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White marshmallows
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What can the marshmallow test tell us about investing?

08th August, 2022

Published in the Sunday Times on August 7th 2022. 

The marshmallow test is a very famous psychology experiment from the 1970’s. Take a group of four-year-olds, present them with a marshmallow, and tell them that if they don’t eat it right away, they will get rewarded with a second marshmallow. According to a 1990 follow-up study, the children who held out for a second marshmallow tended to do far better later in life. Overall, they had lower BMI measures in their 30s, lower likelihood of being involved in crime, better career success, education success and increased wealth. Thus, delayed gratification - exercising self-control to resist an immediately available reward for a larger one in the future - has become prized as a powerful predictor of success in life.

There is just one problem: the marshmallow experiment is one of several studies that has fallen prey to science’s “replication crisis” - studies in fields as wide-ranging as psychology, sociology and economics that fail to replicate when other researchers conduct them. A 2018 study found that the 1990 version didn’t stack up once you controlled for various factors. 


Self-control is still important

This of course doesn’t mean that exercising self-control isn’t important. It’s just we can’t isolate how important a contributor to success it is, because of all of the other factors that are involved. A job made much more difficult given the timespan over which this study was conducted.

In some domains, cause and effect are very clear cut. Hard sciences like chemistry and physics are the envy of social scientists whose work labours under the uncertainties of the human condition. There are no immutable laws in economics and finance and there’s no schematic diagram that shows how they work.

Financial markets may be more accountable to Darwin than they are to Newton, but that doesn’t mean we can’t identify reliable patterns where we can link action to results. It seems logical that a template for investment success should not exist – or we’d all be very wealthy. But there is an investing playbook where certain principles have shown consistent efficacy, and self-control is central to them.

Long term mantra

Having a long-term mindset when investing is a mantra that has lost a lot of its meaning through overuse. Every investor I’ve ever met is ‘in it for the long term’. However, pointing to the summit of Mount Everest from base camp and saying that’s where I’m heading is easy. The hard work comes in the doing, as it is with investing. The doing involves lots of distractions, temptations and unforeseen events. Being a genuinely long-term investor means exercising self-control. Though I cannot guarantee that it leads to success, I have lots of compelling evidence that its contribution to it is significant.

One of the most common distractions that upset long-term financial plans is being tempted to make short-term investment decisions due to either market volatility or the temptation to chase overpriced assets when they become popular. 

2022 has been a stern test of self-control

Global stock markets have endured the worst half year in several decades in 2022. Concerns abound in relation to the future path of interest rates, inflation and economic growth. Concerns like this always exist and sometimes the market looks past them. At other times, like right now, they are the focal point. The volatility that this entails creates a very difficult environment for investors.

We usually make impulsive decisions when our emotions get the better of us.  Our emotions are there to direct us to action when needed. They are generally not helpful in relation to investment decision making. 

When Walter Mischel, the author of the original study, conducted the marshmallow test, he carried out several versions of the experiment to see what influenced the children's ability to delay gratification. One variation introduced toys that they could distract themselves with.  An important insight from this was that delaying gratification came from thinking about something else. 

This may seem simplistic, but the key to distraction as regards to investing is the involvement of a third party. It doesn’t have to be an adviser, but someone unconnected emotionally from the investment will suffice.

Advice is critical

Of course, the evidence would suggest that advice is key. Investment markets are complex and they are a potentially very expensive training ground to learn if you are unsure what you are doing.

Thinking about what you are aiming at, and building this into a series of short, medium and long-term goals seems obvious, but it is very important. It is easier to avoid distractions and stick to a plan if what you’re aiming at is more rewarding than what might be immediately available. 

I’ve met many brilliant investors over the years, most of whom would admit to struggling with self-control. Who doesn’t? You may not need the advice, but you’ll likely need the distraction. The path to success at this is paved with discipline, not brilliance.


Market Data: Calendar year returns:

Gary Connolly is an Investment Director at Davy. He can be contacted at or on twitter @gconno1.

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