Marshmallow Roast

Photo courtesy of Kate Ter Haar

Photo courtesy of Kate Ter Haar

Could you pass the marshmallow test?

Okay, you’re a grown-up so maybe it’s not marshmallows because even the artisanal ones are underwhelming, like eating a miniature sugar-laced pillow. Maybe for you it’s that extra glass or two of wine or the Louboutin shoes. For me it’s a big slice of Dufflet‘s carrot cake or anything from Paris/Jaipur jeweller Marie Helene de Taillac.

But whatever your weakness, exerting a bit of self-control now and again pays off in unexpectedly big ways. In a famous and oft-sited experiment conducted 50 years ago, children who were able to delay eating a marshmallow had much better life outcomes than the kids who didn’t.

The study’s author Walter Mischel rewarded kids who were able to delay immediate gratification for up to 15 minutes with two cookies. In the passing years, the children were further rewarded with higher SAT scores, advanced degrees, better weight control and stress coping capabilities, and lower drug use.

According to Mischel, the kids who passed the marshmallow test had sitzfleisch, a Yiddish word that means grit,  an ability to stick with it. Like hair, some people have more sitzfleisch than others but everyone can acquire it.

Sitzfleisch is particularly useful in investing. Many investors—both punter and professional—feel they must constantly be doing something with their portfolios. Buying, selling, shorting, hedging, leveraging…there’s holding too but, like breathing, that doesn’t seem to rate as an activity.

This chronic fidgeting comes with some costs. For starters, since no one can time the market, there’s the omnipresent stress of trying to pick the right time to trade. This is, of course, a loser’s game. Then there are the trading costs themselves, such as commissions and taxes. Each of these inexorably chip away at total returns.

A study published in the Quarterly Journal of Economics noted that, because men tend to trade more, they reduce their average returns by 2.65% compared to 1.72% for women.

Sometimes trading is the right thing to do, for example when valuations have put your strategic asset allocations out of alignment, however to trade simply out of restlessness or a compulsion that you can’t just sit there but have to do something, is a costly folly. Every time you scratch that itch, you just put million pennies in a jar.

One way to build your sitzfleisch muscle is to practice in small ways at first, then gradually build up to working with your life savings. Make a commitment to, for example, walk twenty minutes everyday, rain or shine, or stick to one glass of wine at dinner, or as Paul McCartney suggests, implement ‘meatless Mondays’ at the dinner table. Any of these would do. Before you know it, you won’t even glance twice at posh marshmallows— or flickering ticker symbols.



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