Foreword: I don’t take credit for the strategy highlighted below. It is a combination of my personal experiences taking the CFA level 1 exam and talking with people who have been working in the CFA prep industry.
The first question you have to ask yourself when starting the Chartered Financial Analyst (CFA) program is whether you want to stop after completing level 1 or you want to finish all three levels. This is important because the way you study for level 1 affects the way you study for level 2 and 3. Are you going for a 10-miler or a full-marathon? I’ve done both, like many of you, so you can understand the difference in preparation required. Looking at table below, you quickly notice that the level I program covers all the areas and the weights are very stable. This means that if you study appropriately, you should be able to pass. Looking at levels 2 and 3, you notice the diverse range of possibilities they allow themselves to test.
| Topic Area |
Level I |
Level II |
Level III |
| Ethical and Professional Standards (total) |
15 |
10 |
10 |
| Investment Tools (total) |
50 |
30-60 |
0 |
| Corporate Finance |
8 |
5-15 |
0 |
| Economics |
10 |
5-10 |
0 |
| Financial Reporting and Analysis |
20 |
15-25 |
0 |
| Quantitative Methods |
12 |
5-10 |
0 |
| Asset Classes (total) |
30 |
35-75 |
35-45 |
| Alternative Investments |
3 |
5-15 |
5-15 |
| Derivatives |
5 |
5-15 |
5-15 |
| Equity Investments |
10 |
20-30 |
5-15 |
| Fixed Income |
12 |
5-15 |
10-20 |
| Portfolio Management and Wealth Planning (total) |
5 |
5-15 |
45-55 |
| Total |
100 |
100 |
100 |
Source
Since my goal isn’t to get everything 100% correct, I would recommend on focusing on the key areas that could help me pass, knowing that you will probably be studying persistently until the test date and by forcing the important areas up front, I’ll naturally have less time later on.
1) Financial Reporting and Analysis – This is the largest weighted area, accounting for 20% of the test
2) Quantitative Methods (QM) – This accounts for 12% but there are actually a bunch of other areas that rely on your knowledge of QM, like Fixed Income, Corporate Finance, and Equity.
3) Ethics – I really think this is a giveaway but I don’t know how to say this without making it seem like you don’t have to study for it. It isn’t common sense, but after doing a few practice questions, you can see the logic behind the questions and it becomes part of your “common sense” at least during the exam
4) Fixed Income – Low amounts of Learning Outcome Statements (LOS) but relatively high weight of 12%.
5) Corporate finance – Ties very well to fixed income and QM.
If we add up the five areas above, you get 20%+12%+15%+12%+8% for 67%. While no one knows for sure, it is estimated that getting a 70% is a safe pass for the CFA level 1. I will spend 80% of my time studying the core five areas above, and 20% of the time on the rest. I’m even tempted to totally ignore Economics (look at the total number of LOS at the end of this post you would need to know just to get 10%) if I don’t have enough time to study that.
Also understand that the CFA has grown tremendously in the last decade, something similar to top MBA programs in the past two decades. Roughly speaking, there were 10,000 people who took the CFA exam a decade ago and recently it has been around 140,000 who take it. Someone who passed the CFA a decade ago wouldn’t necessary be able to pass the CFA today.
The CFA Institute (CFAI) suggests 300 hours. Hours are often measured by quantity but not quality. I mentioned in an earlier post that I spent a few hundred hours studying for the level 1 but they weren’t quality. I went to classes and studied after work so I wasn’t going in with my mind at 100% capacity. Now I’m using a new strategy of studying on weekends only and spending the weeknights with my family.
What we know is that there are 18 study sessions, 67 readings, 559 LOS, and 240 questions on the test. That means that not every LOS will be tested because there will be multiple LOS tested per question. However, the ultimate number of LOS tested will be below 559. Take a look at the list of LOS here and you can see how overwhelming this can feel. CFA is considered a graduate level, self-study program. While some elements are graduate level, some go beyond. The concept of self-studying is tricky because you are undoubtedly better off studying with a group. That’s not to say that people cannot pass all three levels alone.
You are allotted 360 minutes for the exam, and you can therefore average 1.5 minutes per question (240 questions). The first thing NOT to do is dive in and start calculating things. The best approach is to take a “tactical pause” and figure out the best way to approach the problem- through calculation or description.
If you’ve read the original CFAI text, you realize quickly that the LOS are at the front of the chapter but the contents within the chapter aren’t organized by LOS. You almost have to have a total list of LOS and make sure what you are reading matches what you are reading. Therefore, the best thing to do is just to ignore the CFAI text, except for the Ethics volume.
Instead, I would recommend just reading the Schweser Notes and doing 4,000 practice questions. One hour of good practice questions and analyzing answers > one hour of reading. In order of precedence for studying, I would do the following:
1) Read Schweser Notes, once. Read Ethics original text once.
2) Practice questions from Schweser Notes then thousands practice questions from Schweser Q-Bank
3) Mock exams (CFAI and Schweser) in May
**FYI: I’m not getting paid by Schweser to say this, in fact I’m paying them just to get their products because I’ve found them useful
The only original CFAI text I would read is the ethics, which is the one area that I’ve done consistently well. I have to say here that ethics ≠ common sense, and ethics > the law. Remember their examples and you can’t go wrong with this section. It’s a freebie almost.
My Level 1 Status as of 1/30/2012:
Hours studied: 6.5
Practice questions taken: 0
