Fahd Niaz continues with his series on CFA preparation. If you want to see his earlier post please see his guide on CFA L1 preparation.
Don’t be surprised if this is your reaction when you start preparing for Level II of the CFA exam. You may get the feeling that the CFA Institute has lured you in with a relatively straightforward Level I and then dropped the hammer on Level II. There is some truth to the popular notion that Level II is the toughest of all three. Personally, I found the course of Level II to be the most demanding, however the paper of Level III was much more brutal (but we’ll get to that later). Candidates will be living in a fool’s paradise if they intend on following a similar studying tactic as Level I (or even choose to throw in an extra 20-30% effort). This can the turning point of the program and it separates the men from the boys.
An IMPORTANT DISCLAIMER before we go ahead – these study methods are based on what I followed and may not be suited for every individual. The aim is to provide an outside advice on how to approach the exams, but the final word rests with you.
To start off, I’ll reiterate my advice that candidates should try not to jump the gun in the first review. Ignorance can indeed be a bliss and sometimes it’s better not knowing what lies ahead. The item set format introduced in Level II takes some time to get used to. While the paper will still be multiple-choice, the number of questions will be half, implying that you’ll need twice the amount of time to attempt one question. I opted to study from the curriculum and in hindsight it turned out to be the right choice. While you can always use Schweser for the CFA exam, I would highly recommend that wherever possible, try leaning more towards the curriculum as Schweser may not go into the same depth as required.
Be prepared to tackle another obstacle relating to the order in which the item sets appear. Gone are the days when you knew which questions (read bazooka) would be fired at you first. The topic weights are in fact ranges, and there is no prescribed order in which the topics will be tested. So if you were planning on ignoring some lower weight areas (like you did with Derivatives or Alternative Investments in Level I), I’d suggest scrapping that idea immediately.
The buzzword for the Level II course is ‘Valuation’. You will be learning to apply many valuation techniques across different asset classes. Equity & Financial Reporting can potentially make up 55% of your total marks. Needless to say that these, along with Ethics, deserve greatest attention. The Code & Standards reappear here, so if you’ve aced them at Level I, that should boost your confidence. Few readings in Financial Reporting & Derivatives may seem repetitive, but they are in much more detail. Fixed Income can be tricky, particularly structured products and their various categories and characteristics. Portfolio Management will start to offer you a glimpse for what awaits you at Level III.
I would suggest writing out the calculations rather than performing them in your head. This will not only train your fingers on the calculator but also save you precious time on the paper as formulas can be complex (particularly Derivatives & Equity). So be ready for some serious number crunching. For remembering the formulas, flash cards always come in handy.
Befriend the practice exams as simple reading is not going to cut it. The volume of content is huge and the only way to retain so much is to constantly exercise your brain muscles to do exactly what you want it to do on exam day. If you’re attempting practice exams in April or so, the score should not worry you as there’s still a window for improvement. The point of attempting ten item-sets over three hours gets you in the groove of having to recall the entire course in one sitting.
There’s a plus point here as well – the more you practice, you can start to visualize a pattern while reading the vignette. You can end up anticipating which type of question will be asked, before reading the question.
Candidates can have a common (and genuine concern) over whether to read the item set first or the questions? Unfortunately, no one can help you there. It’s best to try both ways and see what works for you.
My approach in the last two weeks stays the same – start wrapping up and reduce the study hours as each day progresses. Don’t worry, your brain will not magically forget how to attempt the questions! One final piece of advice – under NO circumstances should you try to GAME the exam. This means that you should not waste your time pondering over which topics/questions can be tested based on some fancy regression model that you may have run or through an in-depth analysis of mock and sample exam patterns. Please refrain from calculating the chances of whether a newly included reading will be tested this year or not.
On exam day, you already know what to expect. I went into the paper blind and came out even more dumbfounded. Majority of the candidates can feel that way, so don’t beat yourself up if you’re in that list.