Monday, 27 May 2019

The Marshmallow Experiment for New Investors

The Marshmallow Experiment

McDonald India makes a profit after 22 years.
Flipkart sold just 22 books in its 1st year before becoming a player.
Launched in 1971, Starbucks first became profitable in Seattle during the early 1980s.
Netflix was founded in 1997 and didn’t turn a profit until 2003.
Isn't that an example of long term investing? Investing is as serious business... How many are really prepared to wait long for their profits? In this day and age of instant information?

The Marshmallow Experiment
In the 1960s, a Stanford professor named Walter Mischel began conducting a series of important psychological studies. The experiment began by bringing each child into a private room, sitting them down in a chair, and placing a marshmallow (sugar-based confectionery ) on the table in front of them.

See experiment footage here,👇👇👇

Let’s talk about what happened and, more importantly, how you can use it.
At this point, the researcher offered a deal to the child.
The researcher told the child that he was going to leave the room and that if the child did not eat the marshmallow while he was away, then they would be rewarded with a second marshmallow. However, if the child decided to eat the first one before the researcher came back, then they would not get a second marshmallow.

So the choice was simple: one treat right now or two treats later.
The researcher left the room for 15 minutes.
As you can imagine, the footage of the children waiting alone in the room was rather entertaining. Some kids jumped up and ate the first marshmallow as soon as the researcher closed the door. Others bounced in their chairs as they tried to restrain themselves, but eventually gave in to temptation a few minutes later. And finally, a few of the children did manage to wait the entire time.

Published in 1972, this popular study became known as The Marshmallow Experiment, but it wasn't the treat that made it famous. The interesting part came years later.

The Power of Delayed Gratification
As the years rolled on and the children grew up, the researchers conducted follow up studies and tracked each child's progress in a number of areas. What they found was surprising.
The researchers followed each child for more than 40 years and over and over again, the group who waited patiently for the second marshmallow succeed in whatever capacity they were measuring. In other words, this series of experiments proved that the ability to delay gratification was critical for success in life.
The children who were willing to delay gratification and waited to receive the second marshmallow ended up having higher SAT scores, lower likelihood of obesity, better responses to stress, better social skills as reported by their parents, and generally better scores in a range of other life measures.

You and I can do the same thing. We can train our ability to delay gratification, just like we can train our muscles in the gym. And you can do it in the same way as the child and the researcher: by promising something small and then delivering. Over and over again until your brain says, 1) yes, it's worth it to wait and 2) yes, I have the capability to do this.
In this day and age of instant information, it is possible to track your portfolio every single day. Those who see market value of their investment everyday, is ended up to sale with minor increase in portfolio value, like child in experiment who eaten marshmallow.
“We don’t need extraordinary return on investments to be financially independent. A decent job, aggressive savings, prudent investing and 20 years of time will make it happen.”
- D.Muthukrishnan

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