CFA Level 1

I took the CFA level 1 exam today. It was an interesting experience, and the first exam I'd taken in ten years.

At one time or another, I'd taught approximately half of the material on the exam (Study Sessions 2, 3, 11, 12, 13,14, and 18). But unfortunately, I put off studying for the remaining parts until about 1 week and a half ago). And there is a LOT of material in the Accounting and Econ sections, much of which is pretty involved. Luckily, people from my "tribe" (Ph.D-holding , alpha-nerd types) are typically pretty good at processing and retaining large amounts of material, and quickly.

I think I did fairly well - of the 120 questions in each session, there were probably 10 for which I had no clue and another 10-15 for which I was able to eliminate two of the four answers. For what it's worth, I finished the morning session a half hour early, and the afternoon session about an hour early. And this includes checking answers (I've always worked fast on tests).

Now I just have to wait until January/February to get results.

Ironically, now that I'm back at the Unknown Household, the next thing on my plate is to write about a half-dozen recommendation letters for students who've applied for Unknown University's CFA Scholarships (I also sit on the committee that makes the decisions, BTW). We give out five, and the local CFA chapter also has a few to hand out. It's a great deal for the students - it cuts the effective cost for the first exam from almost a grand to about $200, and also allows them to get study guides from one of the major test-prep vendors for $100 versus the usual $500 cost.

Since it's fresh in my mind, here are a few study tips to those studying for the exam in June. Realize that the suggestions are free (and probably either fairly priced or even a bit overvalued):

1. Start early - the material isn't that difficult, but there is a lot of it. A LOT.
   
2. As much as is feasible, spend at least a little time studying every day. If you have a study guide (i.e. Schweser's or Stalla's), keep one of the books with you at all times and try to squeeze in a half hour here and there - these little sessions help. If you're diligent, you can probably get in 5 or so hours a week just by filling in the down time that comes with many people's days (i.e. lunch, commuting on the train, etc).
   
3. Work as many of the problems as you can well in advance of the exam (See #1). Much of the material is algorithmic, and you only learn algorithmic material by working through problems.
   
4. When you work a problem, first try it "cold" (after reading the relevent material, of course). If you don't have a clue, review the material and then try it.
5. Don't cheat by looking at the solutions until you've worked the problem - you learn more by finding out WHY your answer was wrong than by seeing the correct answer first.
6. As a final thought on working problems, don't try to study by memorizing practice problems. By all means work them, but mostly as diagnostics. Get the material down first, then work as many problems as possible, but memorizing solutions isn't going to cut it.
   
7. Get a study guide - both Schweser and Stalla have good ones (IMHO, Schweser's is better).
   
8. Plan your studying so that you finish all your preparation with a couple of weeks left before the exam.
   
9. Realize that even if you plan to be ahead of the schedule (see #8), stuff happens. So try to arrange things so that you have the last week or two before the exam largely free for final cramming. No matter how much time you put in ahead of time, you'll need the last week or two for final preparations.
   
10. Schweser has a great book called Secret Sauce that has a lot of helpful tips for that final polishing).
    

Hopefully, I'll pass this level and use these suggestions for the Level 2 exam in June.

Of course, when results are in, you'll be among the first to know.

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What Non-Finance Courses Should Finance Majors Take?

Since school just started here at Unknown University, that means undergraduates with questions about majors, classes, internships, and so on. This is the first time I advise students her at my current school (I got a pass for the first year). Our program is such that they don't have a lot of options for the finance part of their curriculum, but I get a lot of questions about what other classes (besides finance) to take. So, I though y'all might also benefit from my take on things (or at least get a good laugh):

• Financial Accounting: The typical undergraduate finance major takes one or two introductory level accounting classes. Then, when they get their first entry-level job, they often find themselves doing tasks that use a lot of financial statement information. Accounting can be hard and (to many finance majors) a bit dry, but taking more accounting classes definitely sets you apart from other new graduates. Back a few years, I used to place a number of students with the credit analysis unit of Bank of America. They didn't even look at most students unless they had three or (preferably) four accounting classes. There's not that much advantage to taking Tax or Auditing for a finance major, but there is to taking Financial - I'd recommend at least Intermediate Accounting I (and if you can manage it, Intermediate II).
  
• Macro Economics - Although the undergraduate business curriculum typically requires an introductory class in macro, most students come out of it with only the barest hint of what's going on. A second class in this area will help you to get a much better understanding of the larger economic forces that effect equity (and to an even greater extent, fixed income) markets.
• Money and Banking (from the Econ department)- Similar to the above, it's also good to see the money and banking material twice. Although you often get a money and banking class in the finance department, it's good to see the same topic taught from a different perspective.
  
• Statistics and Econometrics - The undergrad finance curriculum usually has an introductory statistics class. Almost everyone can benefit from more exposure to this material. But most importantly, make sure the class is "hands on". There's no substitute for analyzing real data.
  
• More math - You might not use linear algebra or higher-level calculus, but taking extra math (and getting getting good grades in those classes) serves as a pretty good signal that you're either smart or hard working (or both). Today's finance world is math and stat -driven. So, the more you take of these topics, the better.
• A programming class - like math, programming is also hard. Having a little more background in a commonly used language always helps.
  

Of course, this is only my opinion, and a lot of it has been shaped by what I hear from employers (or see on the CFA exam). If you have other thoughts, I'd love to hear them.

Advice For New College Freshmen

Ben Stein has said some pretty goofy and (IMO) off base things about private equity, but he hits the mark here with advice for new college students (he's sending his first son away to college):

Make friends with your teachers. To get on their good side, read the material before class, ask questions, and use their office hours to get clarifications on material that's unclear.

Learn to manage your time. Make sure you do your work on time (and neatly) and follow the instructions carefully on assignments.

Be well rounded - take classes in the area you want to specialize inm, but also in others. You never know what you might end up using, so it's important to have both depth and breadth of knowledge.

Affability and netness count. Join a frat or sorority, or some other group. And if you dress like a slob, make sure your thoghts and speech are more ordered - it'll offset the impression your appearnace makes.

Finally, don't indulge to excess, get some exercise, and develop good work habits.

Read the whole thing here.

As a professor, I can vouch for the first piece of advice. Most students don't make the effort to get to know me outside of class. So, I tend to go the extra mile for those who do (particularly when they need reference letters).

Grad School Rules

Fabio Rojas (a Sociology professor at Indiana) has compiled a truly impressive collection of advice for graduate students that he calls Grad School Rulz. Here are the topics he covers, listed along with my take on each piece:

1. Get the (official) rules - know the actual requirements for your program. This keeps you from doing things you don't have to, and makes sure you dot all the necessary I's and cross all the essential T's. Don't rely on your faculty - go to someone who has the responsibility to know the correct rules -- like the graduate chair or the director of the program.
2. Get the unwritten rules - most of the "really" important information you need to survive (like how to approach certain classes, who to work with (or not), and where to get help with technical issues) isn't on paper. Make sure you tap the experience of the student who've gone before you.
3. Choosing a graduate program - different schools have vastly different profiles. This can be anywhere along the continuum from "survival of the fittest" to ""we look after our own" (luckily, mine was of the second kind). Try to figure out the profiles of the programs you're considering, and make sure it's a good fit for your strengths/weaknesses.
   
4. How to make the best of course work - some very good rules of thumb on what types of courses to take (and how much effort to put into them). In the short run, they're important. But in the long run, keep your eye on the prize - focus on your research, and use courses to help you in furthering your progress towards it.
5. Grad school exams - Exams are a "hygiene issue (i.e. you don't get noticed unless they're bad). For "sit down" tests, get copies of old exams, and talk to previous students. For take home exams, also get copies of old exams, but prepare beforehand by having good written summaries of articles (you should be doing this during your seminars in any event).
6. Why friends are important - While over-socializing can hurt you, don't be a hermit. Friends can offer emotional support, provide technical assistance or comments on your work, and generally help you in your weak areas. It's likely that grad school peers will become your first non-faculty coauthors. And in addition, no one else will really understand what you're going through like the other people in your program. That's why many of them will become life-long friends.
   
7. Picking your advisor - no advisor is perfect, but yours should have at least one strong suit. Some of the factors to consider are: record in placing students, reputation for competence in the profession, record of coauthoring with grad students, accessibility, ability to offer helpful criticism, expertise, and intellectual style
8. Choosing other (non-chair) members for your dissertation committee - The end goals of your committee are to facilitate your getting the dissertation done and to help you get a job. Most of the responsibility for both jobs lies with your chair. But as for the rest of the committee, make sure they have complementary skills, get along, and aren't jerks that will put you through unnecessary hell.
9. Why you shouldn't pay for grad school - it can be expensive. Luckily, b-school professors make good money. But in the humanities, that's not often the case. This piece makes some suggestions on how to minimize your debt load coming out.
10. Choosing a dissertation topic - should you go with the "big obvious problem", come up with your own new problem, or take a topic from your advisor? Each has pluses and minuses. Whichever you choose, make sure it's something you feel passionate about (you'll likely be working on it and related pieces for several years). Also think about issues of compatibility with your intellectual style, strengths, and weaknesses, the popularity of the topic, and where the topic is in the research life-cycle (too new or too old both have risks).
11. What to do while you are working on the dissertation- the short answer is, "as little of non-dissertation activities as possible." It might not be possible (depending on finances), but try to minimize teaching responsibilities. Also, be very leery of moving away from campus - it's much harder to finish your dissertation when you're in another city (to a great extent, it's "out of sight, out of mind" from your professors' viewpoints).
12. Writing your dissertation (parts 1 and 2) - part 1 discusses how the different models for how the dissertation fits into your larger career (i.e. is it intended to be drafts of future books.articles, a job marketing tool, etc...). The more interesting (and potentially helpful) material is in part 2, which gives some very useful advice: dissertations are NOT "masterpieces, and the best ones are FINISHED ones. So do good work, but realize that the key thing is to "get er done".
    

All in all, Fabio's individual pieces of advice are all well worth reading. Follow them and you'll save yourself a lot of unnecessary work and grief.

Thursday Link Dump

It's been a good week. I'm slowly getting over the creeping crud in my lungs, my classes are on track, and some exciting things are happening at Unknown University. A number of my undergrads are interested in forming a self-study group in the fall to work towards taking the CFA Level 1 exam in December. The dean has agreed to provide funding for both the required reading AND a set of the self-instructional materials from one of the major vendors --we're in the process of redesigning our finance curriculum to bring it more in line with the CFA program, and this fits perfectly. So, I may end up the unofficial advisor to the newest student organization in the college.

In the meanwhile, here are a few links to keep you busy and off the streets (bedsides -- it's too damn cold up here to go outside):

Flexo at Consumerism Commentary posted about a guy who's made some money suing telemarketers in small claims court. I love the idea.

Dealbook questions whether initial PE buyout bids are being raised or not. And in a related piece, BusinessWeek.com notes that competing bids seem to be on the rise.

The math department at Polytechnic University has some great advice on how to solve problems. They're right on the money for finance students as well as for math students. (HT: Craig Newmark).

Given that I finally have some energy, I decided not to waste any more of it today on blogging. So enough blogging - time to do some research.