INTRODUCTION

Newspaper National Hockey League Reporter, post-game:

Derek, how can you check and fight those beasts out there?

I mean, you're not that big of a guy.

Derek, handing his hockey stick to the Reporter:

This is the great Equalizer.1

Derek Sanderson, Boston Bruins

This book provides the stock market version of the Equalizer (a.k.a. EQ); in effect, a strategy map for investors to reach a deeper understanding of markets, implement comparative financial tools, improve their trend forecasting, and create an optimal portfolio.2

The space trek to improved outcomes begins with a simple question: is it even possible to consistently achieve superior investment results? Well, the heavily debated efficient-market hypothesis proposes that it's impossible to beat the market as stock prices reflect all known information. In other words, investors are not going to find undervalued stocks as current prices have already "built in" any and all impacting events specific to that stock. A parallel concept, known as the "efficient frontier," supposes that there is an optimal portfolio of diversified stocks that can yield the highest return for a given risk class.

Both theories use the word "efficient" in the context of the market. But as an Investor, are you "efficient"? Do you have the curiosity, support network, intelligence, and tools to generate above-average returns?

To up our competitive game, many of us search through bookstores, pick at our cohort's experiences, or mine the internet for direction and answers. That's what I did, but there were always remaining questions:

• Are some financial indicators better than others?
• How can I leverage share volume into my analyses?
• Is there a way to de-risk my stock selection choices?
• What are the attributes that I require to be successful?
• How does sector rotation affect stock pricing and direction?
• How do accounting statements interlock (for stock selections)?
• Is there a way to, literally, map out my asset selection choices?
• What global economic (a.k.a. macro) metrics should I be aware of?
• Can the theories of business modeling act as an overlay for personal investing?

As I brainstormed my readings and analyses of asset selection best practices, it became clear that although the information gaps could be sealed, the leap toward choice actualization was across a chasm of risk, uncertainty, and confusion. Essentially, I needed a map that would guide my rocket through the fog of choices and toward superior outcomes.

Remember the world before Google? Say you were driving across the state to your college buddy's house. You might get a paper copy of a map, draw your route in red, and be on your way. Still though, for the "last mile" you were pretty much on your own. So you would call and get directions: "OK, so I turn left at the 7-11, drive four blocks till I see McDonald's, and then I turn right, and go for two more blocks and it's the one the left side with the orange b-ball hoop above the garage? Yeah, I think I got it." Today, anyone with a smartphone can arrive safely and on time: it's all laid out for you, both verbally and directionally on your screen. Similarly, imagine if you could create an X to Y illustrated asset-choice map that ranked your stock targets, crystallized your decision metrics, eliminated blind spots, and enlightened you to the best possible choices!

And that's where I come in: my quest to bridge that divide yielded a set of visual canvases that scale up your stock-selection acuity, collectively referred to as the Equalizer (EQ).

The EQ guides are prompted from three talented backdrops:

• The visual thinking logic of Dan Roam (The Back of the Napkin)3
• The creative idea generation from Michael Michalko (Thinkertoys)4
• The business modeling canvases from Alex Osterwalder and Team (Strategyzer book series)5

As a business executive, I frequently synthesized these three brilliant models to de-risk alternatives and drive superior outcomes. And now, the EQ will prepare you to blast through the efficient frontier to land on the Moon! Perhaps even more importantly, utilizing these canvases will level up your imagination toward what could be in your investment life.

Papa John's: Better Ingredients. Better Pizza.

EQ: Better Discovery. Better Outcomes.

Here's an EQ example: in early 2021, the market was excited about a bumper crop of Electric Vehicle stocks, comprised of companies that would build the vehicles and those that would provide the fuel source. Their CEOs all danced on the broadcast circuit trumpeting why they were best positioned to succeed in a market projected to exceed $800 billion in 2027.6

Everyone was keen on finding the next Tesla. Yet, when we retrace in figure I.1 how some of these organizations fared over an eight-month period, the yields were shockingly poor.

If you were an investor in any one of the nine companies and HODL'd for the eight months, what was your criteria for pressing Go in the first place on a particular stock? How did you layer in the competitive landscape? What did you forecast as a worst-case scenario? What was the X-Factor that separated your stock choice from the others? Or were you driven by fear of missing out (FOMO)?

My Electric Vehicle evaluation, using an EQ canvas that integrated possible macro effects, strategic financials, risk, and total addressable market considerations, concluded that the best choice was not to purchase any Electric Vehicle stock as the vertical was in its pre-Big Bang phase, primarily due to a lack of well-defined manufacturing schedules.7

As I continued to evaluate the entire group, I came to a Captain Obvious deduction: every vehicle, regardless of manufacturer, needed tires.8 The Electric Vehicle EQ pushed me to a new canvas of tire companies, and I eventually moved forward with the Goodyear Tire & Rubber Company (GT). During that horrid 8-month Electric Vehicle stretch, I gained 71% with GT ($11.27 > $19.24) and then exited my position. My original EQ surpassed the efficient frontier. Of course, 71% gains are not the norm, but relatively small percentage changes can make an astonishing difference as explained by the "Rule of 72."

FIGURE I.1 EV Share Prices

Source: Data from Yahoo! Finance 2021

The Rule of 72 is a simple formula of 72 divided by a rate of return that approximates the number of years for an investment to double. For example, let's say you have your hard-earned money in a deposit certificate or bond, and assume the rate of return is 4% per year. The Rule of 72 suggests it would take about 18 years for your money to double. Or maybe you're already in the stock market and are accruing 9% gains a year, meaning an investment doubling of 8 years. If you could sharpen your decision tools and yield just 3 percentage points more per year, a 12% return would double in 6 years.

Setting aside tax considerations and risk factors, it is undeniable that to grow wealth you must participate in the asset market. Staying on the sidelines is the wrong move. The timing for entering the market, or expanding your commitment to it, couldn't be better! Recent and impactful factors are amplifying stock market opportunity through their collective "froth." Picture a resort island such as Martha's Vineyard off the coast of Massachusetts in summer versus winter. Even if you've never been there, you know that in the summer it's packed with free-spending people, businesses are open for longer hours, pop-up stores appear, tours become available for fishing and whale watching, there are new and broader restaurant menus, ferries offer more arrivals and departures . and the result is a profound increase in the circulation and quantity of money on the island. That's all due to tourism "froth."

Think of froth as the octane in your rocket fuel. Froth is what agitates and powers the market, and there are six catalysts that have accelerated market froth, as shown in figure I.2. Without them, the market would not be nearly as exciting, broad-based, wealthy, and accessible as it is.

Five Positive Catalysts

The following five market catalysts are positive inflection points contributing to investment opportunity.

Expanded Liquidity

There is more liquidity in America than ever before, as captured by the growth in the money supply (a.k.a. M2), helped by mighty stimulus bills and Federal Reserve asset purchase programs. Figure I.3 shows M2's expansion from 1960 to December 2021.9

FIGURE I.2 Market Froth

The astonishing visual is condensed to trillions for selected years in figure I.4. In just five years, from December 2016 to December 2021, the US money supply, M2, went from $13.2 trillion to $21.6 trillion, a 64% increase and a ballooning 41% in just the last two years! The Compounded Annual Growth Rate (CAGR, explained in chapter 3) highlights the accelerating...