CFA June 2012 thread

[Steroid Boy]

not dead yet!

[tastychicken2]

As for hours... probably 30 - 45?

I did 5 practice exams in that time while examining all the answers (whether or not I got them right or wrong) and did some reading and more practice problems.

[tastychicken2]

Hopefully only a year away from having Friday nights in May again!!!

[john_kane]

edit: to remove the waffle hehe

I am looking to learn investment appraisal techniques using Excel.

I have found this book on Amazon: http://www.amazon.co.uk/gp/product/0...SIN=0789743175

Does anyone have recommendations of a better book?

Many thanks if you could post,

John

[Leftwise]

Not as sure about my chances to pass, but do feel like I'm learning more studying L2 and overall material feels more useful. Even when going over stuff I didn't know L1 just felt sorta basic at times.

[CalledDownLight]

really dumb question: if you calculate a justified P/E, P/B, P/S or whatever and it comes in LOWER than the market P/E, P/B, or P/S then the company is UNDERvalued right? I dont even know why I am asking this, but I have gotten it "wrong" on a couple straight tests and Schweser is saying this would mean the company is OVERvalued on every online question and in their explanation of the LOS.

Its also kinda making me paranoid that I have been teaching myself incorrect information on some stuff I am less certain about. I would almost rather just have this simple concept flipped than start worrying about what else they got wrong.

[stinkypete]

Originally Posted by CalledDownLight

really dumb question: if you calculate a justified P/E, P/B, P/S or whatever and it comes in LOWER than the market P/E, P/B, or P/S then the company is UNDERvalued right? I dont even know why I am asking this, but I have gotten it "wrong" on a couple straight tests and Schweser is saying this would mean the company is OVERvalued on every online question and in their explanation of the LOS.

Its also kinda making me paranoid that I have been teaching myself incorrect information on some stuff I am less certain about. I would almost rather just have this simple concept flipped than start worrying about what else they got wrong.

schweser has it right. it's pretty simple.

company earns $1 per share. you determine that a fair p/e is 10. that's a price of $10 per share.

if the market price is $15 per share the p/e is 15... hence it's overvalued.

[Biesterfield]

While I agree with that it certainly isn't intuitive since low valuations are associated with something being undervalued like 90+% of the time. The phrasing of "market" is confusing in this case. How exactly is the question asked?

[tastychicken2]

The market is what the market it is currently priced at.

what stinkypete said

if you think each dollar of EPS is only worth $10 in stock price and the market thinks it's worth $15 then you should believe that the security is overvalued.

Most of the time when you're "buying low" you're actually buying at the low P/E the market has assigned and assign a higher P/E yourself b/c of reason x y z.

[CalledDownLight]

Originally Posted by Biesterfield

While I agree with that it certainly isn't intuitive since low valuations are associated with something being undervalued like 90+% of the time. The phrasing of "market" is confusing in this case. How exactly is the question asked?

Originally Posted by tastychicken2

The market is what the market it is currently priced at.

what stinkypete said

if you think each dollar of EPS is only worth $10 in stock price and the market thinks it's worth $15 then you should believe that the security is overvalued.

Most of the time when you're "buying low" you're actually buying at the low P/E the market has assigned and assign a higher P/E yourself b/c of reason x y z.

this is what I was looking for. I was interpretting the word "market" to mean the "market P/E" for the industry not the P/E the firm is being traded at. That is why I thought that when I got a justified P/E of 6 and the market was trading at a P/E of 10 I was thinking "this is cheap compared to the market, gotta buy" when in fact the 10 is where the stock itself is trading.

Super helpful and super intuitive. I had the concept down but was a lock to miss any question on this on the test because of the wording.

There is a good chance you 3 just got me one of the 84 questions I need to get right. Thanks for the help.

[Biesterfield]

Yeah I mean I prefer to think of it as multiple contraction and multiple expansion, which would cause the stock price to decline and increase, respectively.

My point above was that "market" is also synonymous with the S&P 500, so a natural inclination is to think current valuation of stock vs. current valuation of S&P 500. And if you assume everything should have the price multiple of the market (which is obv a terrible assumption) then you'd think the stock is undervalued. I'm just saying this is how a naive person would think about it.

Edit - I see you just wrote everything I am saying

[CalledDownLight]

Originally Posted by Biesterfield

Yeah I mean I prefer to think of it as multiple contraction and multiple expansion, which would cause the stock price to decline and increase, respectively.

My point above was that "market" is also synonymous with the S&P 500, so a natural inclination is to think current valuation of stock vs. current valuation of S&P 500. And if you assume everything should have the price multiple of the market (which is obv a terrible assumption) then you'd think the stock is undervalued. I'm just saying this is how a naive person would think about it.

Edit - I see you just wrote everything I am saying

yea. it confused me because of the plethora of questions that ask you to assume that "market" or "industry" data points are the benchmark for individual stocks. I also hate the fact that a lot of questions I am doing dont seem to be as clearly directed to the piece in the vignette that it applies to and at times I have to spend a decent chunk of time just figuring out which quote they are asking about.

[tastychicken2]

Level II:

I re-took the morning part of the sample exam provided by CFAI and got 82%. Pretty happy with that despite remembering some of the questions.

FWIW I found the last mock exam provided by Schweser to be pretty brutal. On 4 and 5 I got ~73% but on the last one I think I ended up with ~67%. I thought I didn't progress after finding out I got so many wrong.

Would be pretty mad if I didn't pass this since I've already done
7x practice exams + 0.5x retake = 900 problems
~500 from Qbank
A good number of EOC problems from CFAI and Schweser

[tastychicken2]

Textbook CFA L2 Swaps Question I don't understand:

There is always a question on "When is the risk in swap's life greatest?" and I always answer "Middle" which I believe is correct. Problem is I don't know why it's correct.

I understand why it's not beginning (no change in rates/values). I don't understand why it's greater at the middle when compared to the end. I understand there is no principal being swapped but I don't understand why the risk isn't the same as the middle or even riskier. Does this relate to present value or something else?

Thanks

[dshen13]

sorry for what must be a redundancy of noob questions:

best level 1 study materials? Stalla, Schweser?
approx time studied for exam 1?
anything else?