I just passed CAIA L1 and since there don’t seem to be many guides I thought I’d write one on how to study for and pass CAIA L1.
TL;DR – do practice questions, don’t fluff about with the minutiae and guess intentionally
I thought I’d start with my background for some context – My undergrad is in business admin & psychology, I have a grad cert in applied finance, I’m a CFA L2 candidate and I also have a bunch of financial planning qualifications. I am sort of in finance and work in investment advisory (zero modelling/analytical work). I studied between 70 – 100 hours starting around early/mid-July. I know that this is probably much less study than your average candidate and it doesn’t mean that I’m some sort of genius or anything nor am I particularly gifted at synthesising information – I’m actually pretty poor at it as evidenced by my uni transcript T_T.
There are two ways to study for this exam – cram for hundreds of hours or to have a strategic approach to study and understand what CAIA Association are testing for. I already spent the first half of 2018 cramming hundreds of hours for CFA so I had no intention of doing the same for CAIA. It’s not to say one method is better than the other but I value efficiency over volume so here are the strategic elements you can employ to both reduce study duration and increase odds of passing.
First of all, it’s important to have an understanding of the depth of knowledge required for the exam – you don’t need to analyse, evaluate or create anything – you can pass simply from memorising the curriculum. This is to say that the depth of knowledge you require is very shallow so don’t waste time taking extensive notes digging into the minutiae of every topic – this is completely unnecessary and your time is much better spent doing practice questions. This is the key to passing the exam – spending more time practicing than reading. You essentially want to reduce the time it takes to get from remembering the content to understanding the content by testing yourself (moving knowledge from short term to long term memory). So reading the text cover to cover before attempting questions is a highly efficient way to retain the least amount of information, it’s completely unreasonable to read, remember, understand and apply all of that knowledge on the first pass especially because a lot of the content is quite nebulous. To further enhance retention/understanding don’t do questions on topics you just completed, stagger the questions so you’re testing yourself on topics you’ve previously completed – delayed recall is a far better indicator of retention/understanding compared to testing yourself directly after you’ve read the content. Naturally CAIA Association has practically no QBank or reasonable way to cram practice questions so it’s a good idea to nab a set (I used UM).
The second component is to understand what the CAIA association are testing for. They want to know that you have some degree of understanding of alternative assets not some PhD level shit – the text book is choc-a-block full of complicated looking formulas which you shouldn’t bother remembering. The reason it’s full of this nonsense and the ‘options’ approach to everything is because it was written by PhD’s and academics. All of these formula’s make the content needlessly complex and convoluted when in reality the concepts are pretty simple. This is the key – seeing through all the nonsense and having an applicable understanding of the key concepts. For example Skewness and Kurtosis – the text explains it using… moments? Accompanied by some ridiculous formulas… Just remember that left/negative skew means long left hand tail and L (eptokurtic) comes before M (esokurtic) and P (latykurtic) on the alphabet so Leptokurtic is taller than Mesokurtic which is taller Platykurtic. That’s it – that’s all you will likely be tested on (and excess kurtosis). That’s three pages of needlessly complicated content in 1 line. You also need to realise that the questions that have long convoluted equations simply cannot be tested. For example a 10 data set sample that you need to calculate the covariance for – this shit isn’t hard but it’s not reasonable to complete in the allotted time per question so if you’re thinking this shit takes too long to do it’s probably quite safe to just bin it.
Lastly – your guessing game needs to be disciplined. There will be questions on the exam that you have never even seen or heard of – on these questions (the ones you have absolutely no idea on) you’re far better off just always guessing the same response each time rather than ‘inferring’ your way to an answer you don’t even know by eliminating a response you don’t understand. If you have no idea – Just always spam C or A don’t even try to ‘figure’ it out. Spend time figuring out questions you do know.
That’s it really – read the content, spam questions (delayed is better than immediate) and skip all the nonsense.
Happy to answer any questions if there are any