How to ensure high returns in Equity Investments in CFA Level 1?


Equity investments, is an art of valuing the stock market and figuring out which of the stocks are under-priced or over-priced in the market.

Equity Valuation is primarily based on one’s own assumption and there is no strict science to the same. Remember there is nothing like correctly priced stock. What might be under-valued according to you might be over-valued by some other investor.

Equity analyst profile is one of the most sort after profile in the finance market and this section will come in handy for cracking these job profiles. As an equity analyst you would be expected to analyse various stocks and then recommend whether your clients (sell-side equity analyst) or your firm (buy-side equity analyst) should buy or sell these stocks.

Concepts related to equity markets and valuation methodology – Dividend Discount Model (DDM), Gordon Growth Discount Model, Multiples (P/E, EV/EBIDTA etc) – are some of the key components of the Equity Investment Module in CFA Level 1. Most of the concepts are primarily related to Discounted Cash Flow (DCF) and are quite easy to comprehend. This section is one of those sections which I bet you would enjoy to the core and is also most relevant from the point of view of finding a decent equity analyst profile 🙂

With 10% weightage this section is one where you don’t want to miss on the scoring opportunities. With simple concepts and easy to deal numerical, equity investments should be your high scoring section in CFA Level 1. Also beyond Level 1, this section will gain significant dominance in CFA Level 2 exam where it is of almost 25% weightage. I would recommend that you should cover this section immediately after the portfolio management section. This way you would be able to extend the concepts of portfolio management and would be able to construct a comprehensive understanding of the equity analysis module.

I can bet equity investments in conjunction with Portfolio management would give u a definite edge in cracking equity analyst job profiles. That translates into a healthy salary of Rs. 7-12 lacs per month 🙂

Hope this blog would have answered quite a few queries of yours on Equity Investments module in CFA Level 1. Do drop in your queries in the comments section below 🙂

In my next blog, I would deal with Fixed Income Investments and would share my experience around the same with you 🙂