Fail this Test and Risk Losing Your Fortune

Oct 30, 2018

Tanushree Banerjee, Editor, The 5 Minute Wrapup

The quotes of legendary value investors like Warren Buffett, Charlie Munger, Peter Lynch and Walter Schloss all come down to the same message...

What matters for successful investing is...

  • The ability to keep out the noise...

    Stay resilient through ups and downs, bull markets and bear markets...

    And not worry where the markets are going tomorrow, or next week, or next month...

We often use those quotes to reinforce the principles of long term value investing and the concept of 'delayed gratification.'

But delayed gratification is an extremely hard concept to explain, especially to a kid. Try explaining to a child that she should give up something today for a better tomorrow. I've tried explaining to my daughter that she should forego some playtime before her exams, for rewards later. I lost her attention in seconds.

Fortunately, I found this video on the famous Marshmallow Test that did the job for my 9-year old daughter.

The Marshmallow Test

Source: IgniterMedia/

I think you and I can also learn from it. Just replace the marshmallow in the video with 'money' or 'returns' and put it in the context of investing.

More often than not, putting off near term pleasure is the difference between failure and success

Now, you can only delay gratification if you are patient and have the nerves to act rationally during stressful times.

Even those who have a decade or two to enjoy the fruits of investing, at times, give in to the pressures of market volatility. They end up selling some of the best stocks because they are correcting more than expected. Or they may decide not to buy such stocks expecting more correction in them.

Either ways, the inability to delay gratification takes away a golden chance to create wealth, lots of it, safely.

7 Stocks To Profit From This Market Crash

Dear reader, the reason I am talking about the Marshmallow Test today is because failing this test could reduce your chances of making the most of my latest recommendations.

Yes, the current markets have presented plenty of fresh buying opportunities. And some of you would have already seen them in our special reports.

But what is important to understand is that these stocks, despite their fundamental strength, could remain vulnerable to market sentiments. At least in the near term.

The extreme swings in the market are not yet over...

Far from it.

And several factors could only add to the volatility in the coming weeks and months. Oil prices, global interest rates, exchange rates, trade wars and of course the upcoming elections in India could keep the indices swinging.

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Add to that the disappointment in corporate earnings. The September quarter results are only the precursor to the poor earnings recovery this year. Steep oil and commodity prices are expected to dent margins. The financial sector too is facing a big liquidity crunch.

So, whether it is in the good stocks that you already own or the ones you are buying in the market correction, passing the marshmallow test is necessary to bag the biggest returns.

Chart of the Day

Our dear readers often ask us questions about stocks that are already multibaggers. Or ones that we expect to turn into multibaggers in the years ahead.

The qualitative and quantitative virtues of such business are easy to explain.

But the biggest reason for good companies to become great stocks is in the valuations. You either buy the stock when the market is yet to discover its true potential. Or you buy it when the market is completely underestimating its resilience.

If you don't believe me, take a look at today's chart. Investors who passed the marshmallow test in the previous market correction in 2016, had the chance to buy some of the biggest multibaggers.

Interestingly, these multibaggers have once again seen a similar or more correction in 2018 as well.

Almost Every Multibagger Has Phases of Sharp Correction

Warm regards,

Tanushree Banerjee
Tanushree Banerjee (Research Analyst)
Editor, The 5 Minute WrapUp

PS: Tanushree Banerjee is Equitymaster's co-head of research and editor of StockSelect She has a long and illustrious track record of picking safe stocks. For over 16 years, StockSelect subscribers have received safe stock recommendations that delivered double and triple digit gains. You can receive Tanushree's safe stock recommendations by signing up here.

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