What to expect on CFA exam day and the pitfalls to avoid at all cost…
There are several ways to increase your chances of passing the level 1 CFA exam. One of which (and probably the one with the highest success rate) is to know every single item on the CFA curriculum by heart. If you have the ability and time to memorize everything, chances are you will perform well on the exam.
However, most people cannot reasonably be expected to know the 405 learning outcome statements of the curriculum, for many reasons:
- lack of time
- ineffective memory
- lack of interest in a particular topic
This is why you need a strategy to attack the exam and for that, you need to know what type of questions you can expect. The following tips and strategies will hopefully allow you to study more intelligently and prevent you from wasting time both when studying and on exam day. As a candidate, I had a full time job and could not afford to spend the recommended 300 hours so I had to study smartly (actually, I could probably have afforded that time but chose not to because I wanted to have a life too..).
Outsmarting the Multiple Choice Questions
You have probably been confronted to multiple choice questions (MCQ) several times before in your life. Very often, in other MCQ exams, the answer choices looks like this:
A) Idiotic outlandish answer. Almost insulting to even suggest it…
B) Looks correct … but there is an obvious trick
C) Correct answer
Well unfortunately, you wont have many no-brainer questions like this for all three levels of CFA. In most questions, you will have at least two probable choices and very often, you will have to consider all three questions.
Since I was working full time throughout most of my studies, I did not have time to study much. This is why I was a huge fan of trying to outsmart the questions even when i was confronted to a topic for which I was not prepared. What i mean by outsmarting the question is trying to find a pattern or some clue in the wording of the questions or answer in order to make an educated guess on the correct answer. You can see it as technical analysis for MCQs. And it usually worked pretty well. These included techniques such as picking the longest answer or, for numerical answers, never picking the largest or the lowest number.
Trust me when I tell you that there is no way you can outsmart the MCQs from the CFA exam! This is especially true since there are only 3 multiple choices. I took my level 1 exam when there was 4 choices and I feel the questions are trickier to answer when there are only 3 choices since usually the 3 answers are pertinent. When there was 4 answers, there was usually at least one obviously wrong answer. That being said, do not waste your time trying to discover patterns in the answer choices; it just wont work!
5 Strategies Prior to the Exam
As you are studying, you should keep in mind the following information about the exam.
1) You need to have some knowledge of all the topics
There is a universal truth when studying for the CFA exam that says that every single person who is taking the exam has a visceral hatred for at least one topic. I have personally never met a candidate for which this immutable truth doesn’t apply so if you genuinely like all the topics covered, please send me a message! Having said that, you know that you will be tested on all topics so you need to have at least a superficial knowledge of all the study session subjects. In other words, if you really hate economics, you can get away with not knowing how to plot the marginal cost, average total cost, average variable cost curves on a supply graph. However, you should at least know that a firm will maximize its profit at the quantity for which MR=MC.
Keep in mind that some topics are more important than others on the exam so do not waste too much time learning small details on a topic that you dislike and has less weight on the exam. Which leads us to the next strategy:
2) Rely on topic weights to guide your study time
When building your study schedule, you should devote more time towards topics that have more weight on the exam. Since all study session have similar length, you should have a deeper understanding of topics such as financial reporting and analysis than alternative investments for example.
3) Know your formulas… but do not rely too much on them
You will be surprised at how little you will use your calculator during the CFA exam. In practice questions and mock exams, there are a lot of numerical questions but on the actual exam there are relatively few and many numerical questions can be solved without a calculator if you read carefully. This means you do not have to stress if you forgot how to calculate the standard deviation of a portfolio of two stocks. Questions rarely require you to solve long equations. Sometimes, the question will lead you to believe you need to use a formula but in reality, you can easily and more time effectively solve it without.
For instance if they told you the correlation between the two stock in the portfolio is 1, you should know that there is no risk reduction through diversification and the standard deviation of the portfolio cannot be lower than the lowest stock’s standard deviation. No need to actually compute the standard deviation.
4) Take a Practice Exam in Realistic Conditions
When you take a practice exam, it is easy to “cheat” and to look at your notes or take more than 3 hours to complete the exam. If you know you will not have the discipline to respect the same parameters as the actual exam, register to a mock CFA exam in your city. I have done that once myself and it helps you be better prepared mentally. Taking a full day practice exam, free of distractions will help you see how good you are at time management. It is also helpful for those who are prone to stress. I suggest taking this practice exam in the two weeks prior to the exam so your stress level is sufficiently high to mimic the actual exam.
5) Work both on your Strengths and Weaknesses
It is a known fact that it is crucial to work on your weaknesses rather than focusing on your strengths.
When it comes to studying for the CFA exam, it is as important to study your areas of strength. Some candidate will feel overconfident in their area of expertise and will just skim through that material. The reason why you should not fall in that trap is that sometimes, the CFA Institute covers a topic differently than what you are used to. In other words, there might be some discrepancies between the way you have been taught a topic and the way the CFA teaches you. On exam day, only the CFA Institute’s way matters…
These are some of the things you should be mindful of when studying. Some extra strategies for when you actually answer questions will be offered on an upcoming post as well as the types of questions you can expect on the exam. There are a various places where you can get practice questions and mock exams but it is always good to know which patterns and question format the CFA Institute is fond of for Level 1 exam.
If you have other methods that are working for you, please share them with us!