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Saturday, February 14, 2009

A Collection Of Study Tips For The CFA Level 2 Exam

We're now well into the countdown for the CFA Level 2 exam in June. In fact, I'm about to teach a few sections of the CFA prep class I teach in a nearby city. So, the exam (and the preparations for it) have been on my mind, and I thought I'd start putting down some tips on how to approach the beast.
  • First off, don't take it lightly. Although a good number of people pass Level 1 with only a month or two of studying, realize that the Level 2 exam is much more difficult. While pass rates are similar for Levels 1 and 2, the pass rates for Level two are based on a much more select pool- all people sitting for the Level 2 exam are in the group who've already taken and passed the Level 1 exam. So, treat it with a lot more respect than Level 1. The best description of the difference is that the L1 exam is "a mile and a foot deep" while the L2 exam is "a mile wide and a mile deep". A smart undergrad from a good program will probably recognize most of the material on the Level 1 exam. In contrast, the Level 2 exam had a fair bit of material that I'd never seen before (and not just on the Financial Reporting and Analysis section).
  • Second, the Level 2 exam is based on "item sets" - a short (1-2 page vignette followed by 6 multiple choice questions). So, there's much more information provided in the vignette than needed for any individual question. This has several implications: first, that one item set represents 5% of the total exam, so if you miss one vignette, it's a lot of points, and second, that you have to learn how to efficiently pull out the necessary information from the vignette.
  • Most people find that they're less time-constrained on the L2 exam than on the L1 exam. But it's still important that you learn how to process information in the vignettes efficiently. One strategy that works is to quickly read the questions before you read the vignette. Then read the vignette while focusing on the first question. This will help you stay aware of the material for the other questions. Underline relevant points in the vignette and make notes in the margin. And most of all, answer a LOT of end of chapter questions.

Having said that, here are a handful of suggestions I've heard over the years:
  1. What ever amount of time you spent on the L1 exam, plan on spending 20-50% more for Level 2. It's even more more important to start earlier, since "stuff happens" - given the amount of material is too large to cram for. So set up a schedule, and stick to it as much as possible.
  2. As you go through the material, strive for consistency in your studies. Even if you started just now, you could make the recommended 250 hours of study on about 2 1/2 hours a day on average. Don't plan on missing days and making up for it later. Instead, study every day. Set a goal of a MINIMUM of 30 minutes to an hour EVERY DAY. Once you put in the minimum, in most cases you'll do more. But make it a goal to avoid "zeros". And track your study time.
  3. Try to steal little bits of time to study throughout the day - a half-hour here and there can really add up.
  4. In Level 1, you can afford to "triage" material (focus more on some sections, and spent relatively less time on the smaller ones - not gonna happen for Level 2. Because of the item set format, missing a topic can result in you missing 6 questions (5% of the exam). So, plan on covering everything with time to spare. CFA institute has a tradition of making one vignette on something that seems like it's not that big a thing in the curriculum - in 2008 it was Balance of payments (I kid you not), and in 2007 it was the Treynor-Black model. So try to be at least minimally familiar with everything.
  5. Get a good study package (a set of study notes with test software). While the study notes alone might be sufficient to get you through L1, they should be used as supplements for L2. So, read them for a summary, then test yourself, and use the CFA curriculum material to patch up your weak spots, then test yourself again.
  6. Use the test bank to take a quiz every week, and go back to prior material every couple of weeks. If you don't periodically review, you'll forget most of your earlier material.
  7. Ideally, plan on finishing your first pass through the material with 2 months to spare. Then do a review with tests, and spend the final month patching up your weak areas. That's ideal. But at a bare minimum, schedule your studies so that you finish all the readings with a month left over for review and testing.
  8. Use the final month for mock exams and for polishing up. If you have a study pack from Schweser or Stalla, they have some mock exams included. BSAS (the Boston CFA society) also has a mock exam that's pretty good. Then take at least one CFA mock exam (and two if you can stomach them). They're not cheap ($50 each), but they'll give you a good idea as to the type and level of questions to expect on the real exam.
  9. If you're weak in the accounting/Financial Reporting and Analysis area, consider taking John Harris' 2-day review course. He's one of the best instructors I've ever seen, and paying the $500 for his seminar might well make the difference between passing and failing (after Equity Investments, FRA is the second most heavily weighted section on the exam, and could comprise up to 25% of the total points). I've talked with a couple dozen people who've taken his class, and ALL of them raved about it. I actually took it myself, since accounting is not my strong suit, and after 16 hours of accounting, the room actually gave him a standing ovation.
  10. In the final month, buy Schweser's Secret Sauce. It's a great summary of the material on the exam, it's small enough to carry around with you, and it does a great job of hitting the high points.
In summary, start early, plow through everything as early as you can, and test, test, test. And if you can afford it, buy a study package from Schweser or Stalla.

If you have other tips, put them in the comments, and I'll add them in.

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