The more you really understand the secret thoughts and motivators of your audience, the easier it becomes to sell them…
This, of course, can be taken too far.
I won’t name names, but I personally know copywriters who are happy to completely exploit their customer’s weakness to persuade them to buy things that the copywriter knows are not in their best interests.
They’re also smart enough to know how to avoid the law while doing so.
And they are happy to do it out of pure disdain and contempt for the audience.
That, my friend, sounds like a sociopath.
And I’m not a fan.
But on the other side of that, there are many marketers and copywriters who are truly interested in serving the customer in the best possible way. Who are dedicated to only selling products they believe will benefit the customer.
And the exact same understanding can be used ethically, to more effectively persuade them to take an action — to make a purchase in their best interests.
What I’m about to share with you has this Dark-Side/Light-Side battle built in.
Because it reflects a deep understanding of human psychology that I believe very few truly get. But that is devastatingly powerful when applied.
I can’t reveal my source…
Suffice it to say it’s someone you probably would NOT recognize, but who has made a career out of influencing investors. An insider on both Wall Street, and in the more renegade, entrepreneurial financial publishing world.
They put this out there as kind of a throwaway comment, in the middle of a bigger conversation.
But when I heard it, I knew I had to come back to it.
Because it explained PERFECTLY why investors often behave in totally counterintuitive (and self-destructive) ways.
And this is highly effective not only when it comes to selling to investors… But also, I believe understanding this once principle can help you make better financial decisions, giving you a lens through which you can watch the market and think more critically and accurately about what’s going on.
And, considering that we’re well into the second-longest bull market in modern history and ripe for a correction or crash… This could be incredibly useful advice for even the casual investor who is wondering what to do with their money today.
I don’t intend to write an investment column, but there is certainly some investment insight to be gained through meditation on what you’re about to learn!
How we SHOULD behave, according to Warren Buffett and other ultra-rich investors…
There is one sentence that sums up what it takes to be a spectacularly-successful investor or speculator.
“Be fearful when others are greedy, and greedy when others are fearful.”
This is often attributed to Warren Buffett, but I’m certain he was neither the first nor the last ultra-successful investor to repeat this quip.
Here’s the thing…
Most investors DO THE EXACT OPPOSITE and end up getting clobbered.
Most individual investors, left to their own devices, horribly under-perform even the staid stock market indexes.
That’s why, even alongside the advice above, Buffett also says that most investors would be better off parking their money in an index fund and keeping their grubby little paws off it. Because the more you meddle, the more likely it is you’ll make a horrible decision and tank your portfolio — even if the broader market is going up.
A personal example…
Once upon a time, toward the end of the last really exciting run-up in gold (10 unbroken years into a bull market), I got the chance to write a promotion for little gold mining stocks that stood the potential to make you 5-times, 10-times, or much more on your original investment… Really fast.
This was before I really understood this principle, mind you.
I was as swept up in the excitement as most other investors (and my portfolio reflected it).
Even better, the editor I was writing about had off-the-charts credibility and a track record that would make you drool.
Over 18 months, I think it was, the entire portfolio was up 3.5X. Huge gains.
With gold and other precious metals on a tear, practically everything they were buying was — ahem — turning to gold.
Perhaps needless to say, the promotion was a smashing success. We sold a ton of subscriptions, and got a whole rash of new investors into these little gold stocks.
And yet, at the time, the editor was already getting uncomfortable.
“Be fearful when others are greedy, and greedy when others are fearful.”
Sure, he was happy to have all these new investors. And he was happy that their precious metals investments were hitting new highs.
But at the same time, he was taking money OFF the table, and advising readers to do the same. Even as these new investors were coming in and buying up stocks, feeling like they wanted a piece of the recent action.
I don’t remember the exact timing.
But it wasn’t long until gold peaked. And it’s been in a long downward slide since then.
Thankfully, I believe those investors were in good hands — those who followed the advice carefully anyway. Because while gold has gone mostly down, sharp investors have found opportunities in specific mining stocks.
But the reality is that most investors probably let their greed drive their behavior, rather than listening to the specific advice of this editor. And they probably loaded up on the right stocks at exactly the wrong time, took a hit, and were soured on the market and the editor.
That was a learning experience…
Mine is NOT the only example that would fit into this category. In fact, after this I started paying attention. And I noticed a pattern.
With 20:20 hindsight, I could see that investors flock to fear promos AFTER the market has gone down for an extended period of time, and is set to return with a vengeance. And they flock to greed promos as the market is reaching new nosebleed highs, and is at the most risk of catastrophic collapse.
For example, the WORST time to get really bearish on the American stock market in the last few years was probably 2009-2011. And yet, that’s exactly when the most bearish promotions in modern history, The End of America and Aftershock, were bringing in somewhere north of $100,000,000 in new business for their publishers (I don’t have exact figures for either, but I believe that’s a conservative representation).
Likewise, the most popular time in recent history for real estate investment and flipping? 2005-2007, right before an epic real estate market meltdown. The biggest time for tech stocks, prior to our current bull market? The late 1990s, right before a crash it would take the NASDAQ nearly 15 years to recover from purely in terms of price, and that it still hasn’t recovered from on an inflation-adjusted basis.
This happens over and over again.
Investors get fearful when others are fearful (when the market is in the pits and you can pick up great stocks for pennies on the dollar)…
And greedy when others are greedy (when everything is a bubble and no investment represents a good value).
We behave in the exact OPPOSITE way that we should.
Here’s how this can be a secret weapon, used for good or evil…
Investors behave in the exact same way when buying INVESTMENT RESEARCH PUBLICATIONS as they do when buying STOCKS.
That is, let’s say that on a long term basis, today is a horrible time to buy stocks, because the market has been going up since 2009, and it’s extremely likely that we’ll see a major correction within 12 to 36 months. (I’m not a market prognosticator, but this is certainly in line with how the market has behaved in the past.)
The LOGICAL thing to do, in this situation, would be to behave fearfully. That is, to NOT buy stocks today, and to only invest in research and financial advice that helps you batten the hatches and protect yourself against the inevitable downturn.
(Likewise, the best advice to invest in from 2009 to 2011 would have been to buy everything, but especially stocks that would profit from massive amounts of debt.)
But that’s not what investors want to buy. Today, at the tail end of a bull market, investors want to buy advice on the next hot stock that will explode higher for the rest of the bull market. They’re grabbing up single-stock stories with reckless abandon, even if those same stocks will crash doubly-hard when the market tanks next.
Even though the best advice AFTER they purchase may be to be careful, prudent, and protect your downside (in other words, take actions based on fear)… The best way to get investors to buy today, when everybody is greedy, is with more greed.
Likewise, when the market crashes next and blood is running in the streets (the Wall Street metaphor for post-crash prices, and an often-referenced big buying opportunity)…
The best ADVICE will be to get greedy, but what will sell best (what investors will buy) is more fear and more downside protection.
Rich investors get that way by first understanding this and then exploiting it. (Again, “Be greedy when others are fearful, and fearful when others are greedy.”)
But the casual investor falls prey to this over and over and over again throughout their investing lifetime.
All this is a grand setup to understanding what really motivates investors — a more nuanced perspective than the oft-parroted “fear versus greed”…
The two more powerful factors than fear and greed are…
Envy and regret…
When the market is going up, there’s a greener-grass perception that everybody else is getting richer than me, faster than me.
And I want my share of the riches, dammit!
The Joneses are making a fortune in whatever opportunity is the flavor of the day (today, Bitcoin, Silicon Valley Unicorns, etc.)…
And even though I think I’m better than that or smarter than that — I still have an aching need to keep up with those Joneses.
That lures me and countless other casual investors like me into the markets. Which only drives those prices higher, faster. We’re all feeling good about ourselves, and we start living high on the hog, until…
Suddenly, there’s nobody else left willing to keep pouring money into the overheated market, and…
Look out below.
A market without buyers becomes a market dominated by sellers. And when everybody’s selling, there’s a race to the bottom to liquidate shares. That is, investors are willing to take less and less just to stop the bleeding. Often selling at a substantial loss compared to what they bought the stock at just months prior, as the bubble was rapidly-expanding.
Because of the panic and fear, this happens far faster than the bull market that preceded it, and within months everybody is licking their wounds, and regretting their poor investment decision making.
The losses, acutely painful, become a lesson in regret:
“I never want that to happen again. I’m going to protect myself well this time.”
And so, in the depths of a buyer’s market, full of incredible investing bargains, the casual investor lets regret guide their decision making, and doesn’t buy.
The bull market rises slowly like a phoenix from the ashes of its burnt past, and against a wall of casual investor doubts, prices go up and up and up.
The casual investor who’d developed an anti-risk, sit-on-the-sidelines attitude in the depths of the last crash watches as the market goes up… And starts to feel the pangs of envy as they perceive others getting rich while they’re not…
And the cycle begins again.
What to take from this?
If you act with INTEGRITY and you are speaking to investors, it’s worth noting that you may need to sell counter to your best current advice, in order to get the most investors in the door and maximize your positive impact.
“Sell them what they want, deliver what they need.”
And if you’re an investor, the above should add new depth and dimension to the advice to “Be greedy when others are fearful, and fearful when others are greedy.”
I don’t think the markets will crash tomorrow. In fact, for reasons that have nothing to do with politics or what many would consider the biggest market-driving factors, I think we probably have at least 12 more months of bull market left.
But these last few months are when the casual investor has the highest risk of going all-in at exactly the wrong time. Tread carefully.
Yours for bigger breakthroughs,
Roy Furr
