How to pass CFA Levels I & II
The dreaded 300 hours…
If you are reading this, you probably already know that the CFA Program is a pretty intense finance-focused accreditation that attracts literally hundreds of thousands of ambitious professionals across the world each year.
If you (i) pass all three levels (which takes a minimum of 2.5 years if you ace them consecutively); (ii) gain the requisite four years of work experience in an investment-focused role; and (iii) pay your annual fees to CFA Institute, you have the right to use the “CFA” designation after your name. It’s basically an MBA for people who don’t want or can’t afford an MBA, are focused on finance and investment as their future career path, and/or are intellectual masochists.
Most people fail
The pass rates are pretty low —mid-40%s for Level I and Level II, and only mid-50%s for Level III. And that doesn’t include the people who register but don’t even bother showing up for the exam.
Well, I’m proud to say: so far it’s going well for me. I was in the 46% of the 79,507 takers of the CFA Level I in June 2018 who passed, and in the 44% of the 74,735 takers of the CFA Level II in June 2019 who passed.
Honestly, for both Level I and Level II, walking out of the nervous, soulless, massive exhibition hall at London’s ExCel centre where I took the exam, I thought it could have gone either way. Both Level I and Level II are multiple-choice based questions but often the most common incorrect answer is also one of the answer options. So ‘instantly’ knowing the answer or seeing the answer you’ve quickly calculated may actually be luring you into that exact same trap.
Anyway — in the end, happily, they went the right way.
So what’s the trick to passing?
The CFA Institute (“CFAI”) grade the exams and give a pass/fail by calculating a famously nebulous ‘minimum passing score’. The CFAI aren’t particularly forthcoming with how it’s calculated but essentially, it is at least partly based on how the exam cohort overall has performed on the test. So really the name of the game here is to be in the top 40–45% of people taking the exam globally.
Probabilistically, you can bank on a small fraction of people showing up on the day of the exam and doing one of the following:
- Forgetting a calculator (literally saw this at Level I)
- Hoping to wing it (“It’s multiple choice; how hard can it be?”)
- Letting the moment get to them and totally flopping it
Let’s call that 10% of people. So now to be in the top 40-45% of all exam takers, you basically have to be above the median (i.e. the 50th percentile) of the remaining 90%.
Sound easy? Let me be very clear: it really is not.
There is no shortcut. There is no magic pill. There is no miracle YouTube / Khan Academy / Udemy video that you can watch in your pyjamas the night before (although these can be awesome resources to watch in your pyjamas on a more extended timeline). 300 hours is the reported average amount of time studying for each level. To put that into perspective, if you space it out equally, that’s 12 hours a week for 6 months leading up to the exam. Or about 11% of your waking hours (assuming you sleep 8 hours per day).
But just because it isn’t easy doesn’t mean it has to be hell.
This is what worked for me
Book some time off in the immediate run-up to the exam
I am the kind of person who needs to focus 100% on really hard stuff. I can multitask the day-to-day but when it comes down to understanding tough concepts and memorising formulae, I need headspace.
I took two full weeks off work in the run up to each exam (thankfully Europeans have pretty decent holiday packages) and I used every last minute both times. I cannot recommend it enough: at least one week, two if you can.
Even if you can’t take full days off, I would strongly recommend having a conversation with your employer about leaving the office early or managing expectations about how late you are willing to work at the very least. At the end of the day, you are putting yourself through this hell to become a smarter analyst and long-sighted employers should see that and support you.
Sign up with a prep test provider
The CFA official curriculum is extremely long and extremely dense.
To give you an idea, the 2018 CFA Institute printed curriculum has six books:
- Ethics and Professional Standards & Quantitative Methods: 741 pages
- Economics: 462 pages
- Financial Reporting & Analysis: 775 pages
- Corporate Finance & Portfolio Management: 451 pages
- Equity & Fixed Income: 670 pages
- Derivatives & Alternative Investments: 193 pages
Grand total: 3,292 pages
Let’s assume it takes you 3 minutes per page to cover the content, which is absolutely racing through — particularly on some of the trickier concepts and lengthier examples, and while trying to take notes. That’s 165 hours gone, and that doesn’t take into account any of the other stuff that will be part of the magic 300 hours number e.g. googling things that are unclear, racking your brain to figure out tricky concepts, revising your notes, doing practice papers and online questions provided by CFAI, etc.
In short, in my view, it is an inefficient way to cover the content.
By all means, reference back to the official CFAI materials if you have time and/or the study prep provider you choose doesn’t explain something well enough. But my strong recommendation is to keep that the exception rather than the rule to save time.
I chose Kaplan-Schweser on the recommendation of a friend. It costs $649 for the ‘Essential’ package, which gets you:
- Five books condensing the key concepts from the official curriculum (total pages for 2018 version: 1,406, or 57% fewer than the official curriculum)
- Schweser Q-Bank (online), which is a really helpful bank of questions to test key concepts and see explanations for wrong answers (of which there will be many)
- 4 practice exams
- QuickSheet, which is a condensed version of all the key concepts for the entire curriculum on a single piece of laminated paper — a god-send for last-minute nervous checking
Sure, $649 is expensive, which sucks when you have already dropped $450 enrolling in the CFA Program and $650–1,450 signing up for the exam (sign up as early as you can). But look at it as an investment. 57% fewer pages x 165 hours for CFAI curricum (see above) = 95 hours saved. Would you pay $7 to save an hour of your time? I would. And that’s before taking into consideration the extra resources listed above.
Getting to work: Phase I
I split my study into two phases.
Phase I is simply a volume game. You can’t really get through the exam without covering all of the content at least once, so this phase is all about churning through those pages.
Phase II is about getting exam-ready. I personally budgeted about 10 days immediately before the exam for Phase II, knowing that I would have a distraction-free window as I had booked time off work (see above).
I took a pretty formulaic approach to the study plan for Phase I:
- Map out the total number of days you have to study between now and the start of Phase II (so following my plan, between now and 10 days prior to the exam). Be realistic about when you will/won’t be able to study during that window. For example, I stuck to Saturdays and Sundays only as work and life get in the way too much during the week. I also assumed I wouldn’t do anything during any weekends away or holidays that I had booked.
- Divide the total number of pages you need to cover (1,406 with Kaplan-Schweser, per above) by the total number of study days you have. So let’s assume I started six months in advance, my maths would be: 26 weeks x 2 days per week x 80% availability = 42 days = 33 pages per day.
- Target 20% over-delivery on your schedule, to absorb any impact from unexpected setbacks and keep you confident that you are on track. So for me that would be 33 x 1.2 = 40 pages per day (minimum). Try to beat this target as often as you can so you buy extra days prior to the start of your dedicated period (per Step 0 above).
Again, Phase I is all about covering ground. Take notes as you go, take the time to properly understand concepts and work through the practice questions at the end of the chapters but do not try to memorise all the formulae and frameworks. You will forget them again by the time you get to Phase II anyway so it is literally a waste of time trying to learn them all by rote now.
Phase I is painful. It’s long. It’s the bulk of the 300 hours. But just get your head down and keep churning through.
A couple of tips for getting through Phase I as easily as possible:
- Sign up to AnalystForum to ask questions as you go along. Also, pay it forward — if you know the answer to someone else’s question, take the time to reply. Teaching/explaining things to others also happens to be a phenomenal way to remember concepts.
- Start studying as early in the day as you can bear; there is nothing worse than the Fear of Missing Out (“FOMO”) you feel when all your mates are out doing stuff during the day/evening and you are stuck indoors studying. Get it over and done with as soon as you can to minimise the impact on other areas of life.
- Work somewhere with minimal distractions. I worked from a coffee shop for the majority of Phase I so I wasn’t constantly distracting myself with other stuff (e.g. snacks). Whatever works best for you.
- Put your phone away. The world won’t end if you are away from your phone for more than 2 hours at a time.
Take stock and consolidate before starting Phase II
This is the interim bridging period between Phase I and Phase II, which you should have plenty of time for if you over-delivered on your Phase I study plan per the advice above.
Spend a couple of days consolidating and synthesising your notes into one place. You should get a sense during this time where you are likely to be stronger or weaker (as a function of how many times you think to yourself: “shit, I had totally forgotten about that” when going back through your notes).
Then do the unthinkable: take a practice exam.
You are not ready for this exam. Your score will suck. You will panic and want to throw your books, calculator, notes and potentially yourself out of the window. All of those things are fine. You need to go through the experience of having literally no idea how to answer the question(s) in front of you in order to sharpen your mind and focus for the beginning of Phase II. Better now that two days before the exam, right?
Embrace the pain.
Shit gets real now: Phase II
As mentioned above, Phase II is about getting exam-ready and I budgeted around 10 full days leading up to the exam. This is where taking the time off work really comes into its own because it removes all the complications of having to balance lots of different priorities and means you can just focus on crushing the exam.
The study planning for Phase II is less formulaic than for Phase I because the content you should cover and the time you should spend depends on where you are strong or weak. The practice exam should have helped you to determine your likely blindspots but do another 50–100 practice questions online if you need further data.
Here’s how I would recommend mapping out those 10 days based on my own experience:
- Day 1–3: Recap notes. Cover all ten topics, condensing notes down even further, trying to fit the core concepts onto a single sheet of A3 per topic. Use mnemonics to remember concepts that have a fixed number of sub-concepts e.g. the [X] key assumptions of the Black-Scholes Model, or the [Y] key assumptions of simple regression. Finish each day with 50–100 questions from Schweser Q-Bank and/or the CFAI’s own online practice questions and adjust your notes to incorporate things you got wrong.
- Day 4–5: Do practice exams. Both CFAI and study prep providers will have ‘Morning’ and ‘Afternoon’ practice papers, each of which are 3-hours long. There is no difference between ‘Morning’ and ‘Afternoon’ in terms of the actual exam content — it is just trying to mimic exam day structure— so treat each one (i.e. each 3-hour block) as one practice exam. Aim for 2–3 x 3-hour practices per day. Be meticulous in reading through the explanatons for everything you got wrong and fully understanding why you were wrong. There is a tendency to think the question is stupid or phrased poorly but tough luck; that’s how it might be on the day. And it’s almost certainly you that has misunderstood or misread a question, so try to not move on until you understand the nuance you are missing. Read the comments sections below the tests online on the CFAI website to see what other students are saying; their explanations and debates might be more insightful than the official answer explanations.
- Day 6–7: Deep-dive focus on highest-weighted topics. Some topics are weighted more than others in the exam, with Ethics, Financial Reporting & Analysis, Equity & Fixed Income usually making up the Big 4. Ethics in particular catches a lot of people out, so this is one topic I would recommend spending the time to read through the official CFAI curriculum. Again, finish each day with 50–100 questions from Schweser Q-Bank and/or the CFA’s own online practice questions.
- Day 8–9: Do more practice exams. Aim for another 2–3 x 3-hour practices per day and again, be meticulous in understanding why you were wrong.
- Day 10 (day before the exam): By this point, you will have covered all the topics multiple times, completed 250–500 online practice questions and completed 8–12 practice exams. You are in good shape. The best use of your time now is to consolidate your final notes, prepare your stuff for exam day and brush up on any final formulae, frameworks or concepts you haven’t quite yet memorised.
Bring it home: Game day
First and foremost, get the obvious stuff right.
Double check you have:
- Your entrance ticket
- Your calculators (I used BA II Plus and had two of them just in case the battery died on one)
- Your pencils (again, take multiple)
- Your passport
- Suitable clothing. Wear a t-shirt or something light with a jumper/sweater over the top. Don’t be stuck in a jumper/sweater-only scenario is a roasting hot exam room or a t-shirt-only scenario in a fridge. You have enough shit to think about.
Make sure you know where to go, how to get there and how long it will take. Don’t be late.
Beyond that, everyone has their own way of handling high-pressure situations. For me, exam day looks like this:
- Get up at least 2 hours before Google Maps says I need to leave. That gives me time to have some food, try to relax and get in the right mental zone. Aim to leave at least 30 minutes early to de-risk transport issues, forgotting stuff, getting lost, etc.
- As soon as I leave the flat, put headphones in. I don’t want to talk to anyone or hear anyone else’s conversations, particularly when you get closer to the exam venue and there’s hundreds of other test-takers all jabbering away about test topics. It’s too late to get anything useful from that so just block it out.
- Find a quiet spot near the exam venue to flick through final notes. At this stage, you aren’t going to learn anything you don’t already know, but I find it helpful to reassure myself that I know my stuff.
- Go to the bathroom. Don’t waste time once the exam starts; you’ll need it!
During the exam
- Read every question at least twice before answering.
- Take your time with the calculations. Don’t make silly errors (e.g. getting the number of time periods wrong in a discounting question, or falling for the little traps the CFAI put in to sort the wheat (you) from the chaff (the other 55%).
- Circle your initial answer on the exam paper (don’t fill in the answer sheet first time around).
- Skip any question that takes you more than 2–3 minutes or that you think has the potential to take you more than 2–3 minutes. Come back to it later.
- Once you’ve finished the first run through, go back through all your answers and sense-check, and have another go at questions you skipped. You might not have time to do all the maths again but certainly on the qualitative/observational questions (and especially Ethics, where little wording tricks are a near-certainty), double-check your initial answer.
- Transfer your double-checked answers to the answer sheet as you go.
- Obviously if you are running out of time and haven’t yet finished, make sure you leave enough time to transfer all your answers onto the answer sheet before the time runs out.
- If you get stuck, don’t panic. You don’t need 100%, remember, and you did a hell of a lot of studying. If you are finding it difficult, chances are so are others. Remember, you just have to be in the top 40–45%. Put it out of your head and move on.
Most important: post-exam protocol
Literally stop thinking about it.
Don’t think about the answers you changed.
Don’t discuss it with anyone else.
Don’t look at your notes.
Pick your poison and celebrate the fact it’s over!