Why do Smart Doctors Sink Money into Silly Investments?
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Why do Smart Doctors Sink Money into Silly Investments?
Part III- Delayed gratification can catch up and bite you in the butt:
Most doctors have mastered the art of delayed gratification, which is the ability to make decisions that deny oneself an immediate or short-term benefit in order to garner a greater long-term benefit. Walter Mischel, during a set of experiments that he dubbed ‘the marshmallow test,’ was the first scientist to study delayed gratification. Young children were offered a choice: they could scarf down a tasty treat, such as a marshmallow, immediately, or they could savor two marshmallows if they were willing to wait 15 minutes, during which time the researcher left the child alone with the forbidden marshmallow.
Follow up studies found that children who decided to hold off on eating the marshmallow had numerous better life outcomes including academic performance, more successful marriages, careers, and health. Some, including my friend Isen, have pointed out that factors above and beyond the child’s willpower surely come into play regarding the life outcomes noted by Mischel. ( If you’d like to learn more about the brain science of delayed gratification, please read
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Dr. Smith would rather cover himself with fire ants than consider a career change. He spent his twenties toiling for a pittance. The medical training process, referred to as internship, residency and fellowship, typically pays little more than subsistence wage and lasts for up to ten years (and that’s in addition to four years of college and four years of medical school).
“OK, I’ll buy it. Doctors need to delay gratification to achieve their career goals. How does that lead to financial blunders?”
A bunch of the other guys in Dr. Smith’s fraternity landed plum jobs on Wall Street right after college. Meanwhile, Dr. Smith saddled himself with the bill for medical school tuition, room and board. While his friends were shopping for vintage Rolexes and flying first class to the Australian Outback, he was struggling to pay rent on his crummy studio apartment and wondering whether to splurge on a date night at Outback Steakhouse.
When Dr. Smith hit his thirties, he finally finished training and was making some real dough. His friends had bank accounts that turned Dr. Smith green with envy: The balance started with crooked numbers and were followed by lots of zeros. His own bank account had just about zero. He’d had it up to his eyeballs with delayed gratification and did the calculus: “If I want to catch up to those guys, I need a big score. I can’t afford to play small ball. I’ve got to swing for the fences.”
Dr. Smith would’ve been a good investor. He had the discipline and wherewithal to salt away twenty percent of his take home pay in a sensible mix of stocks, bonds and alternative investments. He would have done financially fine. But he was through with delayed gratification and he was a lousy speculator. Paying no attention to investment fundamentals, he heeded the chatter in the country club and threw money at whatever get-rich-quick scheme his buddies were touting. For them, each risky bet was a tiny percentage of their net worth (they called it Fuck You Money). On the other hand, each hare-brained scheme cost Dr. Smith a meaningful percentage of his savings. Every financial debacle made him more desperate, until ultimately he was taking e-mail advice from the Prince of Nigeria.
If you’re interested in Part I (Achieving success in one domain, may sow the seeds of failure for another) please read
If you’re interested in Part II (Sunk cost fallacy can sink your investment portfolio) please read