Accelerated Learning: Hacking the CFA Exam
This post will explain how I passed one of the most notoriously difficult finance exams while working grueling hours, developing a new analytical engine, preparing for the arrival of my first child, house-hunting with my pregnant wife, and moving into a new home. This might be about the CFA exam but these principles are applicable for any learning situation.
A big part of what motivated me to reevaluate my study techniques was failure. I failed the CFA level 2 exam once before. The last time I wrote it I had lots of time to prepare, but the time was not focused or effective. Most of it was spent in passive mode: reading from a textbook. This time around I was facing significant time constraints and could not afford to waste a single moment. Basically, I budgeted only 30-45 minutes per day starting in mid-January (for the June exam). Knowing that I had such limited time forced me to research more efficient methods of information retention. Most people know about the Pareto principle, or the 80-20 rule, which states that 80% of your results will come from 20% of your efforts. By focusing on the 20% that mattered I shortened my study time from the recommended 300 hours to around 170 hours.
The CFA level 2 exam known for the breadth of material and need for in-depth problem solving. If you are not good at memorizing material (I’m not), then you’re at a distinct disadvantage. One tool that made all the difference was a spaced repetition system called Anki. Anki is very popular among people who learn multiple languages. I chose it because it provided a condensed and structured way to learn and review material. It also has the side benefit of automating the learning process. You just create the cards and then let the system run. As far as in-depth problem solving, the only thing that helps with that is practice problems. I resolved to start working practice problems concurrently with my study.
Here are the techniques I used to pass the exam:
1. Start with distilled information source
Keep things simple and find a well-reviewed exam-prep vendor. Vendors like Schweser condense the source material into an easily manageable format. Do not misinterpret this as an excuse to skip the CFAI source material — the CFAI material is vital to passing. However, the first step to learning everything is breaking down the cirriculum and having it whittled down to “just the facts” is a huge advantage. For some people this means supplementary textbooks, for others video tutorials work best. The reason that this is important is because these sources will usually organize their material around the learning outcomes and strip out some of the narrative. The narrative may work for some, but remember, this is about getting maximum result with minimal effort.
If you cannot afford to purchase additional study material, you can replicate them by focusing exclusively on the learning outcome statements at the beginning of each chapter. Understanding the learning outcomes will help you parse the long passages and uncover the core testable material. Basically, you are doing the same job the exam-prep team did when they broke down the CFAI material. Take the long-form paragraphs in the textbook and distill it into bullet list/formulas based on what the learning outcome asks for. An example of a LOS is: “explain how sensitivity analysis, scenario analysis, and Monte Carlo simulation can be used to assess the stand-alone risk of a capital project”. The answer is buried in a long chapter, and your job is to read the material and extract this concept to a flashcard-sized format. This sounds easy, but there are hundreds of learning outcome statements, so having them pre-distilled makes a big difference.
2. Spaced repetition system
You are now going to pick a spaced repetition system. There are lots to choose from but my favorite is Anki because it is free. The role of the spaced repetition system is to provide a framework for you to absorb the material. SRS systems are designed to systemize exposure to new material so you can absorb it. Once you’ve learned it, the SRS system will automate review so you have the best chance of recalling it when it counts. Once you have uploaded your material into an Anki card format, Anki will test you on the question with the answer concealed (basic flashcard format). Once you answer, you rate the ease at which the answer came to you. Anki plugs this information into its algorithms and then exposes the card to you again at a time which it guesses you will be almost ready to forget the answer. The system will increase or decrease the frequency of exposure based on your understanding so that concepts stay fresh in your mind. You could do the same thing with handmade index flashcards, but I prefer the automated nature of Anki. You input the information and then submit yourself to their algorithm. Fully automating this process reduces decision fatigue and allows you to focus just on the material.
For each learning outcome statement there should be at least one flashcard in your system. In the capital budgeting example above, this might turn into four flashcards: one for each type of analysis, and one to tie the concept together. I had well over 1000 cards.
I studied the material as I input into Anki but alternatively all the information could be input before you started to study the cards. Studying as you input means you can get a little bit behind on when the system would like to show you a new card (because you are constantly overwhelming the system with new material). Studying after you input everything means you can be more rigid with the spaced repetition algorithms but some of the material will not be as fresh when it finally comes up for study.
The best thing about Anki is the gamification of learning. You always have something to learn, and there is always something to review. I made a game out of getting through the decks. If you break down the material sufficiently, none of the cards should be too daunting and finishing a deck should be painless. There’s nothing more satisfying than seeing ‘review zero, learn zero’ on your Anki interface.
Make sure you structure your decks in such a way that you can differentiate the different sections. You don’t want to just lump in all your material into one giant deck. There are vastly different weights for each topic and topic weighting does not necessarily correlate with how many learning outcome statements are in each topic.
3. Front load comprehension and fill in the gaps
Apply the material you review in your flashcard deck by doing practice questions immediately after you learn it. When you stumble on a question, look up the material in the CFAI textbook and update your Anki deck accordingly. This material will then automatically be queued up for review and spaced repetition. Next time you encounter the subject in a problem, you will have recall of the solution.
This is the tough step and the one that will be the difference between passing and failing. Suck it up and do the questions.
4. Quantify and track everything
Anki will track the performance of your learning and review, but you need to track overall progress and practice question performance so that you can know exactly how much effort you will need to put in at the sprint stage. If you have the CFAI source material and an exam-prep vendor’s material then you should start a spreadsheet tracking which topics you have covered and quizzed yourself on and how you are scoring. Front loading your comprehension has the bonus of showing big improvement on your spreadsheet and positive reinforcement as you get to crunch time.
5. Focus on key areas
Gaming the exam weighting is critical. Financial Reporting and Analysis and Equities consistently makeup a large chunk of the exam so you should focus on those areas. Do not try and be good in every topic. I found it very difficult to make progress in areas where I struggled. However, if you’re scoring 70-80% on a section, keep pressing for mastery (90-100%). This is counter-intuitive because we always want to work on our weak areas, but you will score more points by refining good areas than you will by improving poor ones. Put another way: going from 70% to 90% is skill but going from 40% to 60% is probably luck.
Consider highly weighted topics to be mandatory for mastery and then focus on a couple of the lower weighting areas. This assumes you have some low hanging fruit like quantitative methods or alternative investments that you can lean on for some easy points. If you are weak on a certain topic a month out, it is unlikely that you are going to get much better on it given the stress and cumulative nature of the topic areas. Don’t use this as an excuse for skipping topics. If you are weak in more than two areas you have a very low probability of passing.
6. End of Study Sprint
In the weeks leading up to the exam you increase the intensity level of your study. Armed with your progress data you should know which areas you need to target and which you can let slip. The goal is not to get a perfect score but to pass. Focus on areas where you feel you have a solid foundation but poor recall in questions.
You need to push quite hard in the final weeks. As you can see, of the 6300 reviews I did, 2850 of them were in the final month. Go beyond your capacity for practice questions. 8-10 hours a day for the final eight days is about what it took for me. Tackle the toughest questions you can. This is where the CFAI material comes into play. The online practice exams made by the CFAI are significantly more difficult than the exam-prep vendors. By the end of your study you should have completed all of the end-of-chapter CFAI questions and completed a couple timed practice exams. If you are able to score around 80% on the CFAI source material and 70% on the practice exams, then you’re basically good to go.
Hopefully this tactical guide gives some perspective and helps you out!