Make Your Study Hours Count
It is difficult to offer advice to aspiring charterholders that is applicable to all three levels of the CFA® exam series. As you may have already discovered, each level is fairly unique. Level I and Level II are far apart in difficulty while Level II and Level III differ greatly in format. If you aim to pass each level on your first attempt, I will give you one piece of advice no matter which level you are currently preparing for: forget the curriculum—base your studying around practice exams.
As a finance professional, I am sure you will appreciate the reality that CFA exam study is an investment. You are pledging your time and expect to be paid back with a credential. It is prudent to maximize your return here as with any other investment. There is a popular misconception that 300 hours of study is required to achieve a passing grade for each level of the exam. Believing this is a mistake.
The problem is more nuanced than simply applying raw study hours for an expected outcome. The most recent pass rates are 21% for Level I, 40% for Level II, and 42% for Levels III. Whatever the average number of hours actually spent preparing for each exam, that number of hours only paid anything back about half the time and surveys of candidates show that the relationship between hours of study and pass rates is actually pretty loose. Hours of study are not fungible like dollars. Quality matters. Make your study hours count.
Too many candidates take the traditional approach to preparation, which is no more than reading the reference material from start to finish and completing a couple of mock exams. Unfortunately, your less-than-perfect reading retention turns the traditional approach into a shotgun method. If you read the reference material, you will realistically remember much less than 50%; even if you take notes and make flash cards you will not retain anywhere near 100% of the material. You are essentially hoping that whatever you happen to remember will overlap enough with whatever happens to be on the test to place you in the blessed 41%.
This traditional strategy makes sense only if you assume the test is a completely random sampling of the source material. That is not the case. There is material CFA Institute wants every candidate to know, concepts that show up on just about every test, and even questions that are recycled word for word from the old posted CFA exams (I encountered more than one while taking Level III).
Let the mock exams turn your shotgun into a sniper rifle.
Assuming you already know the structure of the exams (head over to the CFA website and get up to speed if not), begin your study by assembling the following:
At least 12 practice exams.
Reference material.
500 blank 3x5 note cards
Reference material means the CFA source books that came with your registration or an alternative. Twelve practice exams sounds like a lot, but at six hours each that’s only 72 hours of total time investment, which still leaves you with 228 other hours if you stick to the rule of thumb. CFA Institute will give you two free mock exams when you register; the other 10 (or more) can be purchased from any number of third-party vendors. When I was a candidate, I found some pretty good deals online for mock exams.
Before you even touch the reference material, take a practice exam. Every practice exam you take should be timed and under test conditions, so no interruptions and no cheating. It is going to be a frustrating six hours. Mark questions if you are less than certain of the answer. After each practice exam, go through your marked questions; find out what concept the question covers; find that concept in the reference material; and make a flash card with the name of the concept on one side and a description on the other. Include a reference back to the source material in the upper corner of your flash card so you can review the details easily. While looking up the reference material, read everything that is relevant to the question and make additional flash cards as you encounter unknown concepts. This will sometimes lead you down trails of unknown concepts where one flash card references another and so one. That is fine—in fact it is an essential part of the learning process. Repeat 11 more times.
It won’t be long before your little pile of note cards grows into something substantial. Don’t sort them by topic, but instead by difficulty. Between practice exams review the hard note cards often and the easy ones less so. You want to maximize the investment of your hours; don’t waste time reading source material that is not tangentially related to something you have encountered in your practice exams. There is an ocean of source material so don’t bother to try and learn it all. While studying my note cards, I changed how I reviewed them to keep things interesting and help with retention. Sometimes I repeated the answers verbally; other times I wrote them on a white board; and occasionally I went through them backwards attempting to tie descriptions or formulas back to their names instead of the other way.
Six hours after beginning your twelfth practice exam, you should have a sequence of 12 growing numbers with the last one ideally greater than 80%. You should also have reference material which is about 70% read and a large stack of note cards that are 100% understood. Bring 45 minutes’ worth of your most challenging note cards with you to the exam and review them before you go in to the morning section and while you eat your lunch prior to the afternoon section (with your remaining free hand!).
My method is not a CFA hack or shortcut—no such thing exists with this test. Instead, my method attempts to create an optimization of effort towards the historically most important parts of the exam. The critical assumption with this method is that a big enough sample of the mock exams is representative of the subject matter on the final test. Every year, CFA Institute publishes an updated body of knowledge for each level. Use this to validate my key assumption before you begin. Understand where your mock exams came from and how old they are, and shore up any weaknesses with supplementary material.
In my view, CFA Program is a credential and nothing else. I can count on one hand the number of times I’ve actually used something I learned from my CFA studies professionally, and I’m pretty sure a Google search would have worked just as well. A CFA charter credentials you as someone willing to sacrifice hundreds of hours of what would otherwise be the best years of your life for a slightly better trajectory in your finance career. Don’t make this journey any harder than it has to be.
About the Author
Eric Anderson, CFA, is a quantitative analyst at Skylar Capital, a commodity hedge fund in Houston, Texas. At Skylar, Eric specializes in the development of artificial intelligence models for use in commodity trading.