Pettit Funds

I’m reading a book right now called EGONOMICS, by David Marcum and Steven Smith, and have come across this passage about an interesting experiment done on a group of pre-schoolers. Read and learn:

Between 1968 and 1974, Walter Mischel of Stanford University conducted a series of studies on what makes it hard or easy for children to delay gratification. One simple experiment included four- and five-year-old preschoolers and a marshmallow. Mischel brought each child into a room, one at a time, and offered the child a marshmallow. But before he allowed the children to eat the marshmallow, he told them if they waited fifteen minutes for him to return, they would get two marshmallows instead of one. Once Mischel left the room, he and his team recorded the behaviors of the children.

For some children, there was no space betwen stimulus and response. the moment the door closed–gulp–the marshmallow disappeared. Some children fought the temptation as long as they could, taking tiny bites off the bottom, hoping their nibbles wouldn’t be seen. But their efforts to resist were in vain and they eventually succumbed, happily eating the rest of the marshmallow. A few children pushed the boundaries as far as they could and licked the marshmallow, apparently reasoning that licking wasn’t technically eating and so was allowed. But alas, licking led to eating.

On the other hand, some children kept their distance using different strategies–ignoring the marshmallow’s pleas to be eaten. A few of the children pretended the marshmallow wasn’t there and wandered around the room. Others sat in front of the marshmallow with their faces bured in their hands, occasionally peeking between their fingers to see if the marshmallow had escaped. Others talked to themselves as if there was an imaginary friend in the room. One girl sang nursery rhymes to take her mind off the temptation, and then crawled under the table and fell asleep.

Mischel conducted follow-up studies on these children for twenty years after the initial impulse control study. Those with the willpower to outlast fifteen minutes of temptation and wait for two marshmallows were educationally more successful and emotionally intelligent. They showed better skills under stress, embraced challenges, and pursued goals rather than giving up in the face of difficulties. They were more confident, dependable, and willing to take more initiative than those who ate the marshmallow. They scored an average of 200 points higher out of a possible 1,600 on the Scholastic Aptitude Test (SAT) college entrance exam.

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I think this is fascinating, and not that much of a surprise.

Parents, set out those marshmallows. If you discover your child has a problem, think about that the next time your child just has to have that piece of candy at the checkout line.

   I read this book several years ago, and enjoyed it enough to also purchase Koch’s The Natural Laws of Business: How to Harness the Power of Evolution, Physics, and Economics to Achieve Business Success.

   Everyone is familiar with the “80/20 Rule” (also known as the Pareto Principle):  Typically, the example used is that 80% of your sales will come from 20% of your customs:

   “Pareto noticed that 80% of Italy’s wealth was owned by 20% of the population. He then carried out surveys on a variety of other countries and found to his surprise that a similar distribution applied.  It also applies to a variety of more mundane matters: we wear our 20% most favoured clothes about 80% of the time, we spend 80% of the time with 20% of our acquaintances etc….” (from the Wikipedia article).

   It is one of those “natural laws” so applicable to business decisions that is helpful to keep in mind throughout life.  I’m sure that 80% of my income came from 20% of my clients–and 80% of the aggravation also came from 20%.  The search for that important 20% is what success is all about.   (I’m going to guess, although I haven’t done the analysis yet, that 80% of my stock profits have come from only 20% of my picks…)

   The second book was Koch’s effort to find other “natural laws” that are applicable to business and investing.  I only remember one, but was particularly impressed with its proposition: that a doubling of experience results in about 20% improved efficiency.  That is, a person (or rat in a maze) is going to be able to get things done in 80% of the time once he has doubled his experience.

   I think there’s a lot of truth to that.  If I was starting over as a lawyer right now (instead of retiring in a month after 31 years), I would do even more free pro bono work at first just to get that experience.   The increased experience and efficiency is going to pay off in the long run.

   And a great way to get very worthwhile “experience”:  Read more books, people!

  I would love to manage a mutual fund one day, of course.

  Until then, I have my fantasy funds at Marketocracy.  (See links at right sidebar).

  A couple of years ago–when I first put this site up–I was doing a lot of research into starting a fund, and found that there was very little “nuts and bolts” information on doing so.

  Then I found Melinda Gerber’s book–published in 2005.  Everything you need to know. 

  Ms. Gerber’s husband Nicholas runs a mutual fund or two, so she knows whereof she speaks.  This book is a step-by-step of the process.  You’ll need more than the book, of course, but this helps you learn where to find the rest of what you need.

  I just checked the book’s availability at Amazon, and see that it is only available “used” for–get this–$350.00.  I bought it two years ago for about fifty bucks.  Maybe that makes this one of my best investments ever!  (700% in two years!)

  Listen: that’s nuts.  I’m sure you can still get it from Melinda herself by contacting her at JV Books.  If not, let me know–I’ve got her email address around here somewhere.  I had written her an email after I set up this site, and she was kind enough to give me some feedback.

  In any event, this book is The Bible of starting a mutual fund.  Highly recommended.