Change in Study Approach

I wanted to take a sec to recap a sudden change I have had in my study approach.  When I drew up my original study plan I was well aware I would constantly be making adjustments, and that has rang true thus far.  Because I had to start so late in the game (3 months) I am now at a point where I am counting days before the exam, not months.  With that being said, I am trying to get through the curriculum in the best possible, with the least time possible.  This has unfortunately led to a lot of exclusion of original study plans.

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Change: No more formula notebook

Solution: Schweser summarize the formulas in the back of each note section.  During my review process I will rip out those pages and practice all the formulas.  So my formula notebook will be a collection of ripped out pages, but still have the same information.  Net result is less time, same outcome.

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Change: Not reading secret sauce as I progress through the material

Solution: Secret sauce is meant for a final review process, so trying to complete a secondary review immediately after a study session was overkill for my particular situation.  Instead I will read secret sauce during my first review week, and make notes in it throughout my review.  Also I will review the entire secret sauce with the SPH days before the exam.

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Change: No sequential cross referencing at every reading.  I noticed one day that if I cut out the cross referencing I could do an additional reading per day, which is a big plus for me.  The cross referencing was to ensure I didn’t miss anything pivotal, but schweser does put the information under each LOS so the likely hood of this happening is reduced.

Solution: If time allows at the end of each topic I will cross reference the entire topic at one time.  I’d like to think of this as my secondary review of the material, but it really just a skim through the sections.

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Change: No questions immediately after the review. Some may argue with this point as questions really do help to drive home the material.  I am pro questions 100%, but I also want to get through the curriculum so I can have as much dedicated question and review time as possible.  When I cut out question as well as cross referencing I was able to do a lot more in a day, moving through 3 topics in under a week.

Solution: Not to miss a single question in qbank, schweser, cfai, or any addition mock/sample exams I am able to get ahold of.  By completing the curriculum in a shorter timeframe I will be less stressed about finishing the curriculum.  With that said, I will focus on completing all the questions I have before the end of the exam.  This is non-negotiable, questions are essential to success.

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What I haven’t changed is the review of stalla cue cards after the entire topic as well as a review of the quick-sheet.  This just gives me a general exposure to the entire material before I move on.  I have been able to squeeze these at the end of review quite painlessly.  I will also be reviewing the cue cards and quick sheet again during my review process.

Reading 64: Introduction to the Valuation of Debt Securities

SCW: 8 pages

Lessons Learned:

• Using quant/TVM here to value bonds
• Price yield profile is perplexing
• I still don’t understand why we multiply N in zero coupon bonds and why YTM/2 for I/Y!!!???
• The arbitrage-free valuation approach is pretty basic, applying it shouldn’t be to difficult….try out the example

Reading 63: Understanding Yield Spreads

SCW: 9 pages

Lessons Learned:

• For once, graphs actually helped clarify something
• The yield ratio is simply one plus the relative yield spread
• I need to revisit LIBOR as it isn’t really clarified in my mind enough yet, even though it seems fairly simplistic
• Preferred habitat theory and the market segmentation theory
• Importance of spot rates!!!

Reading 62: Overview of Bond Sectors & Instruments

SCW: 16 pages

Lessons Learned:

• Terminology is still fairly introductory, but interesting
• Learning how to read t-bond quotes was very interesting
• Page 55: be careful here, medium-term notes are not necessarily medium-term or notes……ok what……
• Another chapter packed with definitions
• I would like to know more about special purpose vehicles in regards to bankruptcy
• Stripped securities introduced, play a large role later on
• The combination of the derivative and the note is called a structured security

Reading 61: Risks Associated with Investing in Bonds

SCW: 13 pages

Lessons Learned:

• Without the CSC/finance in post secondary I think I would be lost in these readings, they assume a certain level of knowledge
• Significant overlap with the CSC
• There is an excellent mid-chapter summary in the schweser notes on page 27, Table-F2
• The CFA goes a step further on why these different types of securities are structured the way they are
• I thought I read somewhere that duration was hard…..maybe I haven’t hit that yet…..
• My highlighter death-toll is climbing
• Bond rating classifications in the CSC helped with this section which is much less detailed
• Nothing really complex here, lots of talk about general concepts of risk
• Ginnie mae, fannie mae, freddie mac, sallie mae…….are you kidding me
• The quality of a debt obligation depends not only on the borrowers ability to repay but also on the borrower’s desire or willingness to repay
• As long as the required margin above the reference rate exactly compensates for the bond’s risk, the price of a floating rate security will return to par at each reset date

Reading 60: Features of Debt Securities

SCW: 8 Pages

Lessons Learned:

• There are so many introductory definitions here
• Everything makes perfect sense, no problems
• Negative covenants (prohibitions on the borrower) and affirmative covenants (actions that the borrower promises to perform)
• Clean price v dirty price
• repo rate v term repo v overnight repo

Reading 59: Introduction to Price Multiples

SCW: 8 Pages

Lessons Learned:

• I think the reason that this was a little bit more difficult for me is because I haven’t read FRA yet
• There are 4 different names for price/cash flow and any can show up on the exam
• Differences between trailing and leading P/E’s are pretty subtle
• An analyst can estimate normal earnings by using the firms average ROE over a cycle times the current value of shareholders’ equity as an estimate of normalized earnings
• A descending earnings yield ranking will list companies with positive earnings in the same order as an ascending P/E ranking, while appropriately ranking companies with negative earnings lower than companies with positive earnings
• EBITDA is a pretax, pre-interest measure that represents a flow to both equity and debt.  Thus, it is better suited as an indicator of total company value than just equity value

Reading 56 & 57: An Introduction to Security Valuation & Industry Analysis

SCW: 16 Pages

Lessons Learned:

• Preamble before the 1st LOS tells me that this will be a difficult chapter….
• The chapter itself is pretty long, and not because its a combination of two readings
• The Dividend Discount Model is 7 pages alone
• The DDM for a 1 year holding period is fairly simple, but applying it on a test could be brutal
• THe good thing about the range of different DDM formulas is that they are all subtle alterations of the same format
• It ultimately comes down to identifying the single word which tells you what variation of the DDM to use
• LOS 56.e & 56.f were fairly tricky, I don’t think I got everything out of it that I should have…..meaning I will likely come back to it later
• Operating free cash flow is typically calculated as operating cash flow minus the cash to fund the increases in working capital and fixed assets necessary to support the growth rate assumed for the firm
• Top-down approach was pretty simple, not sure how they’d logically waste a question on it
• A common mistake with supernormal growth problems is to calculate the future value and forget to discount it back to the present
• If a rate is not specified as being a real rate on the exam, it is safe for you to assume that it is a nominal rate
• Reading 57 was 1 whole LOS…….what a joke
• 27 post test questions? wow

Reading 55: Market Efficiency & Anomalies

SCW: 6 pages

Lessons Learned:

• This chapter just seems really out of place, topic don’t seem to merge
• Biases seem to overlap
• little new components
• Still pretty interesting
• Limitations of fully efficient markets
• I had to do some side research on arbitrageurs to get myself up to speed

Reading 54: Efficient Capital Markets

SCW: 7 Pages

Lessons Learned:

• I really enjoyed the concepts in this chapter
• The EMH is surprisingly interesting
• Only 1 formula, common sense
• A lot of sub-theories, predictions, assumptions
• I would have liked to read more on behavioral finance
• Know the various market anomalies and their implications on the EMH
• Another short chapter, not much to mention here.