Investing in Your Ads

I've long said that advertising is an investment, and should be treated like other investments.

When you expect high return quickly, there is high risk. When you expect slow, consistent growth the risk is minimized.

So I found this quote particularly interesting:

“Fact #1: From 1984 through 1995 the average stock mutual fund posted a yearly return of 12.3 percent, while the average bond mutual fund returned 9.7 percent a year.

“Fact #2: From 1984 through 1995 the average investor in a stock mutual fund earned 6.3 percent, while the average investor in a bond mutual fund earned 8 percent.”

Gary Belsky & Thomas Gilovich explain how funds can earn more than the people who own them in Why Smart People Make Big Money Mistakes and How to Correct Them:

“Rather than investing in a few well-researched mutual (ideally index) funds and holding on to them for a very long time through thick and thin – the classic “buy and hold” strategy – most people flit in and out of a whole passel of funds in an effort to maximize their returns.”

Of course, if they got into better performing funds this observation would be pointless. Apparently, the odds go down the more often the investor changes strategy.

So, back to my comparison to advertising. Much like investors in stock funds get bored with the performance of their funds and believe changing will improve their returns, investors in advertising get bored with the performance of their advertising and believe changing strategies will improve their responses.

In both cases, they're usually wrong.

Imagine how much better a good strategy could work were it given time to impact all of those people who haven't yet been persuaded to do business with you.

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