This Is the Most Important Word in Investing

No one is immune to the power of persuasion. Certainly not investors. So here are six "weapons of influence" to watch out for. [Liberty Through Wealth]( SPONSORED [Bill O'Reilly - Truth Trump Economy]( Bill O'Reilly: "The real TRUTH about the U.S. economy" [Click Here]( Tell Us... Do you and your partner tend to agree on financial decisions? [Click here to respond.]( THE SHORTEST WAY TO A RICH LIFE The Psychology of "Influence" in Investing Nicholas Vardy | Quantitative Strategist | The Oxford Club [Nicholas Vardy] Robert Cialdini is no ivory tower academic. Most psychology professors conduct research on college students. But Cialdini bases his work on experiments in the real world of business. Cialdini spent three undercover years working at used car dealerships, fundraising organizations and telemarketing firms to observe real-life examples of persuasion. The result was [Influence: The Psychology of Persuasion](. The book established Cialdini as one of the most influential social psychologists in the world. You'll recognize the footprints of Cialdini's research in almost every sales pitch you come across. No wonder thousands of salespeople across the world consider Influence their bible. I consider it among the top 20 most influential books I've ever read. So what do Cialdini's insights in Influence have to do with investing? Well, quite a bit, as it turns out. None other than Charlie Munger - Warren Buffett's elder and smarter sidekick - credits Cialdini with some of his most critical psychological insights on investing. Munger cited Cialdini's book as a profound influence on his thinking in a speech at [Harvard back in 1995](. Overcoming your psychological biases is hard work. But identifying them is crucial for improving the quality of your investment decisions. So here are six "weapons of influence" to be aware of... SPONSORED [Hot IPO Stock Gets Business From 25 Fortune 100 Companies]( [60 Minutes]( Walk outside an Ikea, Walmart, Home Depot or Macy's and you might just see an unusual set of boxes. People wonder what in the heck they are - after all, the technology was developed for Mars. [Find out what's going on here.]( Cialdini's Six Weapons of Influence 1. Scarcity If you believe something is scarce, you will suddenly want more of it. That's why offers are available for a "limited time only." In the world of investing, an [initial public offering]( of a stock is often "oversubscribed." If investors can't invest as much as they want, they overvalue the stock. They buy more once the stock is listed, even if it is at a higher price. The lesson? Don't chase the price of a stock irrationally. Chances are good you will get a second swing at the ball at a more reasonable price. 2. Commitment and Consistency If you commit to an idea orally or in writing, you are more likely to honor that commitment. This commitment explains why you will stick with an investment longer if you've told your friends about it. Analysts at top investment firms suffer from the same bias. Having put their reputations on the line by recommending a stock, they will stick with it longer than they should. The lesson? Don't "marry a stock." Look at your investment portfolio every day with fresh eyes. 3. Liking People are more likely to buy if they like the person selling to them. That's why salespeople try to be your new best friend. In his book, Cialdini cites the marketing of Tupperware. If you make a friend at a Tupperware party, you are much more likely to buy the products. Also, the more attractive you find someone, the more likely you are to buy from him or her. The lesson? Be careful of overly friendly salespeople. Don't part with your hard-earned money just because you're both Chicago Cubs fans. 4. Reciprocity If someone gives you something, you feel you need to return the favor. Hare Krishnas used to pass out flowers at airports in the 1970s. If you accept an unsolicited gift, you are more likely to donate. That's why brokers overwhelm you with mouse pads, golf balls and tickets to sporting events. When I was a fund manager, brokers regularly took us to high-profile events. It's how I first went to a Wimbledon tennis match. Consciously or unconsciously, I felt obliged to place my trades through these brokers. The lesson? "Free stuff" is never free. You end up paying one way or another. 5. Social Proof We all look to others to confirm our decisions. To see others making the same choice makes us feel comfortable about our own. Cialdini had one of his associates on the street look up into the sky. Bystanders then looked up into the sky to see what the associate was seeing. The lesson? Novice investors buy companies on the cover of Fortune magazine or what they hear from their friends. Don't do that. [Experienced investors]( are doing the opposite. 6. Authority We tend to obey authority figures, even when their orders make no sense or are objectionable. Cialdini cites the famous experiments by Stanley Milgram in the early 1960s. Most of Milgram's subjects were persuaded to give electric shocks to Milgram's associates because an authority in a white lab coat told them to do so. Investors will often justify buying a stock by citing Goldman Sachs' "Buy" recommendation. Jim Cramer recently said that "there is no ceiling on [Tesla stock]( The lesson? Do your own thinking. Question authority. How "Weapons of Influence" Apply to Investing Cialdini did not have investors in mind when he developed his "weapons of influence." Yet the [psychology behind each]( can impact your investment decisions in far more ways than you can imagine. How does Cialdini manage his own money, given his insights? In turns out that Cialdini has invested the bulk of his assets in Berkshire Hathaway (NYSE: BRK-B) for decades. He entrusts his investment portfolio to two investors - [Warren Buffett]( and Charlie Munger - who Cialdini knows have read and understood Influence's lessons. So if you want to improve your investment decision making, I recommend you read and study Influence: The Psychology of Persuasion. It will be one of the most influential books you've ever read. Good investing, Nicholas [Leave a Comment]( [Quick Gains]( [Click here]( to watch Nicholas' latest video update. For the latest news from Nicholas, connect on [Facebook]( and [Twitter](. JOIN THE CONVERSATION [Facebook]( [Facebook]( [Twitter]( [Twitter]( [Email Share](mailto:?subject=A%20great%20piece%20from%20Liberty%20Through%20Wealth...&body=From%20Liberty%20Through%20Wealth:%0D%0A%0D%0ANo%20one%20is%20immune%20to%20the%20power%20of%20persuasion.%20Certainly%20not%20investors.%20So%20here%20are%20six%20%22weapons%20of%20influence%22%20to%20watch%20out%20for.%0D%0A%0D [Email Share](mailto:?subject=A%20great%20piece%20from%20Liberty%20Through%20Wealth...&body=From%20Liberty%20Through%20Wealth:%0D%0A%0D%0ANo%20one%20is%20immune%20to%20the%20power%20of%20persuasion.%20Certainly%20not%20investors.%20So%20here%20are%20six%20%22weapons%20of%20influence%22%20to%20watch%20out%20for.%0D%0A%0D MORE FROM LIBERTY THROUGH WEALTH [Two Key Lessons for a Booming Gold Market]( [I Was Batboy to the Greatest Slugger of Them All]( [Profit From Wall Street's Second-Favorite Stock]( SPONSORED [Do NOT Flip Houses... Start Collecting Real Estate Income With as Little as $50]( This is the easiest way to start collecting real estate income. You could be looking at thousands of dollars over time! [Here's how.]( [The Oxford Club]( You are receiving this email because you subscribed to Liberty Through Wealth. Liberty Through Wealth is published by The Oxford Club. Questions? Check out our [FAQs](. Trying to reach us?[Contact us here.]( Please do not reply to this email as it goes to an unmonitored inbox. [Privacy Policy]( | [Whitelist Liberty Through Wealth]( | [Unsubscribe]( © 2020 The Oxford Club, LLC All Rights Reserved The Oxford Club | [105 West Monument Street](#) | [Baltimore, MD 21201](#) North America: [1.800.589.3430](#) | International: [+1.443.353.4334](#) | Fax: [1.410.329.1923](#) [Oxfordclub.com]( The Oxford Club is a financial publisher that does not offer any personal financial advice or advocate the purchase or sale of any security or investment for any specific individual. Members should be aware that although our track record is highly rated by an independent analysis and has been legally reviewed, investment markets have inherent risks and there can be no guarantee of future profits. The stated returns may also include option trades. We expressly forbid our writers from having a financial interest in their own securities recommendations to readers. All of our employees and agents must wait 24 hours after online publication or 72 hours after the mailing of printed-only publications prior to following an initial recommendation. Any investments recommended by The Oxford Club should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. Protected by copyright laws of the United States and international treaties. The information found on this website may only be used pursuant to the membership or subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of The Oxford Club, 105 W. Monument Street, Baltimore MD 21201.