SCS, an avid ETR reader, challenged me about ETR’s advertising. “Not too long ago,” she wrote, “you made the statement that if it looks too good to be true, it probably is.
So why do you have advertisements in your newsletter like this one:
“7 Stocks That Could Turn $200 Into $6.6 Million in 2005” SCS continues: “I read your newsletter and have learned many valuable things. Thank you. But I am constantly astonished by the ads you run. I realize that financial copywriters are trained to lure in investors based on their greed (advice, by the way, that I find despicable).”
But don’t you think these types of headlines discredit you and your advice? Yesterday you were recommending a bond strategy. Yet today that stupid headline is the first thing I see in your newsletter. What is that about?” Good question, SCS. And I’m not sure that the answer I’m about to give you will satisfy you – but at the very least, it will help you understand how I rationalize it. Let me start with this: I am a very conservative investor.
If you’ve been reading ETR for any length of time or have read “Automatic Wealth” (and if you haven’t, please do), you know that I keep a very small portion of my savings in stocks. Most of the time, stocks represent less than 10% of my net worth. Often, less than 5%. But that doesn’t mean I don’t believe in stocks. Nor does it mean – as one financial planner (i.e. broker) said in reviewing ETR – that I haven’t heard of Modern Portfolio Theory.
When my goal is steady, long-term appreciation with total liquidity, I’m in stocks. I have a fund set aside to assist my nieces and nephews during college. That money is 100% invested in stocks. I also have annuities established for my retirement that are invested in a conventional combination of stocks and bonds. I like the idea that, over the long run, I can get a 10% ROI from my stock portfolio. That’s better than I’m likely to do with bonds – even taking into consideration tax consequences and fees.
And I do believe – in fact, I know – that I can make more than 10% by following the advice of certain stock experts (either by investing in funds they manage or by following the advice they give in their newsletters). In many cases, I have seen extraordinary performances – double- and even triple-digit returns – by some of the people I’ve worked with (and published) over the years. I’m talking about honest, intelligent, hard-working stock analysts who know 100 times more about stock investing than I’ll ever know.
When I do invest in stocks, I turn to these guys to get my selections. Some of these people advertise in Early to Rise. And we are happy to take their ads. Why? Because we need the revenue to stay in business. It costs us several million dollars a year to publish this newsletter. And that’s just to pay the bills. We’ve been doing this – I was just told the other day – for 5 years now.
So far, ETR itself hasn’t thrown off any profits. But these ads (and your subscription fees) do pay for the salaries of about a dozen employees and all the research that goes into our daily recommendations. So I’m grateful to our advertisers for helping make this possible. But that doesn’t excuse us for publishing such “too-good-to-be-true” headlines. It just explains why we take advertising at all. So now let’s talk about this issue of hyperbole in advertising. Why is it so common? And why do we tolerate it?
But first, let’s admit the obvious: Turning $200 into millions is probably too good to be true. That is to say, it’s highly unlikely. Let’s say you read that headline literally – that is, you read it and think, “Gee, look at this. A way to turn $200 into $6.6 million. I’ve got $500 in my piggy bank. That will bring me … let me see … $16.5 million. That’s terrific!”
If you do that, you will probably be disappointed. But that’s assuming you read advertising literally. And I’d like to think ETR readers are sophisticated enough to realize that advertising is essentially hyperbole – that the purpose of advertising is to excite prospects into purchasing products by stressing their key benefits.
Some products can be sold by focusing on rather humdrum benefits. Pragmatic products, like plumbing supplies, can be sold by emphasizing durability, ease of use, etc. Other products, like cars and perfume and investment newsletters, can only be sold effectively by appealing to deeper psychological benefits, such as the desire to be sexier, smarter, or more admired.
Generally speaking, as consumers we “get” this when it comes to cars, watches, perfume, and whiskey. We know it is highly unlikely that buying a BMW will win us the lissome (see “Word to the Wise,” below) blonde that is draped over its hood in the advertisement. We know that taking that suggestion literally would be foolish – that such a possibility is “too good to be true.”
Yet, when we buy that BMW, we buy into the fantasy. And why is that? Why do smart people who know better repeatedly buy into fantastical advertising promises? In my opinion, it is because we recognize a deeper truth: We don’t actually want that blonde to be on top of our hood each time we go out to the garage. (Our wives wouldn’t understand it – and it would become tiresome to ask her to get off every time we had to run to the 7-Eleven for a carton of milk.) What we want is something subtler and more ephemeral. We want the BMW to make us feel better about ourselves.
We know that the BMW is unlikely to deliver the fantasy blonde, but we also know that it can give us the feeling of being worthy of that sexy creature. By buying into the hyperbole that the BMW advertisers evoke, we participate in a self-fulfilling fantasy. For the $40,000 we spend on the Beamer, instead of, say, $25,000 on a Corolla, we are buying ourselves a fantasy-inspired feeling that can actually be delivered to us each time we step into the car.
The deal is this: If you can get me to believe that the BMW will make me sexy, I’ll pay you the premium you want for it. I know this is true from 25 years of writing copy and 50 years of buying products. And you know it’s true too. Is there something wrong with this? I don’t think so. In fact, I think it’s simplistic and disingenuous to argue that advertising should be conducted without fantasy. Fantasy fulfillment is what we really want.
That’s why we are willing to pay $12,000 for a Rolex or $40 for a quarter ounce of perfume or $18 for a Cuban cigar. We love our fantasies. And we should. Fantasies make life worth living. They excite our intellects and stimulate our passions. Thank goodness for the advertisers and their fantastical claims. Without them, what a drab, black-and-white world we’d all live in.
Which brings me back to SCS’s question: Do I think such headlines discredit me and the advice I give in ETR? And the answer is “no.” The ETR reader who is interested in stocks doesn’t really believe it is likely that the stock system advertised will automatically turn $200 into $6.6 million. But as an avid purchaser of stock-selection information, he wants to be excited by the idea that he could possibly do it.
People who buy stock-selection information are just as fantastical in their wants as people who buy perfume, self-improvement books, and BMWs. They are fetishists of a sort – lovers of the stock-hunting fantasy, searchers for the thrill of buying the next IBM/Microsoft/etc. They want to believe they could possibly turn $200 into millions the same way the fisherman wants to believe he could possibly harpoon Moby Dick and the BMW buyer wants to believe he could possibly find that blonde in his garage one morning. It’s not real … and they know it isn’t.
Wake up, SCS, and smell the fantasy! Yes, they do want to get good advice. And, yes, they want the specific facts laid out in the body of the advertising to be truthful. In allowing ad placement in ETR, we look for those same things. All advertisements that get published in ETR are reviewed by attorneys who ensure that they are compliant with SEC and FTC requirements. But they understand that, although the track records presented must be fair and accurate, a certain amount of hyperbole is allowed – especially in the headline.
In the case of the headline in question – “7 Stocks That Could Turn $200 Into $6.6 Million in 2005” – that claim is supported in the copy by a chart showing what would have happened if you had parlayed 12 consecutive winning picks and got in and out at just the right time. Of course, this would be like going to the racetrack and winning 12 races in a row, each time rolling over your winnings into the next bet. You could probably turn $2 into $1 million in one afternoon … in theory.
And that brings us back to the place we started. Whether it is in ETR or any other place, recognize that advertising is about stimulating desires and fantasies as much as it is about describing products and services. When you see hyperbole in headlines, enjoy it. Read the ad with skepticism … but enjoy the ride. Remember that what you are ultimately looking for is probably much deeper than the product itself. If you can do that, you will be a discriminating buyer (as I’m sure SCS is) and still enjoy the fantasy.[Ed. Note. Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]