Countdown : Six days

Standing there alone
The ship is waiting
All systems are go
Are you sure?
Control is not convinced
But the computer
Has the evidence
No need to abort
The countdown starts...

The final countdown - 11 days more!

The exam is coming. On 5 June 2011, I will be sitting for the final installment of the CFA examination. This has been an extremely long journey over three years. The opportunity cost has been beyond measurement. Over these three years, my kids grew up significantly both physically and in maturity. I did not have much time with them to play and chat due to work and exam commitment. It has been extremely exhausting both mentally and physical. This reminds me of road march during National Service except that the CFA exam is a mental road march over there years.

The final installment of CFA exam is very different from the first two. It is very much qualitative than quantitative. It focuses more on application than mere reciting of formulae from the brain. I believe those who are not in the financial sector will find Level 3 to be very taught as it is the first time huge amount of materials are consolidated for application.

The following are my scores so far:
Schweser 2011 Practice Exam Vol 2 Exam 1 AM – no score, practice only
Schweser 2011 Practice Exam Vol 2 Exam 1 PM - 65%
Schweser 2011 Practice Exam Vol 2 Exam 2 AM – no score, practice only
Schweser 2011 Practice Exam Vol 2 Exam 2 PM 78%
Schweser 2011 Practice Exam Vol 2 Exam 3 AM – 61%
Schweser 2011 Practice Exam Vol 2 Exam 3 PM - 68%
CFA 2010 Level III Real AM Exam - 77.2%
CFA 2011 Level III Mock PM Exam - 73%

For the final week prior to my actual exam, I intent to do the following:
Read GIPS
Read Asset Manager Code
Read Ethics
Read Formula sheet
Read IPS Templates
Read through all examples in the CFAI text
Read through undone real pass year papers


Update (26/5/2011):
CFA 2009 Level III Real AM Exam - 76%
CFA 2010 Level III Mock PM Exam - 73%

Update (29/5/2011):
CFA 2008 Level III Real AM Exam - 62% (lost 18 points or 15% because of time)
Schweser 2011 Practice Exam Vol 1 Exam 1 PM 78%

Update (2/6/2011):
Schweser 2011 Practice Exam Vol 2 Exam 1 PM 82%

Status Update

It has been extremely long since I blog. I participated in AnalystForum actively which explains my absence from this blog.

So far, I have found the Level 3 to be a very different animal altogether compared with L1 and L2. There are so much qualitative materials involved. Moreover, the morning essay paper is scaring me due to the open-ended questions.

I was quite disappointed with the Schweser materials. I found the notes to be of poor quality. I have read most of the CFA textbooks and found that many areas of the Schweser notes differ. Some are just nonsense while some was not even found in the CFA text. Some examples are:

*** start examples ***

LOS26j. evaluate the theoretical and practical effects of including additional asset classes in an asset allocation;

My comment: Schweser focuses on the wrong theoretical and practical effects

LOS28g. demonstrate the process of rebalancing a portfolio to reestablish a desired dollar duration;

My comment: Schweser talk about controlling position rebalancing duration but this isn't in the text.

LOS28k. compare and contrast immunization strategies for a single liability, multiple
liabilities, and general cash flows;

My comment: Schweser gave three conditions that must be satisfied to immunize mulitple liabilities but CFAI text provided only two.

LOS28m. demonstrate the use of cash flow matching to fund a fixed set of future liabilities and contrast the advantages and disadvantages of cash flow matching to those of immunization strategies.

My comment: Schweser notes touch on extension of cash flow matching using combination matching but LOS did not mention the need to learn that.

LOS31d. compare and contrast duration-based approaches with interest rate sensitivity approaches to hedging mortgage securities.

My comment: Schweser gave 5 assumptions of two-bonds hedge but CFAI only gave 4.

LOS32m. compare and contrast long–short versus long-only investment strategies,
including their risks and potential alphas, and explain why greater pricing
inefficiency may exist on the short side of the market;

My comments: There is some loss of meaning when Schweser notes paraphrase the 4 reasons why there could be inefficiencies on the short side. E.g., Schweser notes forgot to mention that sell-side analyst could earn more commission recommending a 'buy' because there is a larger pool of potential buyers as compared to sellers.

LOS32o. compare and contrast the sell disciplines of active investors;

My comment: Why Schweser notes talk about turnover of active investors when LOS don’t require it?

*** end examples ***

As a result, I have to construct my own notes. In addition, I have found the Schweser Videos to be poorly produced. One of the main lecturer was very lousy. I gave up on him. Perhaps the number of L3 candidates are just too few for Schweser to invest in the L3 examinations.

The Qbank is also hopeless. It is just too easy. In other words, the entire Schweser package (notes + videos + Qbank) was a complete letdown. The exception is at least I can email to the Schweser professors to ask them question.

I have already studied one cycle. I am in my half cycle – Reading 34 to be précised doing EOCs. There are 14 Readings to go which I hope I’ll complete doing all the EOCs by end of this month in April. For the entire month in May, I should be doing mock exams and past year exams. I have no intention to work in May. So I should have the full 30 days.

Why the duration of a Zero is the years to maturity?

Why the duration for a zero is the same as the maturity in years? I have never figured it out since L2 although I memorized it just for the sake of passing the exam. Here is a simple calculation on a zero coupon of maturity 10 years for $100 par. The discount rate, yield to maturity is the same. The various present values for the respective discount rates are:

4.50% 64.3927682
5.00% 61.39132535
5.50% 58.54305794


Duration = (V- - V+)/(2 * Vo * (Delta Y) )

Where
V- = 64.3927682
V+ = 58.54305794
Vo = 61.39132535
Delta Y = 0.005

Thus, duration = 9.528561611

Hence, this demonstrate that duration of a zero is NOT equal to years. In fact, duration itself has no dimension. How could it be compared with a variable with dimension?

CFA Level 3 Curriculum Changes (2010-2011)

I would like to share the changes of 2010 and 2011 for CFA Level 3 exams which I found from this link: http://www.finquiz.com/cfa_level_3_curriculum_changes_2010_2011

Rebalancing the Duration (Reading 28)

This Reading 28 is terrible because the author makes 'sweeping' statements without proof. Nevertheless I guess it is more qualitative than quantitative. So I just have to memorise it.

In the CFA text, rebalancing the fixed income portfolio is done by applying a rebalancing ratio to all securities to maintain the same asset allocation. But in the Schweser notes page 29 of the Reading 28, it also state an additional method called the controlling position method to rebalance the duration. But this second method changes the asset allocation significantly. It is also not in the CFA text. Why does Schweser notes want to add its own material in?

Reading 23 The killer reading (Capital Market expectations)

Realised that the reading required knowledge on Macroeconomics from L1 and L2. I spent few days doing revision on L1 and L2. Horrible.

Challenging 2011

The new year has started. This year is going to be a very challenging year for me. New responsibilities at work place is going to add extra pressure on me. This is in addition to the usual concern on making a living. My income has become quite volatile and I have to do something about it. Besides, health is always a problem because the CFA exams require super mental health which can only be achieved if there is a physical health. Since I started the CFA program in 2008, I have been exercising although I must admit it was not as regular as I wanted. I need to increase the exercise regime to stay fit. There are so many things to do, more and more but earning less and less.

Regular Membership

My application for Regular Membership was approved on 18th Oct 2010. However, I did not want to pay for the membership fee since I have not yet pass the Level 3. No point paying for the membership fee since I am not able the use the CFA designation without passing the L3 exam. I had confirmation for CFA Institute that I do not have a timeline to pay.

No calculation in LOS but EOC full of calculation?

Was studying Reading 22 – Allocating Shareholder Capital to Pension Plans. None of the LOSes require any computation nor calculation. Yet, the end of chapter is full of calculation. This is terrible. Can I trust the LOSes?

Apply for membership

I’ve managed to start the ball rolling in application for the CFA membership. There are two types of membership – Affiliate and Regular. While applying for the level 3 exams, the membership application was also done at the same time. I managed to get two sponsors. My own supervisor and other CFA Charterholder. For Supervisor sponsor, there were 4 questions asked. One was whether the individual (1) fulfill certain job guideline (2) Whether these job guidelines exceed 50% of the individual time (3) a detailed job description of the applicant and (4) whether was there any disciplinary problem.

Surprise to me is relating to the detailed job description that the Supervisor has to input. I do not know whether are these the same questions which the other CFA Charterholder has to answer.

Getting really philosophical

I started reading the Volume 2 and am amazed by the philosophy. Well, looks like the start of no-life..

Registered for L3

Upon realising that the USDSGD is now at its 5 year low, I decided to take a position by registrating for the L3 exam. I ordered the ebook too. The download took forever. The ebook seems to be some cheapo software. Terrible.

Yipee! I passed my CFA Level 2!!!

I waited for so longggg yesterday for my result to be emailed to me. I was dismay that I didn't receive the result despite many candidates receiving it. I received the result almost 6 hours after everybody got their result. Later I realised it is because I was using a Yahoo email which was causing the problem. I'll dump my Yahoo email soon for such unreliability.

Anyway I passed the June 2010 Level 2 CFA exam. Below is the result:

The passing rate was 39%. I felt it was a very difficult exam. The historical passing rate as follows:

2005 June 56%

2006 June 48%

2007 June 40%

2008 June 46%

2009 June 41%

2010 June 39%

Source: http://www.cfainstitute.org/cfaprogram/Documents/1963_current_candidate_exam_results.pdf

Well, one more level to go! But first, I've to build up my health which I found was one of a significant barrier when I was doing the Level 2.

Dried Duck

It is over! I am so happy. It has been a torture for many many months like years to me. CFA Level 2 is an extremely difficult level. There are so many topics to cover and the very topics you think will not appear actually appears. Here’s a chronology:

7am – I did not have a very good sleep probably because of anxiety. Eat three slides of sandwich, a cup of coffee and a cup of water. I know many people said that coffee is diuretic but hack.

7:30am – My colleague called and said he is going to pick me up soon

7:45am – Waited at the bus stop and the cab came – with my colleague

8:00 am – Singapore Expo traffic was bad. There were so many cars! The cab had a hard time figuring out which was Hall 7. Apparently it was some warehouse away from Halls 1-6.

8:30am – Entered the hall. Check-in. Sat down and waited

9:00am – The exam started. This morning paper was horrible. Although most questions I could solve it when NOT under pressure, but the time and environmental pressure was really slowing my brain cells. I was stuck with some questions and was getting behind time. I forced myself to give up some questions (“guessing”) to make up for lost time. The mental pressure was tremendously. It did not help that the temperature was erratic from being warm to cold (probably because it was running outside).

12:15pm – Was dismissed for lunch. I had to walk all the way to Hall 2 to collect my pre-ordered lunch from CFA Singapore. The walk was sooo long. Goodness. I wasted precious minutes walking there. When I reached there, I had to queue up. Hack, even the man’s washing room had to queue up (similar to last year)! By the time I collected my lunch, I had to quickly consume it in a designated “ballroom” which had no more sitting place to eat. So I sat down on the stage to eat my lunch! The food was lousy. Almost tasteless. Well, I eat to live, not live to eat. So it does not matter as long as I can last for the afternoon!

1:15pm – By the time I completed lunch and walked all the way to Hall 7, it was already 1:15pm. I flip through my notes but they keep on telling me to get into the Hall. I decided to just get in.

2pm – The afternoon exam was less of a killer. Probably because I was less pressured already and some topics were familiar. Unfortunately certain questions I could not do either because I had forgotten how to solve it or I did not learn. There was one question which I came across in EOC on the CFAI but I decided not to learn it because it was so complicated. The Schweser notes did not have it and the LOS was not clear. So I just ignored it. Unfortunately it came up for exam! So sad.

5pm – End of exam. I am so happy to get out of this place!!

General comments: The attendance was quite high. Not many empty desks and nobody walked out of the hall during exam. This was unlike Level 1 in which there were many empty desks and many people walked out. This year’s Level 2 questions were hard. I found that many of the difficulties were related to language rather than on the technical content. The English language was poorly written as there were too many double and triple negatives. I really wonder whether does the CFAI knows that they are partly grading the language skill of the candidate as well. It was a very hard paper as many topics you think would not turn up actually turn up. Every LOS is important.

As I blog this, I felt like a dried duck. Felt so tired and exhausted. Tomorrow I’ve to work to meet a new client. I hope it will turn out well.

This is it. 9AM at Expo Hall 7

When this post goes up, I’ll be in Singapore Expo Hall 7 reading my first item set. This is a scheduled post.

It has been such a long journey for Level 2. I can tell you that it is a horrible level. I have done 1244 questions from QBank, 360 questions from Schweser Practice Exams, 120 Questions from CFAI’s Mock Exams, almost all the questions from the Schweser’s notes and did most of the End of Chapters’ questions from the CFAI text. Yet, I still do not feel well prepared. There are just too many topics to remember.

I have lost track on how much time I spent studying for this exam. Probably I spent 1000 or more hours. I am not sure whether is it worth the sacrifice. The sacrifice is just so great. My health took a beating and I became very sick and required two courses of antibiotics. Fortunately I recovered in the nick of time. My income has been a decline since I started the CFA Program. I hardly need to pay tax now since my income level has dropped so much. Is this worth it? I really do not know.

In the meantime, none of prospecting clients care. Most clients wouldn’t bother about these qualifications and all they want is FREE advice and FREE work. At this point in time, I am beginning to wonder whether how long can I last to continuing do marketing to source for new clients. I find this unsustainable on a long run. It does not help that I refuse to sell unsuitable products to clients. Perhaps being a CFA Charterholder can help me find to do something less tiring.

Schweser Practice Exam Vol 2 Exam 3 AM

Scored 68% against 69% global average

Schweser Practice Exam Vol 2 Exam 3 PM

Scored 75% against 61% global average

CFA Level II 2010 Mock Exam PM

Scored 44/60 = 73.3%. Horrible score.

Last minute brain dump

Net Operating Asset (NOA) for calculating accruals

NOA = Operating Assets – Operating Liabilities

Operating Assets = Total Assets – cash – equivalent of cash – marketable securities

Operating Liabilities = Total Liabilities – Total Debt, where Total Debt = short term debt + long-term debt

Working Capital Investment (WCInv) for calculating FCFF/FCFE

WCInv = change (current assets – current liabilities) excluding cash, cash equivalent, notes payable and current portion of long-term debts.

Capital budget outlay

Net working Capital investment (NWCInv) used to calculate capital budgeting outlay = FCInv + NWCInv. Working capital not entirely defined.

CFA Level II 2010 Mock Exam AM

Scored 75%. Had a very bad headache after completing it.

Schweser Practice Exam Vol 1 Exam 2 PM

Scored 82% vs global average of 71%. Not bad...

Felt like dying...

I have been sickly. Have been weak physically and having continuous headache and feeling of high blood pressure. Last Thursday I went to see a doctor for having sore throat and flu. My blood pressure was indeed high. Although the sore throat is gone, the flu bug remains. I think I am facing a combination of flu and exam stress. My flu refuses to go away probably because of my low immunity due to the hefty stress. This exam is a complete sadist. One can actually die taking the exam. I advice everyone to build their physical and mental health way before the examination. Unlike CFA Level 1, I did not try hard enough to build my health up. That is why the consequence. It is horrible. Feel like dying…

Schweser Practice Exam Vol 1 Exam 2 AM

Scored 75% vs 64% world-wide average.

My brain is failing me as I am sick. Keep on eating pananol... :(

Schweser Practice Exam Vol 1 Exam 1 PM

Scored 85% verses 69% average based on 1949 samples.

Schweser Practice Exam Vol 1 Exam 1 AM

73.33% correct answers verses the average score of 69%

Flu

The CFA Level 2 is an extremely sadistic examination. I am now down with a flu. Got a sore throat and a bad headache. This slowed me down significantly. Saw a doctor yesterday and currently taking antibiotics. Although I have studied two rounds already, but the sheer volume of things to remember is causing me some problem in memorization. What is worst is that I've not started doing the mock exam although I have done more then 1200 Q banks questions. I know the QBanks questions are not reflective of the real thing. There is not much time left. Also I have some commitments in work and family and so I cannot devote 100% to studying. My brain is splitting. The CFA Level 2 is indeed an extremely sadistic examination and only meant for those who is a sadist themselves. Please do not take this exam unless you want to have a brain damage.

Models

Traditional Mode (for stock)

Currency depreciation => decrease in economic activity (short run)

=> increased in export (long run) => higher equity prices

Money demand model

High economic activity => currency appreciates

=> higher stock prices

Free market theory

Increase in real interest => currency appreciation

=> lower bond prices

Government intervention theory

Currency appreciations to the upper limit => government decrease interest rate => bond prices up.

Convertible Bonds

Download these to brain!! Come'on!!

Conversion ratio = number of common shares for each convertible bond that can be converted

Conversion value of convertible bond = market value of stock X conversion ratio

Straight value of a convertible bond = PV of CF if an option-free equivalent bond

Minimum value of convertible bond = MAX(straight value, conversion value)

Market conversion price per share = market price of convertible bond / conversion ratio

Market conversion premium per share = market conversion price per share – market price of stock

Market conversion premium ratio = market conversion premium per share / market stock price

Favourable income difference per share = coupon interest/conversion ratio– dividends per share

Premium payback premium = market conversion premium per share / favourable income difference per share

My memory has also been failing

This year’s CFA examination has been very tough. Mainly because I did not devote enough time to it due to work commitments. Last year, there was a major recession and there wasn’t much work to be done. This year, the economy has pick up and there was a number of cases to attend to. So my time for preparation was reduced. Also the amount of materials to cover is really vast. Not so sure whether will I be able to pass it. My memory has also been failing. I hope I will not waste my time on it.