“You can have this treat now, or have two when I get back to the room.”

The children offered this choice were, on average, around 4 years old.

Seated at a table right in front of them was a marshmallow on a plate.

They could eat the marshmallow now … or wait.

If they could wait, a researcher would reward them with a second marshmallow.

The study was originally conducted in 1972 by Walter Mischel, a psychology professor at Stanford University.

And what he found out can have a huge impact on your net worth…

Resisting Temptation

I imagined how my grandkids would’ve reacted.

They are around the same age as the children in the study. And my heart sank.

Marshmallow experiment

Many of them stared at their marshmallow, squeezed it and did everything in their power not to eat it.

In the end, most of the children couldn’t resist. They’d bite into the marshmallow and wouldn’t get another.

The researchers followed each child for decades afterward.

The group who waited for the second marshmallow ended up having…

  • Higher SAT scores.
  • Better responses to stress.
  • And stronger social skills.

In other words: Delaying gratification was critical to the success in their lives.

This experiment has lessons for investors.

Because investing money today for more money tomorrow is nothing more than delayed gratification.

Investors are faced with the same choices today.

They could take a small profit now (eat one marshmallow) … or wait to make larger profits (get two marshmallows) in the future.

That’s what investing is all about. It’s simple, but not easy…

Larger Reward

To make big returns in the stock market, you have to be willing to sit on your hands and wait.

It boils down to this: Would you rather make a 10% return today or a 50% return in three years?

Having a small gain in your brokerage account makes it tempting to sell and lock in those profits — or eat the marshmallow.

But those who have the willpower to delay the gratification will end up making the most money.

Check out a stock in our portfolio to see how this played out.

We added Marvell Technology Inc. (Nasdaq: MRVL) to the Alpha Investor portfolio in March 2019.

Marvell Technology Inc. (Nasdaq: MRVL)

If Alpha Investors had given in to temptation and sold their shares a year later in February 2020, they would have made 26% on their money.

But if they’d held on to Marvell, they would currently be up 151%!

That’s what marshmallows, kids and investing have in common: the power of delayed gratification.

Sit Tight

If you’ve invested in a quality business with great management, all you need to do is wait.

Because despite negative headlines, rising interest rates and inflation, great businesses will do well in the long run.

Real Talk: Investors who delay their gratification are the ones that have the bigger account balances.

These investors didn’t panic and sell out of positions due to volatility.

So, if you’re ever tempted to take a profit just because you’re scared and it’s sitting right in front of you…

Remember the marshmallow experiment.

Delayed gratification is the key to making more money in the stock market.

In my next Real Talk, I’ll share how Alpha Investors delay gratification and make money.

Charles Mizrahi

Charles Mizrahi

Founder, Alpha Investor