Hey Rainmaker, it must be Monday!
Because I just dug into my mailbox and found a question to answer.
Remember, on Mailbox Monday, I answer YOUR most pressing questions about marketing, selling, copywriting, business, life, whatever.
And YOU are the critical part of that equation.
I need your questions: send them to me at [email protected].
On to today’s question…
This one, from Jackie, a long-time reader and correspondent. Jackie’s questions almost always spur conversations that are a little different from the norm — in a good way — and today is no exception!
Here’s a Monday question for you:
I know you have primarily written sales letters in the financial niche. Are there financial concepts that also ‘cross over’ to marketing best practices?
Possibly an example would be the belief — pretty much a given to most people in the financial world — that greater rewards only come with greater risk. Risk vs. Reward — that’s the core principal of investing ‘tolerance’ and strategy. Also applicable to marketing? Or to success for copywriters?
Are there other financial ‘truisms’ that can help marketers or writers to breakthrough results? Your thoughts…?
Thanks Jackie, and this one should be fun!
I’m going to start off by first addressing your example, then I want to spend most of this issue writing about one of Warren Buffett’s most important investing concepts, and how it applies to marketing and copywriting… And finally, I’ll have one more bonus concept for you.
So, the risk-reward ratio.
First off, I think the story of the risk-reward ratio makes a lot of money for Wall Street. Not for individual investors.
Because one of the things you should know about the brokerage at which you have your investment account, is they make money when you trade.
Every time you buy or sell a stock, they make fees.
Which means, often, they’re better off for you to buy volatile stocks than steady-gainers.
If you buy and hold a stock for 30 years, that means they get a commission now, and a commission in three decades.
Whereas if you buy a “risky” volatile stock, and then sell it, and buy another, and sell it, and buy another… They just keep making money from you over and over and over again.
It doesn’t matter if you’re winning or losing, as long as you’re trading.
Further, there’s usually hotshot traders on Wall Street who are on the other side of your trades.
Most individual investors suck at making any money through investing. The stats say so.
Most investors buy high and sell low — when you’re supposed to do it the other way around.
On the other side of that trade, a skillful investor or trader will sell you a stock after it’s already gone very high, and buy it from you again when it crashes.
Not because they want to take on more risk. Quite the opposite, in fact.
Most great investors abhor risk.
As a marketer, you probably should, too. Which brings us to the lesson from the Oracle of Omaha…
Margin of Safety in investing…
Perhaps the one strategy that’s made Warren Buffett the most successful investor to ever have existed is Margin of Safety.
This flies in the face of the assumption that it takes risk to make money in investing.
From a very young age, Buffett got really good at understanding companies’ finances. He could look at a balance sheet, and make a reasonable assumption of how much the company was worth.
And that’s totally different than the stock price. The stock price is a relatively arbitrary and irrational value the market puts on a share of ownership in the company.
A company could be worth $1 billion today by relevant business metrics, but the market cap (the total value of all the shares) could be $100 billion… Or $500 million.
The market value is very different than the actual value in the business.
So, following the Ben Graham school of value investing, Buffett started to look for opportunities to buy good companies, cheap.
Even if the market was in love with a company that was worth 100X what the business metrics pegged its value at, and that company was getting all the press…
Buffett would much rather pick up shares of a real-value $1 billion company that was currently valued by the stock market at $500 million.
The way he figured it, the 100X value company had almost nowhere to go but down…
While the 50% value company had almost nowhere to go but up.
And if you think 100X is a crazy multiple, what’s the value of a company that’s losing money just to stay in business?
For example, Amazon.com. When you buy a share today, around $500, you’re getting a stake in a business that is losing $.50 of your money every year, for every share you own.
Or how about Scholastic Corporation? They’re actually making money. Less than a penny per share. If you buy them at today’s price, and they maintain current performance, it will take 4,132 years if you get all the profit for your shares, for you to make your money back.
Buffett learned early on that this was bad. No matter which direction their share price was going.
He’d rather find a stock whose share price just tanked, but whose balance sheet showed $1 of assets and income for every $.50 in share price.
If he could find that, he figured, he’d just have to wait for the market to realize the value and he could double his money.
This was the approach he used to become rich beyond anybody’s wildest dreams, and establish himself as the most successful investor in history.
How to apply Margin of Safety in marketing…
The idea behind Margin of Safety actually has very broad application in marketing and business.
For example, if I’m going into a market and there are already competitors, I want to do as much as possible to reduce my risk of failure, and increase my likelihood of success.
So, I’m going to look at what all the competitors in that market are doing. I’m going to compare their advertising, their offers, the best I can tell of their business strategies. I’m going to take note of all of those. And when I find a large percentage of my competitors all using certain elements, I’m going to make sure I include that in my plan.
Is it possible that I could do things drastically differently — taking a bigger risk — and have a much bigger reward? Absolutely!
But if I want to make sure to be profitable out of the gate (and not lose it all), I should start with a low-risk approach.
Applied to copywriting, this is why we study the greats, as well as what’s working now.
If I’m going to write a long sales letter, I can just sit down and start writing. Or, I can study what others have put into their successful sales letters, and put it into mine.
I can dive into the strategies most commonly used in copy, marketing, and offers, and increase my likelihood of success.
I can look at how others have made guarantees, and model theirs as I create mine.
The list goes on.
Further, I can do a lot of things to lower my risk and give myself a Margin of Safety that virtually guarantees at least some level of success.
For example, as a copywriter I have a variety of clients I’ve worked with.
What I’ve learned over the years is I’m better off working on established products with a track record of selling than those that are brand new.
There are a lot of variables that can make a product succeed or fail. When you launch a brand new product, it’s hard to tell if it’s the marketing or some other variable that determines either success or failure.
Whereas if you have a product with a proven track record of selling, you know you have something on your hands that should at least be somewhat successful. Then it’s up to you and your marketing to make sure it’s an even bigger winner.
Also, I like to work with clients who have a verifiable relationship with the audience they’re selling to. While bringing new customers through the door is important, having a list of customers who know, like, and trust you can be the secret to generating a ton of profit.
There are many specific applications, and I could probably go on for quite a long time.
The biggest thing to take away isn’t these little specifics. It’s the big picture. In every situation, you should ask yourself…
“What can I do to take as much of the chance of failure out of this as possible? What can I do that creates the biggest Margin of Safety?”
Bonus: You are your own worst enemy…
Continuing with some of the themes above, here’s one more lesson from investing you should think about in your business.
You are your own worst enemy.
Most folks make a lot of mistakes, in investing and in business.
The big difference between winners and losers is how they either contain or amplify those mistakes.
For example, the average investor will get scared out of the market by a crash, wait for the market to hit new highs before buying in, then ride out to the bottom of the next crash before they sell low.
This is a never-ending cycle of being fearful when you should be greedy and greedy when you should be fearful. And it actually amplifies the mistakes — because every time, you lose a big chunk of your constantly-dwindling pile.
A winning investor might notice this emotional drive to be highly-reactive to the market swings, and seek to contain it. They might adopt a system for buying low, and selling high. Like Buffett’s. They will try to protect themselves from themselves.
The same applies to business.
For example, seeking out new clients. Most folks are scared of it, so might not do it. The person who is good at it isn’t necessarily naturally so. Instead, maybe they made it a system to contain that fear by approaching at least one new client a day.
If you are your own worst enemy (and I certainly am sometimes), try to recognize it and contain the destruction that would otherwise be caused.
I hope this is helpful — and maybe even a breakthrough!
Yours for bigger breakthroughs,
Editor, Breakthrough Marketing Secrets