Cramming!

Well, two weeks to go to test time. Although I've gone through and reviewed all the materials, the reality of such a large exam is starting to set in and there's a lot of anxiety with respect to trying to recall all the formulas and methods that are used. I've taken a few tests and my highest score has only been a 55! Yikes!

But here's the great news. I know this stuff. I'm making dumb mistakes. I am quickly learning what I am doing wrong. These practices exams, I think, are harder than the actual exam, and a lot are way way trickier than they need to be. I hope that the actual exam isn't as convoluted (using multiple LOS's in one question, and then making it a 'which is false' type of quetsion). But if not, I'm just as f'd as the next person.

I have to admit that I'm already dreading level 2 and I know that I am much worse when I subject myself to this kind of high pressure studying. I recall less easily and I am more inclined to not study. But that's just the thing, now, more than ever, I need to KEEP PRESSING ON and studying, even if it's frustrating. These next 2 weeks will help get me MANY points on the exam, I just need to be dedicated enough to commit some of the problems to both my declarative and nondeclarative memories (e.g. having the formulas come to me naturally through repetition and indirect learning).

Funny how much a few weeks of the exam looming overhead can do so much damage to one's confidence in spite of a few months of good preparation!

Practice Exams

Getting to work now on the practice exam. I revisited some old documentation and it's scary to see how easy it is to fall into the wrong mindset (panicking about the test and overstudying). The early stuff I read really focused on breaking everything into pieces, zipping through the material at a high level, staying on schedule, and trying to focus on studying versus taking the test. Anywho, now that I'm on the exam practice, it's time to work on weaknesses and really do the work to bump up my score. I'm also shifting from panic to motivated, as I see now that it's a challenging test but not focusing so much on failing and passing but being on prepared and not prepared (subtle shifts).

Interesting note on how to think of Geometric mean vs. Arithmetic mean (it's so simple it may not come across right). When you have a set of numbers, assuming they have the same value, the arithmetic mean gives you what the equivalent is if you ADD them up. The geometric mean, assuming they have the same value, gives you what the equivalent is if you take their PRODUCT. Duh!

Takeaway: As always, it's helpful to go back to the basics and remind yourself why you're doing this and how you're going to take care of it. It's all too easy to get caught up and panic.

Finished with the Books

Taking a moment to celebrate a milestone. I've finished reviewing the material for the test with respect to reading through all the books, but the next month and a half is where the REAL studying gets done. I have to hit the practice tests hard and work on my weaknesses. I can't really put things off as much now, as either I get it or I don't. I'm taking the rest of the day off to rest but I can't wait to start taking practice exams and realizing just how much I've forgotten! Oh boy. Actually, I need to come up with a plan. Maybe a practice exam, and then select the major review sections, then practice exam. No wait, Schweser to the rescue, I need to go to the Schweser web site and do those online review sessions that I paid good $ for. Schwing!

Book 5

Seems like it's been a while since I last wrote. Counter to the whole point of the keeping the blog, I've been very erratic in my study habits. I went one weekend where I flew through an entire book, then another week with barely any progress. The new conclusion is that I need to hurry and finish so I can start doing sample exams. I want about a month and a half to do practice exams and sample problems. Since this is a comprehensive test, it's better now to really focus in on the weaknesses and test taking abilities in this last month, rather than hoping to try to retain everything that's been covered over the last 3 months.

Right now I'm working on debt securities valuation. YTM is tripping me up, although I understand that there is a inverse relationship with the bond value, I keep thinking of YTM as a yield (which it is) but I keep associating higher yield with more value (well, yeah it's more value, because it's sold at a deeper discount). I keep confusing it with higher coupon payments (something that's appealing) but really I have to keep those separate in my mind. Higher yield to maturity, higher discount rate, and higher market yield all drive down the value of a bond.

I will try and get back on schedule. So many "exceptional" weekends and weeks (especially with a semi-new job) have definitely put a big hole into the study schedule but now that there's some regularity, I think I'm back.

Study Session 11

An overlong break during my break week plus the worst part of the studying (accounting) plus deteriorating study habits (March Madness anyone!?) plus distractions on the job (I'm trying to get into fixed income) have really thrown me off track.

The bottom line is, I'm going to stop making excuses and just change my habits towards getting more done during the week. I'm just cutting my losses and proceeding forward. I have seen that the remaining material is much easier, so I plan to cruise through it at a quick pace and get to the practice exams. There I can make up the most ground by focusing on my weaknesses. This will be the toughest part for me, as I am normally not that kind of specific studier. But I know that in the long run, it'll help a lot. It would also explain why I always seem to be above average but never perfect in exams.

Lastly, a really sound piece of explanation. The reason why Mutual Funds are really Investment Companies, and why CDO's create SPV's is the same - you want to be able to separate those assets from a company so that shareholders in the company do not have recourse to that money. In other words, you have to set up a separate entity to keep the accounting for the money separate.

If I haven't mentioned this already, there is a 2 day course given by one of the CFA teachers that comes highly recommended. This is the link to the web site:
http://www.accountingworkshops.com/leveli.htm

Study Session 10

Week off from studying was really good for clearing out the ol' cobwebs. I highly recommend it. Although I missed some of the rigor of having a set schedule, I have to say that the combination of hard studying and then perspective is really good.

So today I started to work on Study Session 10. The big theme seems to be that you get differences between the actual taxes payables that go to the IRS and what income tax expenses appear on the financial statements. So in order to reconcile those, you have to adjust the financial statements using either deferred tax adjustments or deferred tax liabilities. Some will revert when the timing/ accounting issue comes to pass, and some will be permanent.

Study Session 9

Recent news events helped reinforce some of the learnings from the SS on International Finance. A recent corrective drop in the Shanghai and Chezhen markets resulted in a lot of revisionist research on carry-trade. Carry-trade is the leveraging of lower foreign fixed interest rates. In real terms the Japanese Yen has a very low interest rate, which the government supports keeping low, the overall effect of which is to stimulate the Japanese economy and increase liquidity. But the same low interest rates encourage non-Japanese investors to borrow the Yen to leverage elsewhere, knowing that they won't have to pay a lot for the Yen. (This too should help the Yen because it appreciate domestically). In any case, the leverage is good unless the government unexpectedly raises interest rates (which it did, albeit a few months ago) and investors suddenly decide to reduce or repay those borrowings (which is part of the explanation for the correction - albeit in a different market). In any case, the principle behind all this, a relatively straightforward concept, but easily overlooked, is covered interest parity. And it is covered in our beloved textbook. Incidentally, if you go out and try to simulate or look for arbitrage opportunities using real life interest rates and forward/ spot rates, you might find that the numbers come out weird (as was my case). Then you might realize that you had totally forgotten the simple concept of direct vs. indirect quotes, and how it is not as intuitive as using DC/FC, although it is that simple.
Just some figures for laughs a/o March 2, 2007:
US interest rate: 5.25%
Japanese interest rate: 0.5%
Forward rate (DC/ FC, but meaning how many yen do i get for 1 USD dollar): 0.008889
Spot rate (DC/ FC): 0.008506

1+r d = forward(dc/fc)
1+r f spot (dc/fc)

generally, d> f, forward> spot