Scientists discover the secret to success

This simple fifteen-minute psychological experiment claims to have uncovered the most important factor in success.

It’s a simple skill that you need – and one I’ve talked about in Trader’s Bulletin before. But this video shows exactly how important this skill is …

[In truth the outcome of the marshmallow experiment is more nuanced. What it really showed was that richer kids, with more security and no scarcity concerns were better at waiting than poorer kids.]

But that’s not to say that learning to delay gratification is one of the most important tools in a trader’s kit. It’s what allows us pursue a low-risk strategy for long-term wealth, rather than risking too much, trying to get-rich-quick … It’s what enables us to keep the faith when a successful strategy goes through a rough patch … It’s what stops us from taking so-so trades, rather than waiting for the best set-ups … And it’s what helps us to put in a little effort regularly in order to achieve the goal of long-term wealth creation.

The question now is … would you have eaten the marshmallow?

To be honest with you, I’m 99% confident that the 4-year-old Mark Rose would have gobbled the lot.

Does that mean that I should be assigned to the scrap heap – or can I teach myself to delay gratification? Can I learn to wait for my rewards?

It’s certainly something that I try to teach my kids.

But how can I learn to be better at waiting for my rewards?

It’s interesting to look a bit closer at the Harvard experiment with the four-year-old children that Walter Mischel carried out in the 1960s. The original goal of the experiment had nothing to do with tracking the future success of these children. That was something that happened by accident. Mischel’s own children were at the nursery school that was used in the experiment, and from time to time, he’d ask over the dinner table how their friends were doing. Mischel began to notice a link between the children who’d waited – and academic success.

Once Mischel began analyzing the results, he noticed that the children who ate the marshmallow quickly, seemed more likely to have behavioral problems, both in school and at home. They got lower S.A.T. scores. They struggled in stressful situations, often had trouble paying attention, and found it difficult to maintain friendships. The children who could wait fifteen minutes had an S.A.T. score that was, on average, two hundred and ten points higher than that of the kids who could wait only thirty seconds.

Now, as I said above, none of this was in the original plan for the experiment, and these conclusions were flawed because they didn’t take into account the family and financial backgrounds of the children. What Mischel originally wanted to study was the techniques and strategies that the children used to delay gratification.

And what we can learn from this is that iron will power is achieved through will-power tricks that we can learn. And this means that we can teach ourselves to be more successful …

Will power is pathetic

I can remember being taught at school that gravity is the weakest force in the universe. I’m going to challenge that … Will power is feeble.

If you think you’ve got weak will power – don’t worry, because everyone has. But the people who look like they’ve strong will power – just know the tricks to fool their brain.

In another experiment, students were divided into two groups. One group was given a two-digit number to remember. The other group was given a seven-digit number to remember. They were then presented with two different snack options: a slice of chocolate cake or a bowl of fruit salad.

The students who were trying to remember the seven-digit number were nearly twice as likely to choose the cake. The extra workload in their brain by just five little numbers rendered their will power to half-strength.

Pathetic!

Now consider what managing a handful of open trades, with real money in the balance does to our will power, and you’ll have some idea of what we, as traders, are up against.

So, what are the tricks we can use?

Here, we can go back to our four-year-olds.

The children who failed to wait, tried to stare-down temptation in the face. They eye-balled the marshmallow and gritted their teeth. And they lost.

The successful children used distraction techniques. They looked away from the treat, some covered their eyes, or hid under the table to get away from the temptation. Other sang songs, repeatedly tied and untied their shoelaces or pretended to be asleep. These kids wanted to eat that marshmallow just as much as the others – but they had strategies to help them.

“If you’re thinking about the marshmallow and how delicious it is, then you’re going to eat it”, Mischel says. “The key is to avoid thinking about it in the first place”.

The technical name for this is “strategic allocation of attention” – and it’s something we can use in our own trading …

The kids who couldn’t resist the marshmallow, thought the best way to fight the temptation was to stare right at it, keeping a close eye on their goal. This was their downfall. Just like the trader who spends his or her time watching trades unfold … scanning more and more charts for opportunities … forcing trades where there aren’t any good set-ups.

Remember how Odysseus had his men tie him to the mast of his ship to save him from the Siren’s song? He was a man who knew his weakness, and used a strategy to save himself.

In my trading, I use strict rules and strategies to keep me safe from Siren’s calls … marshmallows … and certain doom! By focusing on my systems, rather than the P&L on each trade, I can keep my eye on the long-term prize.