The Broader Picture vs Details

Throughout my preparation for Level II, I was of the impression that it is totally different than Level I in terms of understanding, depth and testing. After going through the exam I realized LII is different in terms of understanding and depth but in a lot of areas I had found the testing to be more or less on the same path. I don't know how true I am in exclaiming this but this is exactly my impression. Understanding the broader picture is undoubtedly necessary but it is also deceiving in terms of exams point of view. For instance I spent a lot of time in understanding and solving fairly detailed examples forgetting that an MCQ has three options and we have around 3 minutes to solve it. Steps which are involved in broader applications need to be understand fairly and can be tested in the exam. Like in translating the whole Financial Statements in Multi National Operations using Temporal or All current method several steps were involved. Considering the examples provided in the chapter I went through the whole process but lately I realized that the whole situation is less likely to be tested as compared to individual steps like how to translate revenues, COGS etc. or how using one method is different that other in terms of ratio analysis and so on. Trying to grasp the whole topic may lead one, as what happened with me initially, not to remember and recall individual steps which have the potential to be tested. I am not stating to let go off the broader picture and cram the steps but understanding as well as making ourselves comfortable with details is important. Thanks to curriculum notes I used, had separated the details and highlighted them in boxes which could be digested easily. Precisely talking about the exam it is very important to stay focused on details and steps which could be tested along with proper understanding of the topics particularly in all major areas.

1st Mock - 4th June 2012

The purpose of appearing in a mock today, month before the exam, was to better gauge myself for the areas which I require more attention and converged focus. Initially I was scared because I wasn't prepared up to the mark but considering the objective of the test I decided to take it as a challenge and put in my best. During those hours I was in a state of dilemma. Compared to Level I certain areas were lightly touched which was pretty helping but that affected adversely in a way that the likelihood of performing well reduced 50%. As in Level I there were 240 questions and in Level II they are 120. Only 1 item set of Ethics in the morning section was indeed encouraging but scoring 5 out of 6 would yield above 70% marks. This was particularly which I lacked in. I mean I did score 62% marks overall which are really encouraging for someone who has 1 month to go and could revise the syllabus multiple times especially when 'equipped' with Curriculum Notes (FinQuiz), as 370 pages and the whole curriculum revised... The thing which I realized heavily today was not getting confident by correcting 3 questions in a row out of 6 in an item set. The rest 3 hold immense importance and being able to correct 5 will certainly yield favourable results. In Equity, FRA, Corporate Finance there is a chance and relatively in these areas the likelihood of correcting most questions is high. A part from that Fixed Income & Ethics also have 2,2 item sets each in both sessions we can score well in them. The rest can be of 1,1 item set. Scoring 4 out of 6 can work well. Any how, to sum up, the experience went well. Precision and Accuracy is required a long with the ability to recall the formulas, concepts timely in the exam. Time wasn't the issue today but doing the question correctly was certainly an issue. The next mock in which I am appearing is 2 weeks ahead. Today's experience has given me a roadmap and have highlighted the areas in which I lack. I hope I'll be able to cope them and perform well in the next mock.

Good Luck!

Poll Result - No. of Mocks for Level II

Hi. Below is the graphical representation of the poll result which I posted over my bog. 34 candidates have taken part in this poll. Although most of the participants have said that at least 3 mocks are necessary. Based on these results I have decided to appear in 3 mocks.

Reading 20,21 FRA Impact on several Ratios

Impacts on profitability, liquidity, activity and solvency ratios of finance lease, operating lease, inventory write downs, choice of inventory valuation etc. can be tested highly. While doing the chapter end questions of Reading 20 and 21 (Study Session 5) I encountered several questions framed on ratios. I was having a trouble in solving them but when I sketched in my mind the impact of any accounting choice to the numerator and denominator of the ratios and then tried to figure out the effects, my answers started getting correct. Another important aspect in that regard was the effect of adding the same amount to the numerator and to the denominator. Suppose a company has off balance sheet lease arrangements (operating lease) if it had classified it as finance lease the liabilities to total assets ratio would be higher or lower? This was interesting as the same amount will be added to the asset base and a liability equal to the PV of lease obligation would be created. The numerator and the denominator of the liabilities to total assets ratio will increase with the same amount. This will result in decreasing the ratio not increasing it. The answer therefore is lower. Such concepts, which are present in the chapter end questions, can be tested in the exam. I have made myself comfortable with them today and I hope when I'll be encountered with any question like this, I would be able to connect it with what I experienced today.

Cross Over Rates - Using Algebraic Expressions to make the calculation easier.

I figured out that using algebraic expression to calculate cross over rate makes it easier.

For instance you want to calculate AUD:PKR and you have US:AUD and US:PKR the expression would be

AUD:PKR = AUD:US x US:PK

It can also be written as

AUD/PKR = AUD/US x US/PKR

We have been given with US:AUD and we require AUD:US so inverse that and then multiply it with US:PKR to get AUD:PKR

It becomes quite simple and easy to remember using the algebraic expressions. Easy to remember and easy to apply!

LOS Command Words

Exam is approaching and only 65 days are left. We must be completed with the first reading within next few weeks so that we are left with ample time to revise the syllabus at least once before appearing into mocks. It will enable us to highlight our strengths and weaknesses and plan accordingly. This is the time to read the material with exams perspective. Since exam is designed in a way that the LOS are tested, we must have an overview of the command words so that we could figure out what the CFA Institute is demanding from us regarding a particular topic. As mentioned earlier this is the time to focus more on the material with exams perspective as compared to complete and in depth understanding considering every dimension... Below is the link to LOS Command words I think you all should go through those to better gauge what exactly the CFA Insitute wants us to be equipped for on the exam day.

http://www.cfainstitute.org/Documents/cfa_and_cipm_los_command_words.pdf

Good Luck.

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

15th April 2012 - Ideal time for completing the syllabus?

Compared to Level I, Level II is not only in depth but also tricky. In 6 hours we had to solve 240 questions in Level I but despite the fact that the time is same for Level II, the questions are one half to what they were in Level I. It clearly implies that the difficulty level is way more. I think 15th April should be the deadline in our minds to complete all areas and start revising them afterwards. There are certain areas which require reinforcement and I think based upon the weight-age, it would be wise to not spend so much time on less weighted areas. In Level I, I was able to get above 70 in all areas but does that mean I need to strive for it again? I don't think so. FRA, Equity, Ethics, Corporate Finance and Fixed Income make considerable part of the exam and we should try to score maximum in these areas. The rest, its better even if we score between 50 to 70 in them. I think if I would be done with the whole readings till 15th April, I would have ample time to revise the major areas multiple times and focus relatively less on the other areas which are not important with exam's perspective. What makes me feel this is the right strategy? Well primarily having a talk with several Level III candidates who passed Level II in first attempt and with those who are done with all the three levels. 

Residual Income - An important point to ponder

The formula is pretty straight forward:

RI(t) = E(t) - rB(t-1)

RI(t) = Residual Income at t
E(t) = Earnings at t
r = required rate of return on equity
B(t-1) = Ending Book value at t-1 or Beginning book value at t

The Earning is expected for the next year but the book value is current. This is an important point but I don't know why I was skipping it continuously. While calculating the residual income for several years I was also projecting the book value but I repeated this mistake multiple times that the book value I took to calculate RI was ending not the beginning at time t which made several of my questions wrong. In few questions an option was also there which reflected the number calculated using ending book value at time t. It implies that the question designer had this thing in mind that the candidates can make this mistake. This is an important point which I learned, thought to share it with you guys. 

Converging your Energies - An importing tip to enhance performance

Jack of all trades master of none, I feel is a statement which negates the ability of people having multiple skills. But if we apply it on doing multiple tasks at the same time and then expecting every task to be up to the mark then this statement holds substance. Concentration is an extremely important ingredient in effective learning. All other efforts go in vain when desired level of concentration is not there. Particularly in Level II after experiencing the depth of concepts, I can assure you that concentration while reading is inevitable. A common problem while reading is that rapid thoughts come into the mind and we are distracted from what we are primarily doing. This has been an issue for me when I was doing O'level and A'level. Realizing it as the biggest hurdle in making me improve my learning abilities I somehow learned to converge my energies and restrict those thoughts from entering in to my mind while reading. It is more like a fight which you need to initiate and restrict those rapid thoughts. The moment you are able to control these thoughts and ideas bumping in, you are in a position to manage yourself up and converge your energies on what you are doing. Changing the attitude towards things is a must in this regard. We need to decide whether we want to do one work at a time or do multiple works at the same time and try completing them simultaneously. This is the first decision which we have to make. A simple test to check our 'default status' in this regard, is to see how many tabs we open, while using internet browser, at the same time. I can recall I used to initially open 4,5 tabs simultaneously and when one page used to load I remember switching to the other tab and in this way I wanted to  manage multiple tabs at the same time. I realized that this was exactly the same happening to me while reading. I used to finish a line and then start thinking of something else and after that return to the same paragraph and read another line. It took me some time to control myself and focus on one thing at one point of time. This has resulted in a way that I have made myself organized and I try doing one work at a time in the best possible way. I think you should also give it a try and first test yourself how many tabs do you open and gradually limit them up by prioritizing in them. Soon this behaviour would replicate in your studies and you'll see how your performance improves.

Remembering the Formulae.

In Level I, I used to re-read the material in order to remember the formulas. Used mnemonics in case of Ethics and other areas so that I could remember important key terms and other relations. This thing is not working that well in Level II probably due to immensely excessive material as compared to Level I. I heard some one saying that he used to remember the formulas by taking a snapshot of them in his mind and then recalling that picture again and again to not forget. I have tried this and it has helped me a bit but the thing which I did only once was reading, remembering and re-writing the formulae again and again to make myself comfortable with them, which proved productive. For Free Cash Flow valuations and arriving at FCFF or FCFE starting from NI, EBIDTA, EBIT, or CFO, plenty of formulae are involved which need to be remembered. I am going to try remembering them all through re-writing them. I hope it will be productive. You should also try this....

Problem Solving vs Auditing - An important aspect which can add value.

There is considerable difference between solving the problems and auditing them. Usually when I am looking at the examples of curriculum, after reading the statement I immediately look at the solution to check the answer and pamper myself that how simple and logical is the answer, obviously this is the way it should be done. Does that really serve my cause? The answer is clearly NO. I don't know what exactly you guys would be doing but for sure if you are doing Equity, FSA, Corporate Finance, Derivatives or any other areas which require calculations and trickiness, I believe the 'justified' behaviour would be to solve those examples and chapter end questions without referring to the answers immediately. Unless the 'brain machinery' utilizes its self on the problem and figuring out its correct answer, the purpose of learning does not serve! I did this for Derivatives especially in swaps and I am doing this on Reading 39 and 40 (at present) of Equity to make myself comfortable with the concepts. I hope it will help you out. 

Equity - Some important Learnings

Like the progress thermometer states now a days I am preparing Equity. It is a major area of Level II and multiple item sets are expected in the exam. Reading 39,40,41 are related to calculations. Topics which involve formulas and calculations, it is my shortcoming that I focus more on them and oversee the minute details which could be tested. For instance in Reading 39 the benchmarks which have been explained regarding when to use DDM, GGM, Free Cash flow models and Residual income models are very important with exams perspective. While doing practice questions today I experienced questions framed on which valuation model to use was asked. Thanks to my curriculum notes where such important points are highlighted in the form of bullet points so that I can easily remember and apply them.. What I wanted to share was that do consider the points that when an analyst should use Dividend Discount Model, when to use Gordon Growth Model, Free Cash Flow models and when to use Residual Income models etc. While reading the vignette try thinking critically on points which could help in shaping up the story. For instance if the purpose is to have minority interest in any company and valuation is required them DDM is preferred etc. This is an important thing which I learned today and I hope it will help you out. 

Appearing in a Test - Q&A with Myself!

Let me ask myself some questions and then answer them accordingly.

1. What areas were tested?

Corporate Finance & 1st 6 readings of Equity

2. How much time was allowed?

2 hour and 10 minutes

3. Was time an issue?

Well no, I was able to easily complete in 1 hour and 50 minutes

4. Was the test difficult?

Not that much but it seemed tricky in some parts. On Avg. 3-4 questions in 1 item set were easy and 2-3 were difficult & tricky.

5. How much did you score?

In Corporate Finance I got above 70% and in Equity I got 60%

6. Why you were not able to score above 70 in Equity?

Well I had only given one reading to the material plus the test was lengthy and I gave it at night. My energy level was not that much while solving Equity part as I did Corporate Finance 1st.

7. Is maintaining the energy level required?

Definitely YES! I mean it is the most important thing.

8. How do you classify your mistakes?
A few are silly and some are related to tricks. The silly ones are probably due to freaking out in the last moments.

9. How the test would make you prepare better?

It has given me confidence that if after first reading I can secure 60% marks in Equity it means that before the exam when I would have repeated the weak areas multiple times, I would be in a much better position and that confidence can help me perform better in the exam.

10. What is the major learning through the test?

Maintain the energy level and be careful in reading the question with concentration to eliminate blunders. 

11. What you are going to do with the weak areas?
I am going refer them to the study material, read from there and review the areas so that I may not commit those mistakes again. 

Mistakes - Excellent opportunity to learn

While doing Finquiz questions of equity, I made a lot of mistakes. The good thing was I game more than average time on reviewing the questions. This was particularly because I was getting a chance to rectify my self and reinforce my learning as they provided me an opportunity to learn. The question which took place in my mind was related to my 'pleased' attitude towards mistakes. I mean in order to learn from the mistakes you need to make them! Is it always advisable to make mistakes? Certainly not in the exam... This precisely what I was informing myself against my normal attitude. Ideally I should have scolded myself of not getting the topic but I was exploring my mistakes to learn from them with default peace of mind!

Lately I figured out that may be it is not the right time to scold myself for making mistakes. I mean it is February going on and plenty of days are left before 3rd June (exam date). The way I am heading towards the syllabus, it would end by the first week of April and my first mock is scheduled in mid May. If in May I make mistakes then it will be alarming but for today, and till I complete my first reading, exploring the wrong answers that why they are wrong is the right choice whereas in May while doing plenty of chapter end questions, item sets and mocks asking myself why I choose the wrong answer would be the right choice!

Key Skills for Job in Investment Banking

Are these things in me? This exactly what I was thinking while watching this video.

Has Studying Position anything to do with Concentration?

I don't exactly know whether position matters in studying or not but today I experienced a different thing. My favourite place to study is my bed. As winters are going across this region, studying in a cosy bed is mind blowing. Sometimes I switch to a more 'formal' position and sit on the study table and keep going. Today out of no where I decided to stand still and place the book on a table, more like a dais, and continue the chapter Industrial Analysis. While reading the chapter in a 'new position' I was mesmerized to experience my level of concentration. Normally I study in chunks of 20 mins with going through every line, giving a pause and trying to figure out whether its making sense or not but today I was able to continue this process for 35 minutes and with more focused energies and productivity. I might be unfair in connecting the effect immediately with this cause but this is something which I am definitely gonna try again to figure out. Though while preparing for Level II especially when few months are left before the exam, it would not be wise to search for this phenomenon over the internet and 'explore' the connection between level of concentration and the studying position but I can opt for trying it again and again for next few days to gauge my concentration level. For me its not only exciting but like a positive progress that in next few days I might experience advancement in my learning capability and I hope it would have direct implications on my efficiency and effectiveness. Do try this and share your experience. 

An Introduction To Psychometric Tests - Video Tutorial

Solving Exams based on Psychometric Testing (Last Part)

The test itself

·                    Listen to and read the instructions carefully.  If you are unclear about something, ask. 

·                    You will be given time to read the instructions before the timed part of the test begins. 

·                    Try not to pay attention to other people taking the test around you.  Remain focused on the test.

·                    If you are stuck on a question, do not waste time on it - go on to the next one and come back to it at the end if you have time.

·                    The best approach with multiple-choice questions is to try and work out the answer yourself, and then see if your answer is one of the given options.  If your answer is not one of the given options, check your reasoning or calculations.  If you are absolutely stuck, make an educated guess rather than picking an answer randomly; eliminate answers you know to be wrong and then go with your best guess from the remaining options.

·                    Only change your answer if you are sure you have made a mistake.  If you are unsure, it is probably best to stick with your first answer.

Solving Exams based on Psychometric Testing (Part B)

On the day before the test

·                    Check the time and place of the test, and make sure of your travel arrangements.

·                    Review anything you feel you need to, but don’t overdo it; set yourself a certain amount of time to do this and then allow yourself an evening doing something completely different.

·                    Try to build a positive mental attitude; think positively about your abilities and try to stop negative thoughts.  Distract yourself by doing something that you know you will enjoy e.g. read a good book, watch a film, do something that makes you feel good about yourself.

·                    Eat a good meal and get a good night’s sleep. 

On the morning of the test

·                    Breakfast is important but avoid ‘heavy’ foods which can make you feel tired during the test.  Some people consider unsugared foods, such as cereal and bananas, good ‘brain food’.

·                    Collect everything you need to take into the test. 

·                    Try to remain calm and to maintain a positive mental attitude. 

·                    Leave yourself plenty of time to get ready and get to the test centre so that you do not panic.