It is done. The Level III exam is over!
This is usually the time of year I write and reflect on all the quirks and observations of the test-takers and test-proctors from exam day, but I’m leaving for Austria in less than 24 hours so I’ve got to make this one quick.
A special thanks this year goes out to the people I consult for as a financial analyst. About a week ago, right in the middle of a cram session, the postman rang. It turned out to be a box from the SEC!
Well, actually not from the SEC, but a box of S.E.C. That’s right, Study Enhancement Cookies! Check out the note… And thanks J. and H.!
Fast-forwarding on to D-Day, the event this year was given not in the high school of the last 3 years, but the conference room of a 19-story hotel in downtown Jacksonville. So I booked a room and as luck would have it, even got a late check-out so that I could come back and chill in between the A.M. and P.M. exam sessions.
The afternoon and evening was fairly uneventful. Lots of studying and a Southwest Wrap picked up from Fresh Market. …and SEC’s. Feeling a bit fried as the evening wore on, I closed the books and turned on the tele, searching for something mindless to help my brain shift gears and get ready for Dreamtime. Unfortunately, I found…
…and watched waaaaaay too much. Great film, though I had a heck of a time finding the right volume where I could both hear The Ben Bernank‘s mumbles and not feel like everyone else was shouting. I eventually turned in and slept well. Note to future CFA candidates who’ve done time in Iraq: the simultaneous whop-whopping of emergency helicopters landing at the nearby hospital and pop-popping of Friday night fireworks just blocks away might make a case for choosing a different hotel. But whatever you may miss in sleep you can more than make up for in calories at the generous breakfast buffet (starts at 6AM and is free if you book with a certain AAA code).
The next morning I caught the elevator downstairs and was surprised to find… Well, first I was surprised to find it freezing inside so I went back upstairs and put on yesterday’s dirty shirt on top of today’s clean one. Then I returned downstairs, checked in with the proctor, and was aghast to find them sending all the candidates (I, II, and III) into the same large room. But!… but!… this was our moment to watch them watch us – the high speed, low drag, Level III big boys and girls – go off to our own special room! And now we’ve got to mix with the unwashed?!
In the end, we got our moment of recognition at the start of the test, when the proctor announced to the room of about 120 candidates that only Level I and II candidates could now open their exams and remove their answer sheets. Us 18 or so Level III’s sat motionless and stoic amid a flurry of activity. Oh yeah! No longer any doubt who the 800-lb gorillas are. Snort! Grunt!
Level III was … hard, as expected. Not overwhelmingly though. I might have passed. I logged 238 carefully recorded hours studying for this exam, and was at that magic place I always get to around exam day: feeling like I mostly know the material, but oh to just have one more week! The essay format really threw me for a loop in the beginning – I just hadn’t practiced doing it enough. My hand kept cramping during the 3 hours and multiple times I’d finish writing my answer, only to turn the page, find I’d written it in the wrong spot, and have to scratch-out and redo.
Behavioral finance and investor psychology seemed the part of Level III I glommed onto the most, perhaps just because it was new. The first “ah-ha” moment was, when going through the study material about how to profile a new client, I realized that I’m the not the Risky Risk-Taker I’ve always thought I was! Somewhat similar to the Myers-Briggs personality type, there are 4 categories you can put investors into depending upon whether they use thinking or feeling to make decisions, and whether they digest risk easily or are a bit lactose intolerant, as it were.
As much as I’d like to think I’m Individualistic, I’ll admit only to you, my friends, that after carefully reading the descriptions, I fall under Methodical. I’m always searching for new information, spread-sheeting, modeling, and using my left brain like crazy… only to remain skeptical about drawing any hard conclusions from all the work I do. The end result is that no matter how sure I may be that I’ve found a real home-run, I don’t invest more than 1% of my portfolio into any Great Idea. Anytime I work a CFA problem set about currency hedging that starts off with “Kimbo Slice, CFA thinks that the Canadian dollar is going to depreciate versus the British pound” my instant thought is “yeah Kimbo thinks, but does Kimbo know?”
(The Individualist by contrast, is not afraid to take a big bet based on their research.)
A worse insult to my ego was found in the Level III material discussing “naive” or 1/n diversification. This is where people, if they have 10 fund options to choose from for their 401k, will invest equal dollar amounts into all 10. It’s sort of the default response to being overwhelmed by the data and not having the confidence or ability to process it all and make an intelligent choice. Well… if you looked at my personal asset allocation, it’s only slightly more sophisticated. I don’t put equal dollar amounts into all options available to me, but I do mostly equal weight the major asset classes. When I have no good ideas for US equities, my money goes into RSP, not SPY, and I’ve even been known to replace a 5% VPL position with 1% each of EWJ, EWM, EWA, EWS, EWH!
Behavioral finance concepts paid me a visit on the way to the exam, as I passed through the tiny speed trap towns and saw people getting tickets for exceeding 35mph. I, and the other cars overcompensated by slowing down to 25. I had this vague hintergedanke that this was some sort of… what was it? … reverse anchoring?
At one point during the PM exam I was going back through the handful of multiple choice questions where I’d been forced to just blindly guess, as none of my answers matched any of the three choices. On one question I realized my mistake, re-worked the problem, and it turned out that my blind guess had been correct. I cursed the gods of probability, thinking that the fact I had guessed correctly here meant that I’d guessed incorrectly elsewhere, in order for the odds to work out. I had wasted a correct guess! Then it came to me… The Gambler’s Fallacy. I apologized to Fortuna and went back to work.
Passing back through the same speed traps on the way back home, we all slowed down to 25mph again. Finally it hit me and I shouted aloud to the empty car. “Not anchoring! It’s The Prudence Trap!”
The highlight of the exam, as always, was the people – even though there was little time to exchange words. I ended up sitting between Kyle and Dan, who I’ve sat next to at previous exams. And on the way out at 5PM I was stopped by someone saying “Hey, you must be Mr. Luminous Logic!”. I briefly got to meet Nathan and a pal of his from Tallahassee. Nice guys, and the first time I’ve been recognized in the wild. Every blogger’s dream…
Well, time to exchange the contents of this suitcase with something a little more akin to a European vacation. And time to get this house ship-shape for the house sitters. I won’t include pictures of the mess it’s in! My wife already flew over a week ago, so conditions on the ground here have, as they say during hurricane season on The Weather Channel, deteriorated rapidly.
Best of luck to everyone and please let me know how you did!