Quant: SS4 – Reading 5

Reading #5: The Time Value of Money

Pages: 41

% of SS4: 21%

Hours to Completion: 15

I have written in great detail about my experience with this chapter in a previous post, so I will spend a short time recapping the content and some thoughts I had on it here.  The chapter is broken up into seven sections, which did make it easier to comprehend how the pieces fit together.  In my review process I will likely revise these headings to ensure I understand more of the “big picture”.

Section 1

• General Overview section

Section 2

• Basic concepts I have seen before
• Most I had learned from the CSC
• Regardless of their familiarity, they were very fundamental to later sections.

Section 3

• Had some initial troubles getting the (t=x) relationship sorted out in my head, but later examples reinforced it nicely
• This entire section I was able to calculate the correct answers to the examples before I read the solution on the first try
• This section inevitably lead to false confidence and a friendly visit from karma.
• I say I am being detail oriented, but it took me this long into the book to realize that the writers had given each formula a number (5-1, 5-2……5-15).  I found this very useful in isolating the important data, as well as referring to multiple formulas from pages back in different questions.

Section 4

• This is the section of the angry EAR……bad joke I know, but seriously, I hit a brick wall here
• I initially had trouble sorting out the fundamental differences between some basic conceptual definitions and how they differed.  Investorwords.com, investopedia.com and AnalystForums helped me solve this.
• Secondly, I had quite a bit of trouble wrapping my head around what EAR was, what it was trying to do, and in what practical situation I would need to use it.  I eventually figured all this out but it was a shock to the system that it didn’t come more natural, especially things like definitions which are typically cut and dry.

Section 5

• Kept getting better at this point, I began realizing my wrong answers were the direct result of minute details that I had missed or excluded (i.e., Rule of 72)
• I found this section particularly hard as every single example I calculated took me 2 – 3 tries, typically reverse engineering an answer and the process to get there.
• If you have any natural math ability, you are laughing at me right about now.

Section 6

• Rise of the “t”…..this guy came out of nowhere and would not leave me alone
• Time-lines became essential to sort out the question in my head, which worries me that I wont have enough time to process each question.  A focus on this section later will be on speed as much as attention to detail.
• I didn’t find anything particularly complex in this, but I think the problem with this section will be remembering what formula to use when.  Use the PV to discount and the FV to determine a number of different pre-formula amounts on the timeline…and so on.

Section 7

So, right after I crawled through the last six sections, the book basically tells me that “now that the easy stuff is over, real world situations don’t give you the interest, number of periods or annuity amount.  You have to solve that.”

My thoughts after chuckling to myself was (a) I just laughed at a quote from a finance book, which makes me mentally unstable and (b) where do I find the application to live in the un-real world where they just give you this freakin information.

• This section nearly killed me; I would do one sub-section then take a break.  I think it was mere frustration at this point coming into the 13 hour mark.  By the end I was ready to throw the book at the wall, but I didn’t…….yet.
• I found the content to be a tad tricky with its approach, but it was more of a conceptual section that brought together the concepts from previous sections in some sort of problem orgy.  One of the problems that stretched 3 pages was actually fairly easy once you broke it down, which was a relief….of sorts.
• I didn’t even bother getting a good grasp of the cash flow additivity principle, at that point a quick review was all I was willing to do.  I was willing to sacrifice this small half-page section because I will review it, most likely in better presentation terms, with Schweser.

Dear Quant: Please jump off a tall bridge and plumet to your untimely demise…..thanks.

Disclaimer:  I had originally intended for this to be a one post deal, but the content was just way to large, so I intend to split it up into three posts: (1) this one, (2) Quant: Schweser v. CFAI (3) Quant: SS2 – Reading 5 notes

I take back whatever I said about quant in the past. Reading 5 was, simply, ridiculous.  I spent time figuring out the process to each example on all 41 pages of reading 5 in the CFA Curriculum. This was the original plan and I knew it would extend my overall projected time.   I think it really helped with my retention and understanding of the material, however it took me approximately 15 hours over two days to complete.  15 hours to cover 41 pages is by any measure, absolutely ridiculous, redundant and most importantly, extremely frustrating.  I finished the reading around 4 PM today, at which point I was supposed to move on to reading 6, but frankly, I was much to frustrated and discouraged to move on tonight.  It’s not that I found any of the content in this chapter relatively complex (although some minor details did give me some trouble at times), but its just the depth of the material and content inside this reading was immense.  Some of these issues stemmed from simple misunderstandings with basic mathematical principles and rules, while others required me to change variables and settings on my BA II Plus.

I am aware that we will not have to do these combersome questions on the exam, but I wanted to learn it for a number of reasons:

1. To increase my knowledge base
2. To prepare for more advanced quant I will be studying for FRM in November
3. To prepare for more advanced quant in CFA-L2

Quant in finance is a fundamental component of any valuation and analysis, and I knew I had a long road ahead of me before I truly mastered quant the way I want to.  However, truly mastering the minute details associated with each formula was a daunting task.  This chapter is supposed to be a fundamental part of the course, as well as the CAIA and CFP designations I will be taking in the near future.  So justifying the time is not the problem.  However, I am also under time constraints and my study schedule has now be severely altered.  I am also not sure if this chapter is a representative of the amount of time I need to put into every reading to gain this level of mastery or not.  These questions are causing a little bit of anxiousness and nervousness when looking at the overall study plan.  What makes me more nervous is the relative amount of content I have to cover.  I assume this is a natural feeling, and it will dissipate once I get through Quant, Economics & FSA.  However, at this pace quant would take 18 days for the curriculum material alone, which is not acceptable.  Its the not knowing that drives me nuts, so I hope I can get a feeling of my overall progress in this section soon.

For me, the ultimate frustration came in that, every single example I went through I had some sort of problem with. Whether it was my calculator rounding up, or entering in the wrong numbers, misreading the question, recalling the purpose of the formula or how to calculate a portion of a larger formula. I am usually a fairly patient guy, but when every single problem presents some sort of issue, I begin to get a tad bit irritated.  I am sure other people have similar issues, this is just me venting my own personal opinions.  Ultimately I feel that at the end of this painful process, I will be much better off.  Being done reading 5 I am fairly confident that I can score a 60% and above without having any revision or looking at the schweser notes.  This may not sound very good to some of you, but a 60% for me in quant is a significant improvement.  With my process (described in other posts) and thorough review, I think this painful approach will pay off. Not only do I review the extend content, but I review the narrowed down content (schweser notes & secret sauce), memory retention (cue cards) and practice (end of chapter problems, calculating examples, qbank).  This process for quant will be cumbersome and difficult to make it through, but I think I can really nail the concepts to my goal of 80%.  I also must say that these frustrating rants may continue while I am in quant, if these circumstances continue as well.

- Steve

Done Ethics

So I am officially done ethics, here is a list of what I completed:

• CFA Curriculum SS1
• Schweser Study Notes SS1
• Schweser Secret Sauce SS1
• All chapter quizzes and knowledge checks in both books
• 20 questions from QBANK
• ALL the Ethics Stalla Cue-Cards
• AnalystForums (posts on ethics – about 10 minutes worth)

I decided not to do additional QBANK questions for Ethics, since I scored above 80% on three separate tests (CFAC, Schweser, QBANK).  I will save a majority of those questions for the review process or maybe a refresher exam after Quant.  The schweser test was surprisingly difficult, but I appreciated that.  You could tell the material was geared towards the new exam format, as there was only 3 answers to choose from and there was a lot of “least likely”, “most likely” style questions.  I still squeaked by at 80%.  I got 10 questions wrong, which shows me I am indeed around a 70% on ethics.  I am now moving on to Quant for the next week or so.  I will have a better idea of the time I will dedicate to it after today.

- Steve

Ethics Update…..

So I completed SS1 – SS4 and now i’m just plowing through the Schweser notes on it.  Found the content pretty straight-forward though I can see how the questions could be tricky if they really drilled down on the material.  The GIPS standards is definitely my weakest section, only because of all the little intricacies and the fact that i’ve never seen it.  I was surprised how much of reading 4 was optional content, it seemed relevant, but i’m not complaining that I don’t need to memorize that stuff.  I know CFA is trying to drive the Codes of Conduct down our throats, but the amount of examples in these chapters was excessive.  It was so much, by the end I was ready to jump off a tall bridge. I am still waiting on the CPH and GIPS handbooks to show up, so in the mean time I will continue on with my studying. These are the focus areas I think I will come back to later:

• GIPS Compliance Statement
• Standards of Conduct
• Sections of GIPS
• Code of Ethics
• Process of the PCP

I found the use of Secret Sauce, Stall Cue cards and qbank to really help drive this material home as a interim review process.  I liked the methodology to reinforcing the material, so I think I will continue with that approach.  Of course, ill have to add secret sauce somewhere in there…..likely at the end.

A quick update on my progress…..

Some unscheduled commitments forced me to push back some of the minor components of my daily schedule yesterday, and today is my mom’s birthday.  So things are already off to a tricky start, but prioritization of key components has allowed me to stay on track…..relatively.  I found the chapters very interesting particularly in how they overlapped with the Conduct & Practices Handbook Course I just wrote.  I was surprised to learn that 90% of the material that comprises the ethics component of CFA-L1 I had already loosely reviewed in the CPH course.  This showed in the practice questions I took after the chapter (consistently 80%+).  To me this is a enormous sigh of relief, as everyone states the importance of ethics in the overall exam.  I don’t claim to have mastery of this material, but I would thus far say it is going to be one of my stronger sections.  I still have to read the two chapters of GIPS today, which I am hoping I can get done before the party.  If not I will complete it after so I am on track.

Because of these events I have had to temporarily alter my study schedule.  Only for ethics, I am going to follow the following format:

• Finish GIPS Readings (2)
• Review ALL Ethics Cue-Cards (instead of the individual readings)
• Complete 80 – 120 Qbank questions on ethics
• Read entire schweser ethics section
• Complete cue cards
• complete 40 qbank questions

I am virtually covering the same content, just in a different process.  Overall I am happy with how the studying has gone so far, especially in my decision to read both the CFA Curriculum and the Schweser Study notes.  I think the CFA really packs in a lot of content into their chapters that drive home the material and Schweser just cuts the fat and gets right to the content.  So in essence, the Schweser is a secondary review that really drill downs on the concept.  I will speak to this more later when I start the review tomorrow.  Furthermore, once I catch up I will upload my personal thoughts/notes on the ethics component here.

Lastly, I ordered 2009 Secret Sauce today after being convinced by multiple parties that it was essential.  I was told to download this off torrents but there is only the 2008 version up (significantly different in content and formatting) and I deal with printed material better.  The cost to print it would be equal to or higher then to order it with shipping.  Secondly I ordered hard-copies of the GIPS and CPH from the CFA Bookstore.  I will make postings for all of these when they arrive.  Ok, so back to studying GIPS, I will be back with a better update shortly.

My Study Schedule….

I am not going to upload my schedule here because it wont make sense without about 3 posts worth of explaining.  Basically, I structured the schedule to be both variable and fixed, to accommodate for the inevitable variance in the schedule.  My goal was to have everything done before April 1st, allowing 1 month of study time, but my review process wont allow me to do that unless I rush through some sections.  I originally was going to just rush those lesser weighted sections to meet this deadline, based on the fact that to many candidates don’t spend enough time practicing the material.  My process takes into account the Learn, Apply, Review methodology, so I am not banking all in one area at one point in my studies.  Being that I am entering into this exam late (as I knew I would), my process has to be methodical and realistic. I have come up with a system that, with a variance of 1 week, is pretty solid in its foundations.  The process isn’t revolutionary or anything, but I did take the advice of many individuals and built a custom plan based on a number of factors.  So, to illustrate this point I will use Study Session 1 (SS1) as an example:

SS1: Ethical & Professional Standards

Reading #1

• CFA Curriculum
• 40 Questions from QBANK
• Stalla LOS Cards for the reading
• Schweser Reading
• 40 Questions from QBANK
• Stalla LOS Cards for the reading

Reading #2

• CFA Curriculum
• 40 Questions from QBANK
• Stalla LOS Cards for the reading
• Schweser Reading
• 40 Questions from QBANK
• Stalla LOS Cards for the reading

….and so on.  Each reading covers the same process. This seems overly optimistic given my time-frame, but I am fairly confident I can approach and complete it within the time frame I have set out.  Furthermore, I might not proceed in this exact order in every circumstances.  For example, the derivatives section is fairly small, so I will likely complete the entire SS instead of doing the Readings individually. This process takes me to the second week of April at which point I will complete a very intensive review process using some of the resources mentioned in the last post.  I will discuss this plan when I get closer to the date.  I fully expect this process to evolve and change over time but I believe it provides me with a strong base to achieving my goal in this strict time-frame.

Stalla Flash Cards

Got my stalla flash cards about a month ago, and I was impressed.  I had done some research on them over other offerings and they are definitely the better quality over other products.  The short and sweet, I choose Stalla cue cards of Schweser because the Stall cue cards had the information already on them.  The Schweser ones were just blank cards with the LOS statements on them.  I don’t have a lot of time to create cue cards, so $200 was a small price to pay for this.  I am really pleased with the quality of these. Again, i’ll talk more about my selection for study materials later on.  Just wanted to upload a few pictures to give you an idea of what they were like.