Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Tuesday, 24 February 2015

The formula for success

The formula for success

Well, who knew what you might learn from a visit to the gym on Adelaide Street?

The formula for success is simply..."hard work"!

While floundering on the treadmill yesterday afternoon, this got me thinking whether this is actually true?

If the formula for for success was only "hard work" and not a load of complex (or indeed meaningless!) algorithms then, simply, the hardest workers in the world would be the most successful people, and vice-versa.

And I don't think that quite fits.

Certainly, there is an important role for perspiration, but there should also be a key role for planning, patience and persistence too.

3 rules for success

Over the years I have thought about and studied investment and business success more than I care to admit, to the extent that I have written a book on this very subject, to be released later in 2015.

I concluded that for investors and small business owners there are 3 golden rules which all successful folk in these fields have been able to master, consciously or otherwise.

1 - Pleasure-Pain

The first golden rule is the Pleasure-Pain Principle.

What we link pleasure and pain to in our lives determines our actions and behaviours, and thus to a great extent, our results.

Flipping back to the analogy of the gym above, I do wonder sometimes at personal trainers who take new clients through an effective "boot camp" in order to "get them into shape" as quickly as possible.

While hard work may indeed be what an unfit person ultimately needs to put in, if they leave their first session at the gym feeling exhausted and sick, they are unlikely to link any pleasure to the experience and enthusiasm is likely to fade quickly.

It is probably better to start out at a lower intensity and simply enjoy the benefits of exercise to begin with.

This is particularly so because as humans we will invariably go to greater lengths to avoid pain than we will to achieve ultimate pleasure.

How else might this principle impact our lives?

From a personal finance point of view, if you see credit card statements as something to be avoided and quickly dispensed to the waste paper basket, it is likely that you see money management as a pain to be avoided.

The good news is that personal finances and investment can become a source of pleasure as they steadily improve.

From a business or career perspective, Mark Twain once said that the trick in life was to "make your vacation your vocation" since then you would never feel like you were undertaking a day of work in your life.

The implication of this is that it may be worth considering what your true passion is, and whether you should follow a career or set up a small business in that field.

If setting up a small business seems too risky or daunting, building an investment portfolio to secure your financial future first helps greatly.

I don't have the space to explain the Pleasure-Pain Principle in full here (you wouldn't read my book then, anyway!), but a full understanding of why we act in the way that we do is a key step along the challenging road to emotional mastery.

There is certainly no way I would write books (or indeed this daily blog!) if I didn't enjoy the process.

Yes, hard work is important - but the real key to success is finding a vocation that does not really feel like hard work because you have a genuine passion for that field.

2 - 80/20 Rule

The second golden rule is Pareto's Law, more commonly known as the "80/20 Principle" - that most of outputs are derived from only a few of the inputs.

Most of your results will be gleaned from only a minority of your decisions. It's an arresting thought.

The implications of this for small business owners are many.

Most of your revenue will be generated from only a small number of your products, and perhaps only one of them.

Perhaps up to 80 percent or more of your profits will come from only 20 percent or fewer of your customers.

On the other hand 80 percent of your complaints will likely come from 20 percent of your customers (and it's unlikely to be the same 20 percent).

What this does not mean is that you should make a few big decisions and casually ignore the rest of what it going on in your life.

Used correctly the 80/20 Principle is a far more empowering concept than that. 

The 80/20 Principle holds that you should learn to recognise where you are seeing the most effective results in investment, in business and in your life, and double down on these strategies by doing even more of what works.

How can you reach more people with your key product? How can you replicate your most successful investment strategies?

From an investor's perspective this clearly does not mean that you should ignore the important benefits of diversification. 

What it does mean, however, is that you should consider how you can make an investment plan which is effective, sustainable and repeatable.

3 - Compounding

The third golden rule is the principle of compounding or snowballing results - growth upon growth - frequently referred to as "the most powerful force in the universe". 

I wrote here previously about 5 practical tips for compounding results.

The Wrap

Look out for my third book hitting the shelves in Australia around September or October time.

In the meantime, a veritable slew of economic data is due out across the next 72 hours, so stay tuned...