Hi Guys,
The Stanford Marshmallow study has been mentioned a few times on MFO postings. The study findings have been analyzed and interpreted ad nauseum. Those interpretations do have a lesson for investors, especially very active investors who are news junkies.
The marshmallow study was invented by Stanford University professor Walter Mischel in the 1960s and has been repeated countless times. It is a longitudinal study and needs decades to fully evaluate. Its main purpose is to measure delayed gratification and its impact on future performance.
The test goes like this. A very young test subject is isolated in a sparse room. He/she is offered a sweet treat (like a marshmallow) for immediate satisfaction now, or a reward of two marshmallows 15 minutes later if the single treat is not consumed in the period when the test subject is left alone. The film record demonstrates the agony of the challenge. Here is a short representative video:
Here is a TED talk titled “Don’t Eat the Marshmallow” with some advice:
http://www.ted.com/talks/joachim_de_posada_says_don_t_eat_the_marshmallow_yet?language=enMost children can’t resist immediate gratification (like two-thirds) and shortly eat the single sweetie. The test is not completed until decades later when the test subjects are interviewed to assess their progress and success as they mature. Many variations of the original experiment now exist and are practiced.
Those who demonstrated a higher delayed gratification threshold experience better life outcomes. To illustrate a few of these: better SAT scores, a higher percentage graduate college, they have less body fat, they enjoy a more successful marriage likelihood, and even earn more in salary terms. Great stuff! But how can an investor profit from this insight?
The solution is to use techniques that those young kids deployed when successfully resisting temptation. The kids looked away; they invented and practiced a distraction.
For an investor an equivalent lackadaisical attitude is needed. We should avoid an addiction to daily market news programs. We need not be victimized by faulty financial writers or their often flawed analyses. We might consider completely ignoring the forecasters since history shows that forecasters can’t forecast. Their record is a coin-toss.
Often, famous sayings can be discovered that have two polar contradictory wings. Investing aphorisms are no exception. For example: “Don’t just stand there, do something” has its polar opposite in “Don’t just do something, stand there”. Both offer wise advice sometimes, but are dependent upon goals, circumstances, and other factors.
We investors are easy targets for an overreaction bias. Discipline to sort carefully and to walk away are essential elements. Self-discipline and patience are frequently amply rewarded in the marketplace. It’s easy to say but hard to execute. I try.
I was prompted to submit this off-topic post to add a little humor to a stressful world and investment environment. I hope you find this post worth your invested time, at least in terms of some fun. The kids in the videos are terrific. Your comments are always welcomed.
Best Regards.
Comments
Thank you for your response. But I'm a bit baffled.
I don't understand the relevancy of your comment, most likely because I'm completely unfamiliar with Amscot. I don't know the origanization whatsoever.
Please tell us the Amscot story. I'm sure it is fascinating. I'm equally sure that you will tell the story in a colorful and controversial manner!
We MFOers eagerly anticipate your reply. Please do so.
Best Wishes.
Aside from that I think its great advice- along the lines of David's commentary a few months ago when he suggested more information doesn't necessarily lead to more knowledge or better decisions.
Outside of Florida it is an unknown business