Delayed Gratification In investing
Patience pays a huge payoff in investing. In the stock market, trying to get rich quickly is the quickest way to become poor. Investors who lack patience have no place in the stock market. Most of the investors who claim themselves to be long term investors also become prey to this situation. Investors might have bought the stocks for long term purpose but when the stock prices are not moving anywhere for 3-6 months after buying the shares, then most of the investors would lose their patience and sell off their shares. Most of the novice investors want instant results. When they see that the stock is moving in upside direction after they bought it, they conclude that they have bought the right stock. The destructive habit of instant result has led investors to another destructive habit – instant gratification.
Gratification generally refers to having pleasure from one’s own desires. instant Gratification is a destructive habit for investors because it physiologically pushes us to get instant pleasure. For example, if we were offered only 1 chocolate today for 2 chocolate tomorrow, most of the people will choose, 1 chocolate today (instant pleasure). This instant pleasure habit is very dangerous in life and also in investing. There was a famous marshmallow experiment done by scientist to test the consequences of instant gratification.
The marshmallow experiments
Instructors place one marshmallow in front of the children and the children were offered a deal. Each one will get extra one marshmallow if they don’t eat the marshmallow in front of them and if they eat the first marshmallow, they won’t get the extra one. Then the instructor leaves the room and comes back after 15 minutes.
The deal was simple – delay your eating for some time and get one extra or instantly eat and get nothing.
As most of the scientist expected, many children ate the first marshmallow and only very few resisted the temptation to eat.
The interesting part of the experiment
The experiment gets more interesting when the scientist decided to go one step further and track the children throughout their life. What scientists found was very astonishing. They found that the children who displayed delayed gratification were both financially wealthy and had a successful and happy life than the other children.
Delayed gratification has been one of the key principles of most of the wealthiest people. They simply delay the instant pleasure to get rewarded largely in the future.
What investors should learn from the marshmallow experiment
- Synchronize your lifestyle and investing
We cannot develop patience in holding stocks until and unless we develop patient in our real lives. If we are able to think in long term perspective in our real life then we can easily think about long term holding in our investing also.
- Delayed gratification
Delayed gratification must be practiced by long term investors to make wealth in the stock market. Forgoing the short-term pleasure to enjoy the long-term benefits is the first step we have to take to reach financial independence.