Discover four keys to successful investing, as well as the marketing practices you should be aware of when considering investments for your portfolio.
One of the keys to successful investing is to learn to watch for and understand human nature. It shows up throughout human activity, but especially when money is involved.
In trying to make a sale, for instance, it’s only natural for the seller to play up the high appeal and low cost of the product being offered. This has led to a widespread marketing practice that you may have noticed: when sharp marketers try to sell a product, they portray its features as if they were obvious benefits—not at all the same thing.
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How Successful Investors Get RICH
Learn everything you need to know in 'The Canadian Guide on How to Invest in Stocks Successfully' for FREE from The Successful Investor.
How to Invest In Stocks Guide: Find 10 factors that make your investments safer and stronger.
Understanding the difference between features and benefits is one of the keys to successful investing
This is a proven, low-cost marketing technique. It can speed up the buyer’s decision to buy. However, it can also lead potential buyers into making risky or poorly thought-out buying decisions.
This rule gets a lot of use in the marketing of fintech services, such as online brokerage services that claim they let you buy and sell stocks “commission-free.” The claim is perfectly true. That’s because the fintech passes the trade on to be executed by third-party/high speed brokers who buy and sell so fast and efficiently that they earn fees from other participants in the deal. The fintech gets a tiny fee for bringing in the client.
These fees come out of the pockets of the fintech’s clients—investors whose investments are being bought and sold. But instead of being identified as commissions, these fees raise the cost of a purchase, or reduce the proceeds of a sale. It’s obviously a benefit for the fintech. But it’s a feature at best for fintech clients who are just trying to save a few cents on brokerage commissions.
Salespeople do the same
Salespeople do something like that too, but more casually—with less planning and more ad-libbing.
I recall one time, decades ago, when I was shopping for my first car. The salesperson was trying to interest me in a used car that I felt was over-priced. He expected to change my mind by explaining that the car was “the pace car at last year’s Indianapolis 500.”
He thought this would pique my interest. It did, but not the way he expected. I had to ask, “Why would that matter?” He explained that the “Indy 500” was a yearly auto race that had been in business for decades. Every year, the Indy organization chooses a standout automobile to perform pace car duties.
I explained to him that I was more of a practical person than a car nut. I was looking for a car that had low mileage, a reputation for low maintenance costs and high reliability, no rust or body dings, a great Consumer Reports recommendation, and so on. I’d automatically pass on a car that cost more simply because its manufacturer paid to have it play a marketing role in a commercial sporting event like the Indy 500.
I remember writing something like this a couple of decades ago, at the height of the year 2000 Internet boom. One of the most-talked-about advertisers at the Super Bowl half-time show that year was an Internet start-up that had spent all its cash on a single Super Bowl ad. The ad was a winner for its entertainment value. However, it didn’t say much about the company, which had not yet brought in a dime in revenues.
The situation stirred up a lot of TV and radio comment, but no additional investors. The start-up went broke before the year ended.
Something like this also turns up in the marketing of new stock issues, mutual funds and other investments. It’s particularly common in the marketing of Venture Capital issues that have gone public but not yet established a record of profitability. Keep this in mind when assessing start-ups.
Keys to successful investing: Keep long-term gains in mind
A successful investment is one that provides long-term gains for its investors. Profitability will mean different things to many investors.
When it comes down to it, the four keys to successful investing are:
- Be skeptical of the claims and recommendations of brokers, promoters or anybody else with a vested interest in a particular investment.
- Don’t do anything stupid.
- Win by not losing.
Successful investors try to arrange their portfolios so that they more-or-less automatically tap into the profit and long-term growth that inevitably comes to well-established companies.
Our three-part Successful Investor approach is comprised of keys to successful investing
- Hold mostly high-quality, dividend-paying stocks.
- Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
- Downplay or stay out of stocks in the broker/media limelight.
What are some sales pitches you’ve heard surrounding new stock issues, mutual funds, or other investments?
How do you look through the marketing to determine if an investment is right for you?