The Marshmallow test by Stanford University in the late sixties on little children is the pioneering study on delayed gratification and its future outcomes. The study gave an insight in to human behaviour, and the researchers who followed the children over their life, found that those who showed the patience and discipline to wait longer were more successful in life.
You must have also come across instances wherein, only on account of you not having the information or existence of a particular asset, the ‘unknown’ asset had created wealth. Let me share two such instances.
In the first instance, an investor had invested in 2007 in a midcap mutual fund. Since the folio did not have the updated details of email id and PAN, the said investment was not in the horizon of the investor. In 2016, the investor gets a call stating the existence of the above investment. He thought it’s a prank and did not give it credence to it. A few days later, he again received the call and this time asked the caller to send across the details of the said investment to his email id. What did he see?
His ‘unknown’ investment has grown over four times in the past nine years with an annualised return of over 18%.
In the second instance, equity share certificates of a private sector bank were found by the children of the deceased holder after five years. Curiously, the children checked the value of the investment. The original investment had grown over 25 times the value, in a span of less than six years. The bounty was realised only because the recipients were not aware of the investment.
These real life incidents reflect how luck played the single most deciding factor in wealth creation. Luck in this case meant unawareness of the existence of the investment. But, is it possible to have an inbuilt process in the investing journey to generate wealth?
The Marshmallow test has proved that discipline of the mind is the key factor and same holds true in the investing journey. In the wealth creation journey, activity is the bane of success. Activity should not be confused with action, when required. Say, the prospects of the investments are going south or if there is a corporate governance issue, then as an investor you need to take the desired action. Only because, a particular quarter results are not in sync, is not a reason for action.
Also, you need to ask yourself whether you are a trader or an investor? The time horizon will determine, if activity needs to be carried out. A trader thrives on multiple activities which will be required by the very nature of the trade. An investor thrives on
The key in this case is discipline and emotional quotient. So, next time you have the urge to take action, have a checklist of questions in place. This will ensure that you will go through a well-thought action plan, instead of a knee-jerk reaction.
The writer is founder and managing partner of BellWether Advisors LLP