In the April 2010 issue of The Opening Bell, I wrote about my meetings with college students asking me about my career. At some point in each meeting, they look around my office and ask, “How did you get here?” In reflecting on this question, I realize that the skill of patience has served me very well in the development of my career.
All of my life, my parents and relatives have told me that I was a remarkable little boy because I was so quiet and so patient. I was happy coloring or building things or cutting out paper figures for much longer periods than most kids. Today I know other professionals who I am sure are more intelligent than I, but who have struggled with their careers and finances because they have not practiced the skill of patience. They get bored easily and keep moving from one job to another. Patience and longevity in a professional field are crucial to career identity and eventual success.
The Marshmallow Test
My son Forrest—also a financial planner and investment advisor at Bell—is an avid reader of The New Yorker. (This alone is a sign that he has developed the skill of patience!). Forrest is a great resource for me because he keeps me up-to-date on the most insightful articles that he reads. He told me about the May 18, 2009 issue of The New Yorker which included an article, DON’T! The Secret of Self-Control, by Jonah Lehrer. This article summarizes the research performed by Stanford University psychology professor Walter Mischel who, in the late 1960’s, designed a simple test for four-year-old children to measure their capacity to demonstrate patience.
In this experiment, known as The Marshmallow Test, children could choose one treat from a tray of marshmallows, pretzel sticks, and cookies. Most children chose a marshmallow. They were told that they could either eat the one marshmallow right away, or they could wait while the adult stepped out of the room, and when the adult returned they could have two marshmallows—as long as they waited and did not eat the first one. The adult would then leave for fifteen minutes, which is a lifetime to most four year olds. Only 30% of the children could wait for the adult to return before they ate the first marshmallow.
Patience Trumps Intelligence
Once the children in Dr. Mischel’s experiment reached high school, he was able to observe a link between their academic achievement and their ability to wait for the second marshmallow when they took the Marshmallow Test at the age of four. On average, those who could wait for the second marshmallow had S.A.T. scores 210 points (13%) higher than those who could not. For many years, psychologists have emphasized intelligence as the most important predictor of success; Dr. Mischel argues that intelligence is largely at the mercy of patience.
Patience Can Be Learned
Based on hundreds of hours of observation, Dr. Mischel concluded that the crucial skill of patience was the “strategic allocation of attention.” Instead of obsessing about the marshmallow, the patient children distracted themselves by covering their eyes, hiding under the desk, or singing songs. According to Mischel, if you can deal with such “hot emotions” as the temptation of a marshmallow, “then later you might be able to study for the S.A.T. instead of watching television.” “And,” he concludes, in a statement with particular relevance to our line of work, “maybe you can save more money for retirement. It’s not just about marshmallows.”
Mischel resists the idea that patience has a genetic origin. When he taught children some mental tricks, like pretending the marshmallow is a cloud, he dramatically improved their patience. According to Mischel, “Once you realize that willpower is just a matter of learning how to control your attention and thoughts, you can really begin to increase it.”
Forrest and his wife, Rose Lynn, began teaching our granddaughter, Sofia, about patience even before she began to talk, while they were teaching her sign language in the months prior to verbal language development. She began learning the concept of patience by learning the sign for it, which is the arm, palm down, stiffly outstretched ahead, as if pointing to the future, moving up and down a few times as you might gesture, ”Down Boy,” to a dog. Sometimes when she was particularly impatient, that up and down gesture would become a fierce pumping motion.
Between two and three, a recurring incidence of impatience takes place at the dinner table. Just about everyone knows how difficult it can be to keep a toddler at the dinner table while the adults finish their meal and conversation. When Sofia, who has just turned three, starts getting restless at dinner, Forrest asks her how much longer she is willing to eat with the adults: Five minutes? Ten minutes? She watches him as he sets the alarm on his watch, and she begins to distract herself until the alarm sounds and she is finally free to leave: permission granted.
As Sofia anticipated Christmas last year, about which she was extremely excited, she would first say that Christmas was coming soon, and then, would give the gesture for patience and say, “But I have to wait. I have to be patient.” She now has the concept, the sign and the words. I feel good that at three years old, Sofia is already acquiring a skill that will serve her well as she begins to find her own path in life.
Patience and Investment Performance in 2010
The Account Performance Report on page two of this newsletter shows that our average account has grown by 94.5% since January 1999 for an annualized return net of fees and expenses of 6.0%. But it was not an easy road getting there. This is the account performance for our most patient clients—those who were able to stay with our strategy through the dotcom collapse that started in 2000 and through the Great Recession which began in 2007. Being patient throughout was certainly not easy to do.
Over the past 11.5 years, our momentum investment strategy (when combined with the skill of patience on the part of our clients), has turned a $400,000 investment into $777,978. Short-term results are a lot like the marshmallow sitting on the tray; the true benefit of long-term investment strategies requires the high-level skill of patience.