each learning outcome statement. This entire knowledge database is organized so well.

When candidates first sign up to take this exam, candidates generally have minimum understanding as to what is expected out of them in the exam, this understanding, of course, will change as you go through your studying or least favourably, when you take it more than once.

Here’s what I am trying to say, the authors have a mandate to cover each study area, candidates are expected to follow the same mandate. Before candidates get this the hard way, my first advice to the level 1 first time takers and also candidates in other levels is: 

Know what you are expected to do in the exam by reading the CFA Institute learning outcome statement (LOS). 

This is very important throughout all CFA exams, especially for level 1 candidates. By following this practice, there are a number of benefits. Master the target testing points for each LOS, stop doing additional readings that don't help you score more points in the exam, and you will find your hours more effective. I will demonstrate what I mean using the following example.

Example:

LOS Reading 28a. calculate the yearly cash flows of an expansion capital project and a replacement capital project, and evaluate how the choice of depreciation method affects those cash flows;

This statement asks you to CALCULATE yearly cash flows meaning you are expected to calculate using the logics and formulas.  It also asks you to EVALUATE how choice of method affects cash flows, meaning you are expected to evaluate that, not to calculate the effects.

Understanding the expectations from CFA Institute will help you better prepare and focus your studies on things that are required as well as avoid things that are not required.  i.e. you don’t have to memorize some complicated formulas if you were not required to calculate.

When I studied for level 1, first thing I did was highlight the verb in each LOS, and made sure I am doing what's been asked. It helped me pass the exam with all topic scores above 70%.

It’s been a rainy day here in Toronto, perfect weather for studying, good luck.