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The Ten Commandments for CFA Level II

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The Ten Commandments for CFA Level II
by Shoaib Farooq - Monday, 17 November 2014, 1:23 AM

The Ten Commandments for CFA Level II

Now that you've nailed Level I, you're all ready to go for Level II. However the exam isn't exactly the same song and dance as before. Level II is reputed to be the most challenging and covers the most material, and you need to know all the little surprises beforehand if you want to prepare effectively.

Again, as per the Level I commandments, the Level II commandments are the result of experience - lots and lots of it. Study it carefully and you will have leap-frogged over a chunk of Level II candidates already in terms of preparedness, even before you begin revising. Exam-day tips will also may make the difference between a pass and a fail.

Here are the top 10 things you should know and adhere to as a Level II candidate.

#1 - This is Not the Same as Level I.

You've passed Level I, and some of you might have found it fairly easy, even. Level I can be easy for some especially if they have a good grounding in finance back in university, or because of the context of their work. A big mistake would be to assume Level II is a continuation of this.

Not only it is not, but most candidates that have taken the Level II exam comment about how disproportionately tougher Level II is compared to Level I. I believe this is the main fallacy of candidates who end up not passing - by taking the exam lightly (and by lightly I mean assuming the level of effort you committed to Level I would be enough) and not realising their mistake until it is too late in the preparation process. There is a huge amount of material to cover and you need to be more prepared than before.

#2 - Start Earlier.

I advise to start earlier than you did for Level I, in order to assess for yourself how much time you would need to prepare. If after an overview of the contents you decide that you don't need to start that early, by all means start later then. But getting an overview of what's ahead of you early in the game will give you the option to decide to commit more study time should you need it. When sizing up the material also pay attention to the weightings of the topics, and if a topic you're particularly weak in is showing up heavy in Level II, that is also a sign to get serious sooner.

#3 - Basics of Level I Will Be Needed.

Remember the topic you didn't quite get in Level I, and as the exam approached you thought to yourself "right, I'm just going to memorize everything and eject it all out during exam day, to hell with understanding the concept"? yeah, that topic's coming back all new and improved to Level II.

Many concepts in Level II build on basics that are outlined in Level I, so having a good grounding in Level I helps. Some study materials (e.g. Schweser) include a Level I refresher booklet specifically for this purpose - I recommend hanging on to that. If not, a condensed version of Level I notes (such as Schweser's Secret Sauce or Elan's Eleventh Hour) would work as well.

#4 - Item-Set Rule I - Understand the Item-Set Format.

If you remember, Level I is 240 independent questions across 2 exams. Level II will be 120 questions in 20 item-sets across 2 exams. One item-set consists of one vignette (or case statement) and 6 questions about the case discussed.

Less questions is better, right? Not necessarily.

Although you will have twice as much time per question compared to Level I, reading through the vignette will take a lot of time. The vignette will have significant amounts of redundant information carefully inserted in, designed to confuse the candidate and will take up additional time to sift through. But with practice you can learn to size up the whole item-set as a whole and quickly discard irrelevant information. Reading through the questions first before the vignette helps massively.

#5 - Item-Set Rule II - Questions Can, and Will Be Harder.

Adding to the fun, as the questions are now part of a 6-member family, you will see all kinds of nasties such as interdependent questions (e.g. question 10 that depends on you getting question 9 right), and it also means that questions will be much more in-depth than Level I, as they have the vignette to include more context to the question.

#6 - Item-Set Rule III - It's Better to be a Know-It-All.

Thirdly, item-sets usually focus around a particular concept. This means that compared to Level I, the diversity of the questions will be much, much less - 240 independent questions in Level I versus only 20 item-sets in Level II. In Level I, if you discarded a particular concept because it wasn't making sense to you and it came out in 1 question, that was okay. If a skipped concept reared its ugly head in Level II, that's potentially the whole item-set of 6 questions down the drain, which by the way are worth twice the points of a question in Level I. So take the time to try and understand as much as possible, and resist the temptation to skip topics too often. I guarantee you it will be worth it.

Summing up item-sets - they are a new set of beasts that are best understood earlier in the process than later. Spend some time getting to know the format as you're ploughing through the notes and thank me later.

#7 - Know Your Topic Weightings.

Know and understand the topic weightings for Level II - they are outlined as below. Yes, I know they don't potentially add up to 100%, but that's because some questions can cover more than one topic.
  1. Ethics - 10%
  2. Investment Tools (Corp Fin, Econs, FRA, Quant) - 30%-60%
  3. Asset Classes (Alt Invs, Derivatives, Equity, F.Income) - 35%-75%
  4. Portfolio Mgmt and Wealth Planning - 5%-15%

This is helpful, but much more meaningful when viewed in the context of potential item-sets:
  1. Ethics - 2 item-sets
  2. Investment Tools (Corp Fin, Econs, FRA, Quant) - 6-12 item-sets
  3. Asset Classes (Alt Invs, Derivatives, Equity, F.Income) - 7-15 item-sets
  4. Portfolio Mgmt and Wealth Planning - 1-3 item-sets

This means that Investment Tools and Asset Classes will be the ones to beat here. Opinions on the tough ones to beat vary so evaluate them for yourself, but the topics with most weightings within them are FRA and Equity so make sure you put effort into nailing them - together they can account for more than half the exam.

#8 - Don't Be Shy.

With the amount of material to be understood, there will be areas where even after hours of reading up on it, you still haven't a clue what it means. If you're used to being an overachiever this can be a blow to your ego. Do not let pride get in the way - if you don't understand something reach out and you will save valuable time instead of trying to understand on your own. AnalystForum is excellent for this - trawl through past tips and chances are it has been covered, but if it hasn't feel free to post questions, or just reach out to me. Sometimes a simple, informal way of explaining it is all you need.

#9 - The Commandments From Level I Will Apply.

Just because you're now attempting Level II doesn't mean that you should ignore the Level I rules. With the exception of Level I rules #1 and #3 (which are already covered & updated above), almost all rules from Level I should apply. 

#10 - Venture Forth and Kick-Ass.

Level II is the traditional phase where candidates despair - on one hand they've passed Level I and don't want to waste that effort, but on the other hand they have 2 more exams to go, and in the middle of reputedly the toughest at that. Despairing is common, but not all that useful.

Know this - the pass rates for Level II are generally higher than Level I, so assuming you've done your best to prepare, you should have a higher chance at passing. So don't despair, and continue being awesome.

Source: 300Hours