Study Session 1 – Reading 1 & 2 Recap

Sorry for the delay in adding a new post, I’ve been swamped with work and trying to finish up my last class. I also have 2 year old twins as I mentioned before and when I have them I’m either:

– too busy and hectic running around trying to keep up with them all day
– too tired at night after trying to keep up with them all day

So that’s been limiting my study time. Classes end next week so I’ll be able to free up enough time to focus on the exam.

I was able to get a couple of hours in this morning and decided to recap the first 2 readings to make sure I was comfortable with the standards. After the first Stalla class session which covers Ethics, I won’t be touching this material until review time in November so I wanted to make sure I got all my notes down.

Since I haven’t received my Stalla material yet, I used some 2007 Schweser videos for these two readings. The content is almost identical to the 2008 LOS’ so I felt confident using the videos in conjunction with the CFAI book.

I used Microsoft OneNote to take notes for these two readings but converted to Word 2007 format. It’s long so I won’t post it here, but here’s a link to it. If anyone wants it in a different format, email me and I’ll convert it and send to you.

I’m glad I went back and reviewed this material again. My approach was to watch the lecture and at the same time highlight key points in the CFAI book. When the lecture got to the application section, they would only do one case so I paused the video and went thru each example in the CFAI book to make sure I got it. On this second glance, the material was not too difficult if you can remember the gotcha’s and key points to remember. What I go away with from these readings is:

– disclose, disclose, disclose and when in doubt, disclose.
– The Loyalty Food Chain is Clients, Markets, Employers, Yourself. A few of the standards are nothing more than making sure you have this hierarchy correct. Anything that would put it out of order is most likely a violation.
– Piggybacking of the point above, Section III about duties to clients is probably the most important one.
– Confidentiality is key even if disclosure of information would be beneficial to client. It’s easy to not remember this and get a question wrong because you thought you had your clients best interests’ in mind.
– You MUST read these questions slowly and sometimes 2x. The relationships must be clear and you can easily get confused who’s doing what for whom. These questions should not be blown thru on the actual exam. I’ll be making sure to time myself to see how long it takes me to finish the ethics section. You don’t want to rush thru these questions since this section is the tiebreaker but you also don’t want to spend too much time on it either. Definitely one of the metrics I’ll be watching during my prep.

Tonight I’ll review readings 3 and 4(the GIPS) and just answer tons of questions. After the Stalla review this week I’m sure I’ll have a decent enough handle on it to put it to rest until November.

As I said before, the key to ace this section is lots and lots of questions. More so than other sections I’d imagine since this whole topic a bunch of gray areas.

More on Reading 3

Sitting in my credit analysis course and just didn’t feel like reviewing what the Balance Sheet is for the millionth time so I decided to go back over Reading 3 which covers the GIPS(Global Investment Performance Standards). As I said in a previous post, this material is short, only 4 pages, but the questions are tricky.

Key points

– compliance with the GIPS is voluntary
– know the purpose of GIPS – you’ll get those “what best describes” or “what most accurately represents” questions about this
– performance standards must be for composites, which are groupings of individual portfolios representing an investing strategy(i.e Large Cap, Small Cap, Emerging markets). The composites must include all past and present portfolios that the firm as a whole(important) has managed.
– GIPS only applies to asset managers. There were questions about who GIPS applies to and all the choices were investment related but only one was actually managing assets.
– If the portfolio is discretionary and fee paying, it must be included in at least one composite.

I did notice the Schweser test bank questions had examples that assumed you read ahead to Reading 4.

Where I got my study material from

Here’s what I’m using to study for the L1 exam

  • Stalla “The System” – haven’t signed up yet but will do so this week.
  • Schweser 2008 L1 Notes
  • Schweser 2008 L1 QBank – Lots of questions and you can come up with your own mock exam
  • Various PDF’s I have found by searching on the web and using Torrents.
  • Textbooks from school – will be used when I want a different perspective or extra practice problems. I have Frank Fabozzi’s text on Fixed Income and the Investment Analysis & Portfolio management text that used to be used for the security analysis course I finished. Both courses were taught by CFA’s at FIU.

I currently have somewhere in the neighborhood of 3 gigs of files. Some of the material is from older exams. I’m also considering getting this question bank from Ebay which claims to have 8000 level 1 questions for $30.

Some may say this is overkill but I’d rather have more material than I know what to do with than strictly rely on the CFAI material.

Ethics Study Session 1

Today I began reading study session 1. My goal was to get thru Readings 1 – 3. At this point I have not enrolled for the Stalla course and do not have their material so I am using the Schweser material as my supplement currently. I will most likely be missing the Stalla course that covers this material so I wanted to tackle it early enough.

Reading 1 – Code of Ethics(COE) and Standards of Professional Conduct(SPC)

Only 7 pages of the CFAI material but I quickly learned that this is stuff you must learn inside and out. I made the mistake of assuming this is common sense so don’t dig too deep but the sample questions make you quickly realize how in depth you must understand the material. Knowing the difference between the COE and SPC seems to be key since some of the questions will have answers that all seem correct(or incorrect) but test your ability to know what’s contained in the COE vs the SPC.

It appears that the Code of Ethics is the “High Level” objectives and the SPC is “where the rubber meets the road”. I read the CFAI material and then supplemented it with the Schweser notes and the Schweser Qbank questions to drill it in. This is definitely material that will fade over time so I made notes to come back and review it later on.

Reading 2 – Guidance for Standards I-VII

It was right about here that I truly realized how much work is ahead of me. This section alone is 94 pages and covers mostly how to apply the SPC’s in daily situations. Most of the situations are common sense however. I did notice when using the Schweser notes to compare to the readings that they give cliff notes versions and in certain cases do not match up the examples exactly to the CFAI text. This reading seems to focus on the individual standards, guidance on how to apply in specific situations and how to comply at the personal and firm level. I recommend using the Schweser/Stalla notes for this section since it really distills the key points down to a more readable 52 pages. I used their notes to go back and highlight the key points in the CFAI material in case I wanted to go back and review a specific topic in more detail.

I cheated a little bit and jumped ahead to the questions to see how well I would do without reading the sections on Standards IV-VII. I didn’t do that badly but it’s imperative I review these in more detail for the actual exam. Since I plan on focusing on the Ethics section for the next 2 weeks I’ll have enough time to go over these again.

Reading 3 – Intro to GIPS(Global Investment Performance Standards)

Only 4 pages long and not too bad. One thing I did realize with the Schweser notes vs the CFAI material, Schweser helps put the key content directly underneath each LOS. The CFAI material puts it at the beginning so it’s easier to lose what LOS you are actually reading content about. Anyways, this section may seem easier since it’s shorter but it’s pretty tricky.

I’ll stop here and pick up Reading 4 and the remainder of Reading 2 tomorrow.

Time Spent Studying – 2-3 hours
Lessons Learned:

  • Know differences between COE and SPC
  • Answer lots of questions for Reading 2 to learn how to apply Standards in different situations. Most of these are common sense but the questions can be tough since all of the answers can seem to be correct unless you know the intracacies of each standard.
  • Reading 3 is short but tricky. Also answer many questions for this section.
  • Ethics cannot be taken lightly if you hope to pass the exam. It accounts for about 15%, if I recall correctly and is used to make or break candidates who have borderline passing grades. I heard this directly from CFA charterholders. They want people who are strong in this area.
  • After answering questions, take notes in the side of CFAI material further explaining key points.
  • Quoting Larry Kudlow “Drill Drill Drill” – I think the key to ace this section is to answer as many questions as possible to cover all possible permutations, of which there are many.

Now off to shop for a new(really used) car and grab lunch.

Until tomorrow…

Stalla vs Schweser vs Self Study

As mentioned in my first post, I am leaning very heavily towards Stalla vs other methods of studying for the following reasons

  • They offer live classes that meet for 3 hours once a week here in Miami. Schweser only offers the online seminars. One of the reasons I didn’t go the online MBA route was because I liked the discipline that scheduled live classes gives you.
  • The local CFA chapter of Miami provides discounts for Stalla if you are a member.
  • I could obtain the Schweser material anyway and use it as a supplement.

Although self-study must be a portion of any successful candidates test prep regimen, I wanted to supplement it with a study prep course and Stalla just seems to be the best fit right now. I plan on using a combination of the CFA institute readings and both Stalla and Schweser materials to fill in the blanks.

The classes start July 31 but I may have to miss the first one since it coincides with the final class of my Credit Analysis course. The first class covers the Ethics material which I have already begun reading and will update in a separate post.

About this Blog

Hello everyone, my name is James Morales and this my first entry in what I hope will be an ongoing blog about my attempt to obtain the CFA charter. I may as well give a little background on myself and what has led me up to this point. I’m 37 years old and I graduated from Columbia University in 1998 with a BS in Computer Science and for the past 14 years have been working in a variety of Finance, Treasury and IT functions. I started out as a SAP developer but eventually worked my way into more integration work and eventually as a FI/CO functional consultant. What’s that you ask? Well, I was basically sitting right on the fence between the business and the IT department which allowed me to use both my business acumen as well as the technical skills I have obtained over the years in configuring the Finance/Controlling module. I was basically a business analyst on steroids. Pretty sweet gig, and it kept me close to the technology but not bogged down in it like a pure developer would be.

I decided to reinvent myself and transition into a new phase in my career so I pursued my MBA. Luckily I was able to also transition into a Finance role doing FP&A and some Treasury work. In December 2008 I graduated with my dual MBA/MS in Finance degree at Florida International University(FIU). Many may be asking why I pursued the CFA given my IT background. Well, after spending 6 plus years at it I realized that IT is a very limiting experience and while it pays very well(I was making over 6 figures and could easily do so for the remainder of my career), I also know that there is not much room to grow. This is especially true if you work in industry vs for a consulting company. Typically you will be part of a small IT department and will not be asked nor expected to do more than what you currently do. Consulting is better in that regard since you will typically hop around to different clients and different projects. The downside to that is that it typically requires major travel which is something I’m not too big on, especially since I have young boy girl twins that I cannot be away from too long.

With that little bit of background, I registered for the December 2008 Level 1 CFA exam.  I used the Stalla L1 prep course which started right after my degree program finished. After an intense 4 month period of study, I passed the Level 1 exam rather easily. I took 2009 off to get my sanity back after 2 plus years of studying and decided to go for Level 2 in June 2010. After 4 very hard months of preparation and not feeling to confident of passing, I wound up with a passing score.  After taking 2011 off, I decided to take Level 3 in June 2012. I’m happy to report that I passed and as of October 2012 I am an official CFA Charterholder! I went 3 for 3 on the exams which is a rare feat. 

I hope this blog assists those also studying for the CFA exams who may be looking for inspiration or just to know that someone else is going thru the same emotions, feelings and heartache. I hope to update the blog at least 3-4 times weekly and I may sprinkle in some non-CFA content from time to time. 

Please feel free to reach out to me via my personal email: I would love to network and meet other CFA candidates or even charterholders. Also consider adding me to your LinkedIn network using the button on the blog.

My personal guide to pass the CFA exams and obtaining the charter can be found here