The Marshmallow Test

I had the pleasure of attending a financial talk not long ago. Actually, i was invited by one of my affluent clients. He had told me that he is pondering to invest in a financial product, however he needs a second opinion from me. He was unsure that the product that is being the subject of the talk for that day, will be a viable investment vehicle to catapult him to achieving his financial goals.

I realised that he wanted me to give my personal opinion about the product, and without hesitation i agreed to do just that. 

The subject talk of the session was about FOREX.

I listened to the speaker and i have to be honest that he is good in delivering his scripts. He got his audiences glued to the projector screen on which he ran through all his powerpoint slides, one after one. For once, i was also felt a bit mesmerised with the promising talk delivered by the speaker himself. The crowd who attended the talk had swollen to about 200 people leaving no free space for human mobility. Indeed i was impressed to see such big participants converging into the small hall just to listen to the speech!

Coming from a mutual fund industry, i have not seen such a big gathered crowd hoping that they too can make 'mountains' of money from forex trading; just like how the wealthy speaker had done.

 I whispered to myself this- do they actually know what is forex and why they are so eager to put their money in it? Do they know the risk associated with it and the statute law that governs forex trading?

Forex, in Malaysia is an illegal trade. Forex trading can only be allowed for banks and other financial institutions. The Exchange Control Act 1953 does not allow any individual to trade in forex. If so, why do people still investing in it?

The answer is - instant gratification! Yes, people are generally greedy. In forex trading, one can expect a fast return ( short term gain). However, in mutual funds, investors got to wait for medium to long term to gain above average return. Medium to long term here means 3 to 7 years and more.

People are just not that patient to wait for that long duration of time. In most investors of forex trading, their thirst for return is so high and because of this, they shy away from mutual funds.

I remembered a book that i read few months ago about a test that was conducted among pre-schoolers. It was called The Marshmallow Test. It summarised that people who managed to delay immediate gratification for the sake of future consequences, fairs better in their later lives.

It is a good book and i have benefited from reading it. Hope you too will read it sometime!

Going back to my friend earlier, i told him about my opinion and he understood. I told him that he should distance himself from any investment products that are illegal. I advised him not to waste his time and resources in forex, despite some claims that they have made tons of money from it. The risk is just too high and if he smells something fishy about the product, he will have no avenue to stand and claim back all his cash.