Stochastic Thoughts

No single theme today – just a collection of random topics…

(1) About the 18 lbs. (6 volumes) of study guides…
A good portion (28%) of the 1st study guide is not material you have to memorize (appendix, index, & answer key). Assuming this is also the case with the other volumes, when you look at your study guides and feel overwhelmed, think “it’s more like 4.3 volumes or 13 lbs.”

But if anyone says they’ve heard that the CFA program you’re studying for is rigorous, be sure to hand them all 6 volumes at once and say “Yes! I have to learn all this!” 😉

(2) About the pace of study…
I don’t know about you other candidates but my pace through this material has been quite slow.

Massage Chair

I’m currently on pg. 362 of Vol. 1 after 40 days of studying “whenever I have free time”. And this has included trips through material I thought I was somewhat already familiar with.

So if things continue at the current pace, I’d predict that I will end up making it through all 6 study guides once before the June 2008 exam, but once probably won’t be sufficient to retain enough to pass the exam. 🙁

Obviously I need to see what I can do to change this. For those of you who have written saying that you’ve received your prep materials and are planning to start studying on January 1st, let me strongly urge you to start today. The material isn’t necessarily hard, just voluminous.

(3) About memorization…
Like it or not, the study guides often do not include derivations of important mathematical formulae. I don’t have the best memory so in my engineering courses I usually relied on being able to re-derive formulae as needed. That’s not going to work for the CFA…

(4) About the purpose of a business…
Lest you think the purpose of a company is to make a little money while at the same time providing safe & secure jobs, health insurance, and pension plans for employees, and taking care of customers and the environment, the CFA study guide doesn’t mince words!

“…we take the maximization of shareholder wealth to be a basic financial objective of a company…”
– Vol. 1, pg. 220

OK… So they did say a basic objective, not the. And they also clarified that they’re talking about financial objectives, not raison d’être.

Sometimes I get carried away…

(5) About the definition of a business…
I love the idea presented in Vol. 1 that a business is essentially an investment portfolio. And instead of it being a portfolio of stocks & bonds, it is a portfolio of projects.

An investor may add a security to his portfolio if the expected returns are above the risk-free rate. Similarly, a business can use discount cash flow analysis to determine whether to add a certain project to its portfolio based on the project’s estimated net present value (NPV).

I really have to wonder if this sort of logical approach was used in some of the places I’ve worked. Some seemed to be a collection of science projects instead of a portfolio of investment vehicles…

(6) About the road ahead…
And what’s that I see starting on pg. 503 of Vol. 1? A section on Technical Analysis?!? I’d been led to believe that, like reincarnation, the efficacy of TA is something that no one has been able to ultimately either prove or refute.

Though I personally find the subject fascinating and continue to dabble in it, I must admit to being suprised to see a (thin) section devoted to it in the CFA program. Somewhere I’ve gotten the impression that 99% of “serious” investors thought this stuff was voodoo.

This is the last section in Vol. 1 and one that I’m really looking forward to, though it may just turn out to be a case of “know thine enemy”.

11 thoughts on “Stochastic Thoughts”

  1. Welcome to the chamber of horrors, Nick. 🙂 Actually, I hope you enjoy it as much as I am…


  2. About the pace of study:

    Sounds weird but for me the amount of material is why I wait until January. I just feel that material learned in October will be forgotten by June. This gives me enough time to read the assigned material, read the schweser study notes, do the practice questions in the schweser notes (but don’t circle answers in the book). Then write notes on the study notes, for that i like to write really small like a cheat sheet…or actually it comes out to be about 30 sheet sheets. I feel having it all together helps to keep the big picture in mind. I try to get this completed in about 18 weeks and have 4 weeks to spare. as i am doing that i may do some of the questions again. Then I take notes from my cheat sheet notes. Then I take notes on those notes. During that time going back again and doing some more practice questions. I actually end up with just a few pages of notes. I study my final notes, and finally take the 3 Shweser practice 6 hour exams. if i get over 70% i feel pretty good.

    I never tracked my study hours but thinking back it seems I would study at least 20 hours per week for 22 weeks, so that would be like 440 hours. I am lucky to have a job that requires no more than 40-44 hours a week. I dont have any kids, the first exam broke up my relationship, women are for June-Dec 🙂 I really don’t see how any one with kids etc could spend that kind of time. But i also don’t see how i could have passed without spending that amount of time.

    By going over it again and again to take the notes it is all pretty fresh in my head on exam day. I am not recommending this method. Just saying it has worked for me for level I and II. Everyone is different. Some won’t need to spend nearly this much time. Some may not be successful studying in this way. But i do believe you have to have some process of condensing the material. The material has to be ‘studied’ and practiced not just learned. CFA knows that the material is not rocket science. That is why the exams are timed and they put little twists in the questions. The material has to be memorized and mastered.

    Level III, being essay, made need a new method. If there is anyone on here that has already sat for level III i would appreciate any advice. Good luck to all.

    sorry so long winded 🙂

  3. Thanks for sharing your approach Mick. It sounds like a great one & has obviously served you well (Level III – wow – we’re not worthy, we’re not worthy!)

    Your comment on forgetting things if you study them too early makes sense. I am planning on going through the practice questions again and again (never writing in the book, like you) as this sort of approach was the key to my passing my engineering courses in college.

    I haven’t looked into Schweser yet but more & more people are telling me I should…


  4. I just found your blog. Good luck with this. I”m also a dilletante at the getting progressively interested stage for I suppose interest and personal reasons. I’ve got a wife and young baby and my babies actually playing wth one of the computer cords now so I think this would be very hard for me for studying. I did manage to take out the new 2007 CFA institute Mcmillan book on Quantitative Analysis (new 4 book series published) and this material is really interesting. If you do come across any online prep courses, please tell me as I’d love to take something like this (the 18lbs of books sounds kind of daunting) for the exam. I suppose though its all about the application though and your ability to allocate at the end, quality of returns. I did also take an excellent course on the analysis and valuation of stocks (ed2go). If you come across any of these also write about it. I’m also curious if its hard to make the transition into this without the right finance/accounting degree. I’m a tech guy myself but would love to be transitioning to this but I suppose the first steps are beginning to work (part time) if you have a full time job elsewhere in finance but how! Well, keep up the studying!

  5. Hi Ray,

    Thanks for the comments! There are a number of excellent resources for learning more about investing. In the end, I wanted a formal curriculum to follow to make sure I wasn’t leaving out any important areas – hence my choosing the CFA program.

    As far as the ease with which one can transition from tech to finance, my understanding is that it really depends upon what type of work you’re looking for. Quant positions seem to prefer engineering / math / stats background over business, believe it or not.

    Sounds like you’re fairly self-motivated with what you’ve already pursued on your own. Might make sense to go for the CFA designation. As long as the cost of the program isn’t prohibitive, I don’t see that there’s much to lose. At best, you get a certification that represents your dedication and interest in the field, which can open doors. At worse, you probably at least do a better job at managing your 401k or IRA over the years – potentially saving you thousands.

    At least that was my rationale!


  6. I completely agree with your sentiments here Lumilog and I wish you the best. I hope you try to keep track of some of the insights you come across as this can help other people and I know from experience sometimes you only pass through certain cognitive landscapes once! Keep up the great work!

  7. Thanks for the website. I’m interested in the CFA program for personal reasons, not for a job change. Not sure I have the interest to follow through with all three sections but I’m interested. I’m going to try and follow your experience and see if I’m interested for next year.

    My experience in massive exams like this is that you need to review all material three times and the first time through you need to prioritize what you need to study the most. I took a 13 hour exam a few years ago on tax and the key for me was hitting the most important stuff a minimum of 3x (I hit the hardest 10% a fourth time). For the practice tests I’d highlight the questions I get wrong (or guess) and make sure those are all reviewed throughly the month prior to the exam.

  8. I’m sitting level III in June. I’ve got a similar engineering background. I flunked level I the first time using the CFA materials. I found myself not being able to get through all the material. I used Schweser for level I (second time) and level II and passed both times. The reality is that the books from the CFA institute are packed with all kinds of things that an engineer wants to know inside and out and that I would argue would make a great charterholder. Unfortunately, the institute doesn’t test you that way. I remember spending 20 minutes on an problems from the books and then finding myself in an exam where I’ve got 2 minutes per question. I derived no value from the 20 minute exercises. You’ll just be hit by factoids and simple robotic, punch in the calculator type problems. The more of these you can do, the better.

    Your time value of money thing boils down to a couple of scenarios and knowing how to use your calculator(remember, 2 minute problems). It would be nice to build it up from first principals but you have to find space in your head to remember Chevichev’s rule.

    Good Luck,


  9. Thanks for the comments & suggestions everyone. You’ve given me a lot of food for thought for a longer blog entry rather than just a short comment here so I’ll save my thoughts till then.


  10. Hi,

    I’ve just decided that i want to do my CFA level 1 and am all set for it, but have not yet applies for the curriculum or paid for the exam. Since i intend to do that tomorrow, i will probably get the material by February, and i’m really stressed. I’m worried ill lose this year if i don’t manage to give the exam well. since iv graduated in Finance, with a three year degree course ( from India), i dont even know how to go about applying for the curriculum. Needless to say, i feel incredibly stupid. Please help me out. I know you must be terribly busy studying.. but i really am worried.

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