One Marshmallow Now. A Bigger Portfolio Later

One marshmallow now, or two if you can wait.

That was the choice researchers put before young children at Stanford. 

For an adult reading this, the better choice seems obvious. For a child sitting alone with that marshmallow, waiting was harder.

Now replace the marshmallow with a stock you own.

You studied the business, liked the management, and paid an attractive price. 

Six months later, the shares have barely moved anywhere. Meanwhile, your neighbor keeps talking about a stock that doubled overnight.

Suddenly, waiting for that second marshmallow feels a lot harder.

During the late 1960s, psychologist Walter Mischel began studying delayed gratification at Stanford. 

Children could take a smaller treat immediately or wait for a larger reward. Some made waiting easier by covering the treat or looking elsewhere. 

Changing what held their attention helped them resist temptation.

The experiment offers a useful illustration for investors. Knowing that waiting might bring a greater reward doesn’t make waiting comfortable. You still have to sit there while temptation works on you.

The market gives us plenty of opportunities to experience that discomfort. A stock falls, and selling promises immediate relief from the worry. Another stock soars, and chasing it promises something more exciting.

We are facing our own marshmallow test in several holdings.

Some of our holdings trade below the prices we paid. Others remain near our entry prices, even as their earnings have grown.

Those prices can test our patience, especially when other stocks are climbing. But the price alone cannot tell us whether our judgment was right.

We need to examine how each business is performing. 

If the facts change, we need to change our judgment. If our reasons for owning remain sound, we must give them time.

Charlie Munger captured that discipline during the 2016 Daily Journal meeting.

“You make your money by the waiting,” Munger told his audience.

That sounds easy until you have real money sitting in a stock going nowhere. Then waiting starts to feel like you are missing an opportunity.

Our Alpha-4 Approach gives us a framework for making those decisions. We look for:

Those standards help us decide what deserves our money. Research gives us reasons to buy that we can revisit later. Patience allows time for the business to deliver on those reasons.

Think about what happens inside a company after we buy shares. 

Management might spend years developing a product or entering another market. A new factory needs equipment, workers, and customers before it can produce profits.

Your brokerage account updates much faster than any of that happens.

Confusing those two clocks can lead to costly decisions. A business can make progress before its share price reflects that progress. Our job is to keep evaluating what we own.

Compounding gives us another reason to respect the passage of time.

If $10,000 grows 10% a year, it becomes about $26,000 in ten years. 

Give it another ten years, and it grows to about $67,000. That’s $41,000 more, without investing another dollar along the way.

The first decade adds $16,000, while the second adds $41,000. That’s the power of giving your gains time to earn more gains.

An investor demanding immediate satisfaction can lose sight of that bigger opportunity.

At the American Prosperity Report, we seek businesses worth owning for years. Our Alpha‑4 Approach helps us find them at attractive prices.

Then we must give those businesses time to build value.

We keep checking management’s performance, financial strength, and our reasons for owning. When those remain sound, a disappointing stock price calls for patience.

I remain bullish on America because entrepreneurs keep finding better ways to serve customers. Our goal is to help you share in the wealth they create.

The next time impatience tempts you to sell, remember the marshmallow. 

Before grabbing an immediate reward, consider the opportunity you could surrender.

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Regards,

Charles Mizrahi
Prosperity Insider