In the 1960s, a psychologist named Walter Mischel studied a group of four-year olds.
Mischel was fascinated with his own children’s cognitive development, and how - like most children - they seemed incredibly impulsive.
“I realised I didn’t have a clue what was going on in their heads,” he said.
He wanted to measure impulse control, so he came up with a game. A group of children could have one marshmallow right now. It sat on a plate in front of them. Or, if they waited a few minutes while he stepped out, they could have two when he returned.
Some impatiently took the first marshmallow. Others waited.
Mischel followed the kids for 50 years, measuring how impulse control correlated with future success in life.
It was huge.
Kids who delayed gratification in the marshmallow test went on to achieve higher standardised test scores, had higher educational attainment, even better BMI scores. (One girl ate the marshmallow before the game’s instructions were even explained. Bless her.)
The marshmallow test made its way into seemingly every book, article, and speech about behavioral psychology. I’ve seen it countless times. It’s way overused.
But the most important part of the study is often left out.
The original takeaway from Mischel’s research, and one still told today, was that people with more willpower are set up for more life success than their impulsive peers.
But after watching hundreds of kids take the marshmallow experiment, Mischel discovered something different.
The marshmallow test wasn’t necessarily about willpower. Almost every kid will take the first marshmallow if it’s put in front of them. If they’re looking at it, they’re nearly incapable of not eating it, even if a bigger reward awaits.
Instead, Mischel found that kids who successfully waited for a second marshmallow were often just better at distracting themselves, taking their minds off the treat.
They hid under a desk. Or sang a song. Or played with their shoes.
Impulse control isn’t really about a four year old’s ability to patiently wait for a second marshmallow. It’s more about that four year old’s propensity to say, “Hey, look, a football!”
Smokers trying to quit consistently overestimate their ability to turn down a cigarette. Dieters do the same. What Mischel’s research shows is if we want to be better at self-control, trying to have more willpower isn’t the solution. Instead, not putting yourself in a position where you’ll be tempted by cigarettes or junk food may be the best answer. Because if you’re around them, you’ll smoke, or eat. You can’t help it.
As Jonah Lehrer once put it: “Willpower is really about properly directing the spotlight of attention, learning how to control that short list of thoughts in working memory. It’s about realizing that if we’re thinking about the marshmallow, we’re going to eat it, which is why we need to look away.”
It is the same in finance.
Bad investing behaviour is the greatest cause of investor misery (fees are a close second).
People get excited and buy high, then panic and sell low. They fall for bubbles. They trade. They rotate. They fidget. They worry. They get a new idea, and go all in. Then change their mind, sell it all, and go to something else.
It’s devastating. If you can find a way to be less emotional and feel less need for constant action in investing, then you’ve figured this investing game out.
But how do you do that?
Just like the four year old who found a path to the second marshmallow. You distract yourself with something else.
If watching financial news constantly tempts you to tweak your portfolio, turn it off.
If reading market forecasts has caused you to make regrettable decisions, stop reading them.
Go and do something else.
Maybe read more books and fewer articles.
Be more choosy about who you’re willing to listen to.
The amount of financial information available has exploded over the last decade, but the amount of financial information that you need to be informed has not.
You have to learn how to sift through the news, and filter out what you don’t need. “A wealth of information creates a poverty of attention,” Herbert Simon said.
It also creates a dangerous tendency to lose self-control over your ability to be a patient long-term investor.
Just look the other way.
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