Latest / The Dutch Investors / #20 | 5 Universal laws applied to investing | Part 1

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#20 | 5 Universal laws applied to investing | Part 1 · The Dutch Investors

• 0:00
  SPEAKER_00: Have you ever wondered why people always seem to fall for the same investing scams and pitfalls?
• 0:07
  SPEAKER_00: Or why markets behave irrationally over and over again?
• 0:11
  SPEAKER_00: Or why some businesses rise like rockets into the sky and others crash and burn.
• 0:18
  SPEAKER_00: So today we're diving into some of the most fascinating, universal laws from psychology, economics, and even biology, and how they explain why markets and investors behave the way they do.
• 0:34
  SPEAKER_00: Once you learn these patterns, you start seeing them everywhere.
• 0:38
  SPEAKER_00: So grab a coffee, get comfy, and let's do this.
• 0:55
  SPEAKER_00: I'm your host Sim, and today 5 universal laws and how they apply to investing.
• 1:03
  SPEAKER_00: And I know I say this quite a lot, but I am really excited about today's episode.
• 1:08
  SPEAKER_00: It combines psychology and science with investing and finance.
• 1:13
  SPEAKER_00: I just love all the little ways the world works, you know, so let's get started.
• 1:19
  SPEAKER_00: Let's start with one of my absolute favorites, Brandolini's Law, or as some people call it, bullshit asymmetry principle.
• 1:30
  SPEAKER_00: And the law says the following, and I quote, the amount of energy needed to refute bullshit is an order of magnitude bigger than to produce it.
• 1:41
  SPEAKER_00: Or, put simply, it's way easier to spread nonsense than it is to correct it.
• 1:48
  SPEAKER_00: Think about how quickly misinformation spread in finance.
• 1:53
  SPEAKER_00: You have probably seen a tweet saying, this penny stock is the next Tesla, or this stock will double next year, or even headlines screaming the market is going to crash next week.
• 2:06
  SPEAKER_00: The crazier the claim, the faster it spreads and the more fuse it gets.
• 2:12
  SPEAKER_00: Because people love drama.
• 2:16
  SPEAKER_00: Meanwhile, actual experts, actual scientists, the ones that use data, science, and logic have to go out of their way to explain why it's nonsense.
• 2:28
  SPEAKER_00: And by the time they do, the damage is already done.
• 2:32
  SPEAKER_00: We see this all the time in investing.
• 2:35
  SPEAKER_00: Hyped up stocks pump to insane levels, only to crash when reality sets in.
• 2:42
  SPEAKER_00: Scams and get-rich quick schemes prey on people's fear of missing out.
• 2:47
  SPEAKER_00: But also marketing tricks make you feel like if you don't act now, you'll lose your chance forever.
• 2:55
  SPEAKER_00: This is exactly why fear and greed move markets more than logic does.
• 3:00
  SPEAKER_00: So next time you hear a bold claim, pause and ask yourself: Does this person actually know what they're talking about?
• 3:08
  SPEAKER_00: Are they trying to sell me something?
• 3:10
  SPEAKER_00: Does this sound too good to be true?
• 3:12
  SPEAKER_00: Because if it does, it probably is.
• 3:16
  SPEAKER_00: Markets will always be full of hype, but smart investors know how to filter out the noise.
• 3:24
  SPEAKER_00: Beautiful.
• 3:25
  SPEAKER_00: Next one.
• 3:27
  SPEAKER_00: Littlewood's Law, named after British mathematician John Edensor Littlewood.
• 3:34
  SPEAKER_00: But I like to call it the law of truly large numbers.
• 3:38
  SPEAKER_00: Just way easier for me to remember.
• 3:41
  SPEAKER_00: And this universal law completely changed how I view the world.
• 3:46
  SPEAKER_00: It says that miracles happen all the time, not because of divine intervention, but because of basic math.
• 3:55
  SPEAKER_00: Littlewood's law tells us that what seems like a miracle is just a numbers game.
• 4:02
  SPEAKER_00: In a lifetime full of events, even a 1 in a billion chance isn't actually that rare.
• 4:10
  SPEAKER_00: It's actually expected.
• 4:13
  SPEAKER_00: Think about it.
• 4:14
  SPEAKER_00: There are 8 billion people on Earth.
• 4:17
  SPEAKER_00: Even if something has a 1 in a billion chance of happening, that means 8 of those miracles happen every day.
• 4:26
  SPEAKER_00: Now apply this to the stock market.
• 4:29
  SPEAKER_00: Every now and then you hear some crazy story.
• 4:33
  SPEAKER_00: A random startup going up 5000% in a single year.
• 4:37
  SPEAKER_00: Someone making a million dollars on a single trade.
• 4:41
  SPEAKER_00: And people go, whoa, that's incredible.
• 4:44
  SPEAKER_00: How do I do that?
• 4:45
  SPEAKER_00: How do I get in on that?
• 4:47
  SPEAKER_00: But here's the thing.
• 4:48
  SPEAKER_00: If millions of people are trading stocks every day, statistically, crazy stuff like that is bound to happen.
• 4:56
  SPEAKER_00: It doesn't mean it's repeatable or predictable.
• 5:00
  SPEAKER_00: So don't chase these miracle investments.
• 5:04
  SPEAKER_00: You're far more likely to end up with the 99.9% who lose money trying.
• 5:11
  SPEAKER_00: Instead, focus on high probability, long-term strategies.
• 5:17
  SPEAKER_00: Your goal isn't to get lucky, it's to become the kind of investor who doesn't need luck.
• 5:22
  SPEAKER_00: That's what we focus on with the Dutch investors.
• 5:27
  SPEAKER_00: Okay.
• 5:28
  SPEAKER_00: Now, next one is kinda sad actually, but it's super important.
• 5:33
  SPEAKER_00: It's called Dolo's Law by Belgian paleontologist Louis Dolo.
• 5:40
  SPEAKER_00: And it comes from biology, and very simply put, it means that once an organism evolves, it can never go back to a previous state.
• 5:50
  SPEAKER_00: If a species loses a trait, like, say the ability to fly, for example, it is extremely unlikely, if not impossible, that it will evolve the exact same way again.
• 6:03
  SPEAKER_00: Because evolution doesn't rewind.
• 6:07
  SPEAKER_00: It moves forward, on a new path, making some options permanently off the table.
• 6:14
  SPEAKER_00: And this goes for investing in business as well.
• 6:18
  SPEAKER_00: Kodak was once the king of photography.
• 6:21
  SPEAKER_00: Dead.
• 6:22
  SPEAKER_00: BlackBerry and Nokia once dominated the smartphone world.
• 6:26
  SPEAKER_00: They're gone.
• 6:27
  SPEAKER_00: Sears was the Amazon of its time, and it got disrupted big time.
• 6:32
  SPEAKER_00: Intel was once the largest, most advanced semiconductor company for decades.
• 6:37
  SPEAKER_00: Evolution came along, aka Nvidia, or innovation, and disrupted.
• 6:43
  SPEAKER_00: And there are tons of other examples.
• 6:46
  SPEAKER_00: Once a company loses its competitive edge, history shows it almost never comes back.
• 6:54
  SPEAKER_00: Yet, investors love betting on so-called turnaround stocks.
• 6:59
  SPEAKER_00: This company was huge once, so it can be huge again.
• 7:04
  SPEAKER_00: But Dolo's Law says otherwise.
• 7:07
  SPEAKER_00: So what's the lesson here?
• 7:10
  SPEAKER_00: Be very skeptical of struggling companies trying to make a comeback, first of all, and focus on companies or have a high likelihood of disrupting current industries, not betting on the ones that used to.
• 7:25
  SPEAKER_00: Okay.
• 7:26
  SPEAKER_00: Number four, I suppose, and I think you're gonna love this one, because this one is wildly relevant to investing, running a business, and even managing personal finances.
• 7:38
  SPEAKER_00: It's called Parkinson's Law, and Parkinson's Law says work expands to fill the time available for its completion.
• 7:48
  SPEAKER_00: Think of it like this.
• 7:51
  SPEAKER_00: If you give yourself two hours to clean your house, it'll take two hours, most likely.
• 7:58
  SPEAKER_00: But if you have 30 minutes before guests arrive, somehow you'll get it done in 30 minutes.
• 8:06
  SPEAKER_00: Now, if we apply this to the stock market or business world, when companies are making tons of money, they start hiring like crazy and expanding offices and spending on random projects.
• 8:19
  SPEAKER_00: But when the economy turns down or slows down, they're suddenly cutting jobs, selling buildings, and sometimes even panicking.
• 8:29
  SPEAKER_00: Why?
• 8:30
  SPEAKER_00: Because companies spend what they have.
• 8:33
  SPEAKER_00: If they have money, they'll find ways to use it, even if it's wasteful.
• 8:39
  SPEAKER_00: Think about the dot-com bubble.
• 8:41
  SPEAKER_00: In the late 90s, tech companies raised billions and blew it on giant offices, unnecessary hiring and staff, over-the-top marketing, but also very expensive and unnecessary spending habits.
• 8:58
  SPEAKER_00: There were even Super Bowl ads for companies that didn't even have a working product.
• 9:04
  SPEAKER_00: And those ads are considered to be the most expensive ads in the world.
• 9:08
  SPEAKER_00: But when the bubble bursts, layoffs, bankruptcies, and mass panic.
• 9:15
  SPEAKER_00: So a few lessons we can draw from Parkinson's Law are don't just look at revenue growth, look at how efficiently a company uses its money, return on invested capital, return on capital employed, but also reinvestment rate, capital allocation, incentives, stock-based compensation, etc.
• 9:38
  SPEAKER_00: Luckily, we do this for our premium members, so it saves you a lot of time to focus on things that actually matter.
• 9:45
  SPEAKER_00: If a company can't control costs when times are good, it'll fail when times are bad.
• 9:52
  SPEAKER_00: This is why investors like Warren Buffett, but also some exceptional other CEOs like Mark Leonard from Constellation Software or Thomas Gaynor from Markel focus so meticulously on capital allocation, because companies that waste money in the good times are often the first ones to collapse when things turn bad.
• 10:13
  SPEAKER_00: So next time you analyze a company, don't just ask how much money is this company making.
• 10:19
  SPEAKER_00: Ask yourself what are they actually doing with the profits?
• 10:24
  SPEAKER_00: Because if they're just expanding for the sake of expansion, or what they like to call, or what we like to call empire building, Parkinson's law will catch up eventually.
• 10:38
  SPEAKER_00: Alright, last one for this episode, and once you hear it, you'll see it everywhere.
• 10:43
  SPEAKER_00: Sayers Law states the intensity of an argument, the intensity of an argument is inversely proportional to the importance of the issue.
• 10:55
  SPEAKER_00: Or, in plain English, people fight the hardest over things that don't actually matter.
• 11:01
  SPEAKER_00: Think about office politics.
• 11:04
  SPEAKER_00: Ever seen people get into heated arguments over who gets to use the conference room at 2 pm, or what color the new company logo should be, or complaining about what other people are wearing.
• 11:16
  SPEAKER_00: I've been to quite a few meetings in my life, and a lot of time arguing is spent on things that don't move the needle or really matter.
• 11:25
  SPEAKER_00: Meanwhile, actual important stuff, like our values, company strategy, long-term planning, and whether the business is moving in the right direction set out by management barely gets discussed.
• 11:40
  SPEAKER_00: Okay, this is definitely not the case for all businesses, but Sayers Law still applies.
• 11:46
  SPEAKER_00: This exact same pattern plays out in the stock market every single day.
• 11:52
  SPEAKER_00: When the market crashes, investors suddenly get serious.
• 11:56
  SPEAKER_00: They focus on the big questions.
• 11:59
  SPEAKER_00: Are my holdings strong?
• 12:00
  SPEAKER_00: Does my company have a competitive advantage?
• 12:03
  SPEAKER_00: What's my long-term plan?
• 12:05
  SPEAKER_00: Do I have the money to invest?
• 12:07
  SPEAKER_00: But when the market is fine and everybody is excited, investors start bickering about whether Tesla should be in the SP 500 or whether a company's earnings report missed by two cents.
• 12:20
  SPEAKER_00: When the stakes are high, people focus on what actually matters.
• 12:24
  SPEAKER_00: But when things are calm, we invent drama and problems and focus on things that don't actually matter.
• 12:32
  SPEAKER_00: Just to feel involved.
• 12:35
  SPEAKER_00: So a few key takeaways for this one.
• 12:38
  SPEAKER_00: The louder the debate, the less it actually matters.
• 12:43
  SPEAKER_00: Focus on big picture trends instead of short-term noise, and don't get distracted by media.
• 12:50
  SPEAKER_00: 99% of market news is just filler.
• 12:54
  SPEAKER_00: So next time you see a Twitter, CNBC or Reddit investor arguing over tiny details, ask yourself Does this actually change the long-term value of the company?
• 13:07
  SPEAKER_00: If the answer is no, move on and focus on the real game.
• 13:13
  SPEAKER_00: Let's bring it all together.
• 13:15
  SPEAKER_00: Brandoli's Law, don't fall for hype and misinformation.
• 13:20
  SPEAKER_00: Littlewood's Law, miracles are less rare than you think.
• 13:25
  SPEAKER_00: Then we have Dolo's Law, once companies lose their edge, they rarely recover.
• 13:32
  SPEAKER_00: Parkins's law says that companies bloat when times are good, then panic when they aren't.
• 13:39
  SPEAKER_00: And last but not least, Sayers Law.
• 13:42
  SPEAKER_00: The smaller the stakes, the bigger the drama.
• 13:46
  SPEAKER_00: And the more you understand these universal laws, the better you'll get at recognizing patterns, avoiding common traps, and making better investment decisions.
• 13:56
  SPEAKER_00: Want to become a better investor yourself?
• 13:59
  SPEAKER_00: Check out thedutchinvestors.com or subscribe to our free newsletter over on Substack at the Dutch Investors.
• 14:07
  SPEAKER_00: Until next time, stay curious, keep learning, and happy investing.