The Equity Edge

A complete guide to building wealth through the stock market

Mark Jeavons

• Publisher: Harriman House
• Year: 2020
• ISBN:
  9780857197993
• Topic: Business
• Subtopic: Stocks
• Index: Business

The Equity Edge provides a complete system for successfully building and managing an investment portfolio of stocks and shares that steadily grows wealth and generates a reliable income.Successful investor Mark Jeavons answers many of the practical questions investors have when investing. He shows you how to select the very best companies to invest in, taking you through all the steps of the selection process. He then gives you the strategies to determine when to buy and sell investments to ensure your portfolio can survive and prosper in all market conditions.The methods outlined provide a consistent equity edge, minimising poor investment decisions while generating superior returns to the overall market over the long term.

Chapter 1: The Equity Edge

Introduction – Putting the odds in your favour

If you want to grow your wealth over the long term, you need to invest. Common stocks – shares in listed companies – are one of the most effective ways to do so, boasting long-term performance that is hard to match. As a result, they play a core role in most investment portfolios.

But how do you go about investing in common stocks successfully?

What about beating the market average?

Can it be done reliably – and safely, with your wealth protected from risk of substantial loss?

I think it can. I have achieved returns of just over 15% a year; this is substantially better than the UK and world equity markets, which delivered returns of 5.2% and 6.9% per year respectively, over the same period. The superior returns were also achieved with lower risk of loss, with the largest drawdown on the portfolio being less than 12.5% compared with 47.7% and 52.8% drawdowns on UK and world equity markets, respectively. The approach I have used to do so is set out in this book so that anyone else can follow it too.

This is not the only way to make money from investing. But it is, in my view, a sensible, effective and enjoyable one – based on some simple and logical principles, and some easy-to-follow methods.

The purpose of this book is to set out this system and its methods in a practical, no-nonsense guide, so that anyone who reads it will be able to successfully invest in company shares, with the aim of achieving superior returns compared to the market average – all while protecting their wealth from the risk of substantial loss.

It is written for individual investors and entrepreneurs interested in taking responsibility for their own investing – and who value independent thinking and decision making.

I will explain how to implement my investment approach without the need for substantial professional help or years of specialised training. The system is designed to fundamentally improve the odds of growing your wealth by focusing on the key factors that ultimately deliver investment success, with good portfolio management to limit potential losses. This is achieved by taking an analytical approach that combines looking at company numbers and key qualitative aspects that are good indicators of the future performance of a given investment.

Creating an equity edge

An equity edge is an investment strategy that allows a dynamic portfolio of shares to outperform the overall market over the long term. That is, there is an edge if the portfolio achieves higher returns than the market average with similar or less risk of loss.

The rate of return on your investments determines how quickly your wealth will grow. Achieving higher returns over the medium to long term means you grow your wealth more rapidly than the market – attaining a higher absolute level of wealth sooner.

The investment strategy described in this book creates an equity edge by using:

• focused business information analysis
• effective risk management
• market charting, which allows you to take advantage of underlying market price cycles.

Analysing key information to assess the strengths and weaknesses of companies and their likely return potential over the medium to long term can provide an analytic edge. Analysis allows you to draw informed conclusions about companies and make better investment decisions. Selecting quality companies that can reliably grow earnings and create market value over long time horizons helps to provide consistent returns. More importantly, avoiding the poorest companies which are steadily destroying market value helps to avoid losses and achieve market outperformance.

While there are many smart professional investors who can analyse the same information and reach similar conclusions, skewed incentives and different investment time horizons mean that the analytical advantage is not fully competed away. Asset managers are generally evaluated and compensated on their performance over short periods of less than a year. This often means that even if a company is very cheap, if there is no obvious catalyst that will cause the share price to rise over the short term, they won’t buy it. It’s therefore a huge advantage to be able to invest in companies that are likely to have the best returns over a longer time horizon.

The adoption of effective risk management rules means the risk of loss from a single company or from a widespread drawdown is limited. This ensures that your wealth avoids permanent damage and that you can recover from losses relatively quickly.

Drawdowns and volatility can harm long-term returns and cause investors to make mistakes due to behavioural biases. The rules are built into this book’s investment strategy to help limit behavioural mistakes through systematic application.

If an investment continues to be loss making, the risk rules may eventually classify the investm...

Table of contents

• Contents
• About the Author
• Acknowledgements
• Chapter 1: The Equity Edge
• Chapter 2: Screening for Company Shares
• Chapter 3: Earnings Checks
• Chapter 4: Sales Checks
• Chapter 5: Cash-flow Checks
• Chapter 6: Dividend Checks
• Chapter 7: Debt and Solvency Checks
• Chapter 8: Competitive-advantage Checks
• Chapter 9: Book Price and Valuation Ratios
• Chapter 10: Qualitative Analysis
• Chapter 11: Broker Valuations
• Chapter 12: Long-term Fair Value
• Chapter 13: Charting for Investors
• Chapter 14: When to Sell Shares
• Chapter 15: Managing Investment Allocation
• Chapter 16: Bringing it all Together
• Publishing details