Okay, you’re a grown-up. So maybe it’s not marshmallows because even the high-priced artisanal ones are kind of underwhelming, like eating a miniature pillow. Maybe for you it’s the second (or third) glass of Chablis or a new pair of Louboutin shoes. For me it’s anything with coconut and coloured gemstones.
But whatever your weakness, exerting a bit of self-control now and again pays off in unexpectedly big ways. In a famous and oft-cited 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 costs. For starters, since no one can time the market, there’s the omnipresent stress of trying to pick the right time to trade. You’ve got to be right twice: once when you buy and once when you sell. 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 an expensive habit.
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 every day, 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 those posh marshmallows— or the flickering ticker symbols.