Level Two Study Strategy

For a chronological index of my path to the CFA, click here.

Well it’s been about a month since I began studying for Level II so I thought I should check in. Am having great difficulty averaging an hour of study time per day, how about you?

“We candidates are parcels of vain strivings,
Tied by chance and a set of six volumes together.
The mass of us lead lives of quiet desperation.
What is called ‘program registration’ is confirmed desperation.”

– Henry David Thoreau, CFA (expected 2010) –


I got a question from a reader about whether I’m preparing for Level II the same way I did for Level I. Mostly I am, not only because it worked for Level I, but also because a similar approach proved golden during my years as an engineering student.

The strategy’s focus is primarily on working problems, ad infinitum, until test day. However, you do need to be somewhat familiar with the theory first. So we do a little reading up front, followed by a LOT of problem-working later on.


Confirmed Desperation

So here’s my battle-hardened strategy, updated for Level II based on lessons learned from Level I:

Step #1: Read all chapters of all volumes, quickly & sequentially
It certainly makes sense to read a particular study volume’s chapters in order (with many chapters building upon previous ones), but why also proceed through the six volumes sequentially? Because if I don’t, I risk covering all the fun, easy volumes in the beginning and saving all the hard, boring stuff until the very end – when I’m already fighting burnout. I skip all sections marked “optional” though. It bothers me to do this but time is finite and we must choose our battles.

Step #2: Work all problems once
While reading the chapters (Step #1) one occasionally comes across practice problems. Sometimes it’s a single example problem in the middle of a chapter – sometimes a whole set of problems at the end. Regardless, I stop reading and take the time to work each problem I encounter. If I miss it, I review the solution and continue on without dallying. Like a shark, I must keep moving or die (work with me! work with me!) and the point of Steps #1 and #2 is to make sure that I’ve read every page and worked every problem at least once before test day. In reality, that won’t be enough to pass, so…

Step #3: Upon completion, randomize and re-work
So I’ve now read 3000+ pages and worked 1000+ problems. But it’s taken months to complete so a good portion of what I’ve learned has leaked out of the neurons and is floating off-radar in the dark synaptic void. My focus now is to re-work as many of those problems as possible until test day as this is what really helps burn to disk. But while I’m still going to work each chapter’s problems sequentially, I’m going to proceed through the chapters themselves in random order. The randomization serves to (a) make sure I’m reviewing all 6 volumes simultaneously ergo keeping it all fresh and (b) mix some fun, easy material in with the hard – mitigating monotony and maximizing morale, thus mastering the myriad.

Step #4: Mind the Gaps, or Learning Outcome Statements
Not every chapter has a set of problems at the end. And here’s something I only discovered days before the Level I test: even for chapters that do have problem sets, not all the LOS’s are always covered in the problems. So when I’ve just finished working all the exercises from a random chapter, I review the LOS’s at the beginning and re-read parts of the chapter if necessary to fill gaps.

Well that just about covers my main topic. Don’t want this post to be too long, but I am nearing the end of Volume I so I’ll give a very quick list of impressions.

Volume I has 3 topics in one study guide: Ethics, Quantitative Methods, and Economics.

Volume I, Part I: Ethics
At first seemed like just a review of Level I, along with some additional examples to drive the points home. But then there were some new areas regarding sneaky-sneaky things I would never dream of doing! One is charging clients for purchased analyst reports that you don’t even use in managing their account. Other unethical evil-doers may bill a client for the chair that they sit in while managing his portfolio! Actually, it was all news to me that any of these costs could ever be passed on to a client. I thought almost all fees were based on a small % of the value of assets under management. You mean the client could also pay the tax, tag, and title for the car I use to get to work to manage his account? Ah well, it seems that’s against the CFA rules too…

Volume I, Part II: Quantitative Methods
The one hintergedanke that was omnipresent while proceeding through this stuff was that this seemed pretty advanced for those candidates coming from a business background. Do they teach you about wide-sense-stationary random processes in business school? Multiple variable linear regression? Time series forecasting? There was a lot packed in here and I was just thankful that not all of it was new due to my signal processing background. Certainly a CFA can help engineers cross over into a business career. But if Level III’s quantitative sections are any more deep, the CFA may also be a good starting point for business majors wanting to break into engineering…

Volume I, Part III: Economics
Still haven’t learned to like economics. I find the reading somewhat interesting, especially the ones that attempt to prove once and for all which sides of some very political issues are the correct sides. My all-time, jaw-dropping-open favorite has to be the one on page 506 arguing against international trade restrictions:


Poor countries have a comparative advantage at doing “dirty” work, which helps rich countries to achieve higher environmental standards than they otherwise could.”

Well it’s just win-win for everybody, huh?! Apparently you can either be an economist or a member of Amnesty International, but not both.

But apart from getting shocking free-market arguments to try out against leftward-leaning dinner guests, the bottom line of the econ sections is that I just don’t seem to learn anything I can actually use in making day-to-day portfolio decisions. It appears hard for the authors to draw many airtight conclusions either as evidenced by the lack of any problem sets at the end of many economics chapters!

Ah well, back to the books. Also look for a facelift of this site coming soon if all goes well. It’s just starting to feel too Web 1.0 …

For a chronological index of my path to the CFA, click here.

10 thoughts on “Level Two Study Strategy”

  1. Good job on the progress Luminous: I apparently followed the wrong approach and went after the easiest stuff first. the hard stuff is so hard, its getting mindboggling numb. top on the list is Alternative asset valuation, Fixed Income, Derivatives.

    Not even a single Lesson is easy so i can do it in a piecemeal way. oh well. back to battle !!

    If you change your mind about trying to finish easy stuff first, start like this.
    1) Corporate Finance
    2) Equities
    3) FSA

    rest is all drudgery !!

  2. “Do they teach you about wide-sense-stationary random processes in business school?”
    – No, not yet at least.

    “Multiple variable linear regression?”
    – Oh yes.

    “Time series forecasting?”
    – Oh yes.

  3. Drymartini – thanks for the breakdown! I don’t know if it’s because I’m often studying this stuff at 3:00AM (nuit d’insomnie) or that they’ve ratcheted up the difficulty, but Level II seems quite a bit harder than Level I.

    Amanda – wow! Of course my next question is… did you just happen to go to a top business school?! I guess engineers like to think we’re the only people who understand how to do more than add & subtract, but that just isn’t true. And as for stationarity, well that just means that the distribution, mean, & variance don’t change over time…

    – Lumilog

  4. Harry Truman once said, “Give me a one-handed economist! All of my economists say on the one hand…but on the other hand….”

    Wow, you’re really dedicated. I started in October, 2007 and managed to go through the Schweser books 3 times, so I’m sure you’re going to top that by quite a bit. Just watch the burn out. By about April, I could do everything in my sleep, but I was sick of the whole curriculum.

  5. I forgot about everything in Level I ! maybe all equations. Do I need to review it to start studying Level II? or whats the deal?.. did you review first, and how is it ?

  6. Patrick – good to hear from you. I’ve started early but am only doing about an hour a day. Level II seems quite a bit more challenging – might need Schweser after all…

    Momo – My Level I books haven’t been touched since the eve before the Level I test. My understanding is that everything we need to know for the L2 test is in the L2 study guides.

    – Lumilog

  7. My business school is good, but not renowned by any stretch of the imagination. I have learned about multiple variable linear regression in Statistics, Business Statistics, and Operations Management, and time series forecasting in Operations Management. All of those classes are pretty standard for any business degree.

  8. I went to business school for my undergrad, not a top-of-the-line school by any stretch of the imagination but delved into time-series forecasting and multiple variable linear regression in an econometrics course I took; not a required course but quite exciting in kind of a weird way! Best of luck in studying for Level II; I plan to start studying very soon for the June ’09 Level II test myself….

  9. Bob & Amanda – Well I stand corrected on my preconceived ideas about what is & isn’t taught in the business major. Since I encountered Time Value of Money in my engineering classes there’s no reason why you shouldn’t see regression & TSF over in your camp.

    Good luck on the studying Bob!

    – Lumilog

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