CFA Preparation: Learning Formulas By Heart

I might be strange but personally I never enjoyed learning things by heart in school. Why? For some reason, I just did not feel that learning these things was useful or a good use of my time. Learning a bunch of names and formulas a few days before an exam only to forget them in the 3-4 hours following it didn’t seem like the best way to get prepared for life after school. If you were like me, thank you, I feel a bit understood. However, that does not help at all.  It turns out that learning some things by heart was a significant part of getting good grades and as you can imagine if you don’t already know it, it’s a big part of the CFA exam as well….

What to know by heart

Generally, most of the material must be understood rather than learned by heart. Why? Because much of the material is presented to you in a slightly different way which ensures that candidates that do not understand the material will have major problems getting them done. Many of the formulas do not necessarily have a logic behind them (or the logic would require too much effort to understand) as well, some qualitative facts that have a particular logic behind them. For example, the differences between US GAAP and IFRS accounting standards might follow a few trends but it’s safe to say that you will need to know the differences by heart…

How do you determine what needs to be known by heart? Assume that all formulas presented in the material should be known. If you are not able to understand them, know them by heart. As well, when there are a defined number of qualitative points, it might be a good idea to learn them… For example:

-Differences between two standards, instruments, etc
-Characteristics, etc

What you should not necessarily have to learn is the relations bet ween elements of the material. For example, the impact of a company using its cash reserves to pay back some debt on a specific ratio (such as quick ratio). You should understand what the ratios mean and the impact of such movements. If one week from the exam you feel the need to learn this by heart, you may have some comprehension problems.

When to learn it

Since you will only remember the material for a limited time, I think it’s important to wait as long as possible before learning all the formulas and other points. Why? Because remembering everything for one or two months will require much more effort than learning the formulas for one week. I think there are two keys:

-Take notes of everything that you want/need to know by heart
-Study all of this in your “crunch week” (which we will discuss later on)

What to do in the meantime

Since you have a list of everything that you WILL need to know by heart, I would use that list when doing practice exams or questions. Not all the time, but if required. That will save you time and give you a better idea of how close you are. Obviously, if you have 20 pages of notes that you will “know by heart,” you should know that it’s not going to happen. Have realistic expectations regarding what you can learn by heart.

CFA Preparation: Learning formulas by heart
I might have been strange but personally I never enjoyed learning things by heart in school. Why? For some reason, I just did not feel it learning these things was useful or a good use of my time. Learning a bunch of names and formulas a few days before an exam only to forget them in the 3-4 hours following it didn’t seem like the best way to get prepared for life after school. If you were like me, thank you, I feel a bit understood. However, that did not help at all.  Turns out that learning some things by heart was a significant part of getting good grades. And as you can imagine if you don’t already know it, it’s a big part of the CFA exam as well….
What to know by heart
Generally, most of the material must be understood rather than learned by heart. Why? Because much of the material is presented to you in a slightly different way which ensures that candidates that do not understand the material will have major problems getting them done. Many of the formulas do not necessarily have a logic behind them (or the logic would require too much effort to understand). As well, some qualitative facts that have a particular logic behind them. For example, the differences between US GAAP and IFRS accounting standards might follow a few trends but it’s safe to say that you will need to know the differences by heart…
How do you determine what needs to known by heart? Assume that all formulas presented in the material should be known. If you are not able to understand them, know them by heart. As well, when there are a defined number of qualitative points, it might be a good idea to learn them.. for example:
-Differences between two standards, instruments, etc
-Characteristics, etc
What you should not necessarily have to learn is the relations bet ween elements of the material. For example, the impact of a company using its cash reserves to pay back some debt on a specific ratio (such as quick ratio). You should understand what the ratios mean and the impact of such movements. If one week from the exam you feel the need to learn this by heart, you have some comprehension problems.
When to learn it
Since you will only remember the material for a limited time, I think it’s important to wait as long as possible before learning all the formulas and other points. Why? Because remembering everything for one or two months will require much more effort than learning the formulas for one week. I think there are two keys:
-Take notes of everything that you want/need to know by heart
-Study all of this in your “crunch week” (which we will discuss later on)
What to do in the meantime
Since you have a list of everything that you WILL know by heart, I would use that list when doing practice exams or questions. Not all the time, but if required. That will save you time and give you a better idea of how close you are. Obviously, if you have 20 pages of notes that you will “know by heart”, you should know that it’s not going to happen. Have realistic expectations regarding what you can learn by heart.
**********************************************
Trouble when trading high growth stocks (OPEN)
If you live in the US or have been on a trip to the US in recent weeks, chances are that you booked a dinner reservation on the internet through Open Table. It’s a simple concept really. Open Table is the “Expedia” of restaurants. It will help match those looking for a free table and restaurants with tables to serve. Both parties like the convenience and Open Table gets a small cut in exchange for the service (generally 1$). The service has gained popularity and while the concept is simple, it would certainly be a big challenge for a competitor to compete on a National level. Why? It becomes difficult to only serve a few dozen or a few hundred restaurants when you are competing with OpenTable which serves over 14,000 restaurants and it becomes a much bigger challenge.
Because of the simple but brilliant concept, Open Table has been on a tear and sales continue to grow. That has led the stock to jump by almost 200% this year alone as it now commands a P/E ratio over 100… At that level, it starts to become a bit of an exageration and I liked the point made by hedge fund manager Whitney Tilson as he explained why he was shorting the stock (http://www.businessinsider.com/whitney-tilson-explains-why-hes-short-netflix-and-opentable-2010-10). It’s not that the company has bad management or a bad business model but simply that it becomes difficult to see how Open Table could ever justify such a valuation. Now I did say that I liked the argument


Download our eBook: Passing Your CFA Level 1 Exam In 12 Weeks

This entry was posted in Preparation. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *