Every once in a while, there is a subject I come across while studying for the CFA exams which crushes my soul. Today I found a new one, implementation shortfall.

According to the glossary of the CFA level 3 curriculum, implementation shortfall is “the difference between the money return on a notional or paper portfolio and the actual portfolio return.”

This sounds simple and I made the mistake of treating it accordingly in my studies.

I just finished a 50-question Trading, Monitoring, and Rebalancing quiz in Schweser’s Q-bank, where I missed every single question dealing with implementation shortfall (shown below). These were multiple choice questions with only 3 choices. It literally was an implementation shortfall for me.

implementation quiz

It was an item set question (a small story or vignette followed by a series of questions) that completely destroyed me. I still managed to score a 72% overall on the 50-question quiz, but this is worrisome. I suspect your chances of receiving a passing score dimish significantly if you whiff an entire section on the exam.

Herein lies the beauty of Schweser’s Q-bank. I have identified some low-hanging fruit to work on here. It is not an overly complicated subject like currency hedging. I think it would be worthwhile to spend a few hours mastering implementation shortfall.

Back to the grind.