I recently read “The 22 Immutable Laws of Marketing” by Al Reis and Jack Trout. What does immutable mean? Unchanging over time. The book was originally published in 1993, but like the title mentions, the lessons are timeless.
Here are 7 of the immutable marketing laws mentioned in the book that are also timeless investing lessons…
1. The Law of Failure: “failure is to be expected and accepted. Admitting a mistake and not doing anything about it is bad for your career. A better strategy is to recognize failure early and cut your losses.”
Investing is an emotional game. Mistakes will be made. Money will be lost. But it is important to not let your emotions get in the way of a sound strategy.
Here is a great lesson I took away from Jim Paul and Brendan Moynihan’s book, “What I Learned Losing a Million Dollars”…
“All loses are treated as failures. People tend to regard loss, wrong, bad and failure as the same. When we lose points in the market, we think we must have been wrong. You take a decision about money (external) and make it a matter of reputation and pride (internal). It is no longer a loss of money, but a personal loss to you. But loss is not the same as wrong and not necessarily bad. Losses in the markets are part of the business and should be taken with equanimity.”
2. The Law of Success: “success usually leads to arrogance, and arrogance leads to failure.”
“I don’t try to be clever at all. The idea that I can see what no one else can is an illusion.” ~ Danny Kahneman
In the stock market, you can experience positive results out of sheer luck, and it is important not to confuse initial success will skill and ability. Nassim Taleb provides an interesting example of this idea in his book “Fooled by Randomness” (which I have not read yet, but Jack Bogle uses this example in his book, “The Little Book on Common Sense Investing”). Let’s say you have 10,000 managers, and each person flips a coin. If heads, the manager will make $10k this year, and if tails, they will lose $10k. We expect 5000 managers to be up $10k and 5000 to be down. Now run the game a second year with the 5000 who guessed correct the first flip. We expect 2500 managers to be up 2 years in a row; another year, 1250; a fourth one, 625; a fifth, 313. So out of pure luck, 313 managers just made money 5 years in a row (and in 10 years, just 10 of the original managers).
3. The Law of Sacrifice: “you have to give up something to get something.”
We make trade-offs all the time in life – deciding to do X means that we can not simultaneously do Y. To be in good physical shape, you can not eat fast food and sit on the couch all day – you need to exercise and eat healthy.
When it comes to investing, if you want to earn high investment returns, you can not keep your money in a savings account – you will need to invest in higher risk vehicles. If you want to invest in the first place, you can not spend your money – you need to be disciplined to save a portion of your income.
4. The Law of Hype: “the situation is often the opposite of the way it appears in the press.”
I find it easier to like someone’s Facebook photo once it has a lot of likes (social proof). Similarly, in the stock market, we tend to want to buy after something has gone up in price (buy high, sell low). Price rises encourage people to buy, which in turn produces greater profits and causes a larger amount of people to participate. If other people are doing something then I’ll likely follow along because: (a) there is comfort in numbers; and (b) I have a strong fear of missing out.
5. The Law of Unpredictability: “unless you are writing your competitors plans, you can’t predict the future.”
Most people (even those considered to be “experts” in their respective fields) are terrible at predicting the future. And thinking you can predict the future can lead to risky behaviors exposing you to loss. Let’s use trying to time the stock market as an example. Nobody can consistently time the stock market, and trying to do so is very risky. The chart below shows the costs of missing out on the 10 best days in the market over a 20 year period.
Your overall return after the 20 years is cut in half if you miss the best 10 days!
Remember: Time in the market > timing the market.
6. The Law of Resources: “without adequate funding, an idea won’t get off the ground. Even the best idea won’t go very far without the money to get off the ground.”
Even the best investment strategies are irrelevant if you are not saving any money. I wrote a post about the idea that your savings rate is much more important than your investment returns when you are first starting out.
7. The Law of Acceleration: “successful programs are not built on fads, they are built on trends. A fad gets a lot of hype, and a trend gets very little. The most profitable thing to ride in marketing is a long term trend.”
Ignore short term fads. Invest for the long term.