Digging into the material & achieving excellence

Success is a relative term. We have a benchmark and we draw a conclusion whether we have outperformed or underperformed. If we have outperformed we denote it with success and on the other hand we term it as failure. Should we run behind success? I don't know. Should we run behind excellence? Definitely we should! It entirely depends upon our perspective of seeing things. We all know that Level II is way more in depth as compared to Level I. It requires a lot of understanding as well as retention. Based upon the statistics published by the CFA Institute, on an average 40% of the candidates are able to pass the exam. We must not forget that the 100% appearing have passed Level I and they are well aware of the study routine required by the exam. Yet the pass rate is surprisingly less. We can also interpret it in a way that our chances of passing the exam are 40%. What if we start not to worry about the result? What if we change the benchmark of success from the exam result to something else? What we strive for excellence in spite of striving for success? I know it isn't that much easy but I believe it has a lot of long term implications. I can recall when I came to know that I have passed Level I, the joy was much more related to the fact that I would have the opportunity to learn what I had been cramming and retaining for over 4 months. The beauty which lies with level II is that you just cannot merely rely on retaining the information somehow you've to understand it. This is the best chance we have. We have been given this opportunity to learn from the material. We need to dig ourselves into the books to extract maximum out of them. Unless we do not understand anything we should not move and try to connect things in mind what exactly is going on. Believe me the perspective would shift from just passing the exam to become excellent in what we are doing. Once the paradigm shifts, success becomes something not to be run behind off but the excellence achieved makes success follows us! Therefore dig yourself into the material and try learning the best out of them not because it will help in passing the exam but it will develop the desired skills in us which are not limited to 3rd June but for the rest of our career in finance. In this regard a technique could be to try deriving the formulas. Though it is beyond our scope but if we try we can derive formulas. For instance I had posted a few days back how RI = (ROE-r)xB0. In the similar way P/B = ROE - g / (r-g ) is derived from GGM. If we learn how it has been derived, we won't easily forget it and it will make things simple for us. Alpha as we all know is excess return over required return. I read in my notes that Hedge funds have more focus on Alpha as compared to Beta. I had read alpha in equity a lot of times but couldn't relate it that way. The line helped me out in understanding that CAPM uses Beta as the systematic risk adjusted over the market risk premium. The impact of Beta is already covered in required rate of return when calculating it from CAPM but Alpha is not covered in CAPM that is why it is the excess return over required rate of return. We have been studying Alpha & Beta in our school days together but interestingly for me they are interlinked here too. Digging into this has enabled me to easily remember this stuff and able to relate it. I don't think so I'll forget it... April is approaching and we all would be revising the material. While revising do try to interrelate things so that excellence is achieved.

Good Luck

Sunday is Funday

Before staring Level II, I had searched over the internet and came across the experience of students who had appeared in this exam. A common thing which I found in them was the burnout factor. Although the no. of students was not considerably high yet I had to believe in them as I had no other choice! They told me that burnout is something which happens especially for those who have passed Level in June and they start preparing in September/October. Interestingly they used to feel the burnout in the months of March and April. The point is how I am able to recall this. Well to put it straight...I am having a burnout!. I mean its been 6 months almost, I have been going through the readings, practice questions, examples and again readings.... The next 2 months are very critical for me and for other candidates to utilize well so that we all could perform to our optimum level. The question is what I have to do now? I have been lucky that I was able to talk and share my problem to a CFA Level III qualified student whose charter is pending. He told me that never study continuously and always take a break! At least there should be 1 day in a week when I should be doing rest and enjoying. I don't know why I liked his idea and today was the day when I applied it. Believe it or not, I am loving it... The whole day I did not read a single letter and have not allowed the 'exam charisma' to 'cherish' my mind. I have watched a couple of seasons' episodes, played the piano, and did a few other things which I used to do before enrolling myself for Level II.... Now when I am writing this post, I feel like having a fresh start from tomorrow. To cut it short, I am going to use my Sundays now onwards, except for 3rd June, as Fundays... Should you people try this thing? Well I don't know but if you do, do share your experience...

Good Luck

Motivation Pick - The Timeless Knowledge of the CFA Charter

Consolidated Income Statement Coca-Cola Company

As you can see the above is the snapshot of Consolidated Income Statement of The Coca-Cola Company for year 2010. I was going through the Form 10K when I saw the statement. It immediately reminded me of my days in Bachelors when I initially used to look at the income statements in fresh accounting and used to get shocked! Looking at them today was certainly different. I mean things have started making sense.

The consolidated statement has provided past three years data yes it makes sense as they are following USGAAP. If they had followed IFRS it would have been 2 years data.

The Net operating revenues are netted against sales returns and other accounts which are adjusted in revenues and it is again done following the standards

The operating income is core operational income of Coke whereas the interest income is against the fixed income security investments and interest expense could be against loans and debts etc. The Equity income is against the investments in other companies where significant influence exists while Coke does not presume control. For this reason the income is added in single line. Other income could be on realized gains in financial assets of other companies where coke could have investment < 20%, no control and/or influence. Yes it makes sense because I have just read it in Level II Reading 22.

The consolidated net income means that it is calculated by subtracting the accumulated expenses from the revenues of subsidiaries in which Coke presumes influence and control, added to Coke's operating revenues. Acquisition is less than 100% that is why non controlling or minority interest is netted.

Basic EPS is calculated followed by Diluted EPS which contains potential shares or options which could be exercised and 'dilute' the income by increasing the denominator i.e. No. of Shares. Since the diluted EPS is less than Basic EPS, analysts would consider this. Well not touched this in LII but it was thoroughly covered in LI.

What??? The Consolidated Income statement ended? NOPE the notes are still there and they would be explaining most of the items in the lines. I just went through it and narrated what was coming to my mind! More or less I think I have been able to go through it smoothly without a thought popping into my mind "Hey what does that mean???" which certainly makes me feel quite happy!

Motivation Pick - Senior Managing Director, Equity Research at Raymond James Ltd.

Daryl Swetlishoff was named Head of Research of Raymond James Ltd. (Canada) in 2007. Based in Vancouver, he is responsible for a group of 40 research and publishing professionals, providing equity research coverage on over 250 companies across seven industrial sectors. Daryl is also a ranked analyst covering Forest sector equities since joining the firm in 2001. Daryl holds the Chartered Financial Analyst designation, and earned a Master of Arts, Applied Economics (1995) from the University of Victoria.

Source: "http://www.raymondjames.ca/en_ca/equity_capital_markets/equity_research/analyst_profiles/"

Important tips after completing 1st Reading.

The first thing one should do after his or her initial read of the material is take at least three, three hour practice exams, grade the exams, and analyize his or her weaknesses. This is key because it will allow you to formulate an effective gameplan for review. While studying the material I recommend you highlight or mark important concepts and formulas, as well as material that you don't understand. Also, after completing practice problems, mark in the book which problems you got wrong (I marked each with a "W"), and also mark which problems you had a hard time with (I marked each with an "H"). That way when you begin reviewing you will know which problems to review. Also, after reading each chapter I rated the chapter on a scale of 1 to 5; five meaning I fully understand the concepts and will remember the material and one meaning I desperately need to review the chapter. This rating system will help you when constructing your review strategy.

After finishing each book, I would go back and reread the chapters (or parts of chapters) I marked as a "one" (remember that "one" indicates an extreme need for review). You may have the urge not to do this because after finishing an entire book you become eager to move onto the next. Fight this urge and conduct mini reviews after finishing each book. Your mini reviews may take a long time, sometimes 3 or more days, however, they will greatly help drive the concepts into your head.


It is important to note that I read these tips somewhere before I started off my preparation, noted them and followed them after I was done with my first reading. They were quite helpful & this is the sole reason why I have shared them here.

Maintaining Physical State to improve Retention

Your physical state directly affects your psychological state:

• Eating a balanced diet, avoiding alcohol, and getting good rest will keep you from getting sick and missing study time. These will also keep you happy and motivated.
• Remember to eat regularly, at least three meals a day. Your retention decreases when you’re hungry.
• Exercise as much as possible, even if only for 15 minutes a day because weight lifting and cardiovascular exercises are proven to improve memory and reduce stress (which you will have a lot of with work and studying). You can squeeze in an intense cardiovascular work out by jumping rope or running on an uphill treadmill for 15 minutes. 

Psychological and Physical Challenges of Preparing for and Taking a Large Exam

While browsing I found the below mentioned challenges which were faced by me and others whom I know, appearing in the exam with me. I have made some additions in them based upon my experience of level I and compiled them to share with you.

Studying for the exam is a major commitment and the preparation process will have a psychological effect on you. For me, the biggest difficulties were:

1. Decreased time with friends and family
2. Concern about having to take the level 1 exam again (fear of failure)
3. Burnout

Decreased time with friends and family:

One result of perusing level 1 is that the time you spend with friends and family will decrease. You’ll find yourself declining social engagements, especially during the immediate period leading up to the exam. Your friends and family may stop inviting you to things, because they feel that you will just say no anyways. You may also feel guilty for neglecting to spend time with people you normally spend time with. 

Before you begin studying for the exam I recommend you personally tell your closest friends and family about your CFA time commitment, letting them know that you won’t be able to spend as much time with them, asking them for their support, and telling them that you apologize in advance for being less accessible. By doing this your friends and family know what to expect and you will feel more comfortable about your time spent away from them.

You can find a way to spend time with your friends by inviting them to your place to do something that is not time consuming. To save time, try doing things in or around your house. By inviting your friends over they will see that although you have little free time you are still making an effort to maintain the relationship.

Concern about having to take level 1 again:
Roughly 60% of people fail the exam which means that the average test taker is more likely to fail than pass. I say this not to discourage you, but to remind you that you will need persistence and determination to pass, and that some people take the level 1 exam twice before they pass, especially if they are new to finance. Taking level 1 multiple times is not bad or embarrassing, however, you should do everything in your power to pass the first time. Remember Life is all about choices, we make them and do not look back. Moreover we fall in order to learn how to stand up. Failing the exam gives an opportunity to learn from the exam environment and revisit the mistakes. Does that mean with the fear of failure one should stop putting in effort? Never. Strive for excellence, success will automatically be achieved.

Burnout:
If your retention becomes poor, your mind drifts while studying, and you don’t feel as motivated as you used to be you might be burnt out.There is no explanation why this happens when it does, but when you become burnt out make sure to recognize it early so you don’t go for two or three weeks without fixing the problem. To fix burnout take a two or three day break, doing relaxing activities that you enjoy. Treat yourself better and try avoiding people with pessimistic ideas. Stay away from media programs which develop in you frustration. Watching an episode of a funny season or a movie can help immensely in overcoming the burnout. You can manage your routine in a way that you take some time out of your daily routine and spend that time for yourself by saving your energy. Exercise helps in developing energies while watching television or doing any other activity which involves brain consumption reduces energy levels. 

Motivation Pick - Jens Peers & Matthew Sheldon

Kleinwort Benson Investors International Ltd is a leading Dublin-based SRI firm whose principals have expertise in the fast-growing, nascent alternative energy sector, a long history of socially responsible investing, and a strong reputation in multi-cap global investing. Kleinwort Benson Investors International Ltd has one of the longest track records of any manager in alternative energy assets. The firm uses a combination of quantitative and fundamental investment processes to evaluate potential investments. Top-down views on industries, sectors, or regions act as risk controls, while a fair-value target model may be used to help determine the purchase or sale of a stock.

Jens Peers, CFA is the lead Portfolio Manager of Calvert Global Alternative Energy Fund and Calvert Global Water Fund. Mr. Peers joined KBC Bank in 1998 and KBI in 2003. He holds a Licentiate (equivalent to a master's degree) in Applied Economics from the University of Antwerp in Belgium.



Matthew Sheldon joined the Environmental Strategies team at Kleinwort Benson Investors International, Ltd. as a portfolio manager in April 2011. He has extensive specialist knowledge and experience in investing in the water sector, including both global public equities and private equity. Prior to joining the firm, Mr. Sheldon worked at Water Asset Management, where he was an Investment Analyst, and at Wedge Capital Management, where he was an Equity Analyst. Mr. Sheldon graduated summa cum laude from Tufts University with a BS in Chemical Engineering. He holds an MBA in Finance from Columbia Business School, and is a CFA charter holder.