The $5 Challenge
In 2009, Stanford Professor Tina Seelig gave her class a unique challenge. The 14 teams of the class each received an envelope with $5. Once they opened the envelopes, they had only 2 hours to generate as much money as possible.
At the end of the assignment, they had to submit a single slide outlining what they had done, and then each team had to give a three-minute presentation on how they met the $5 challenge.
One of the top teams focused on a problem many students on campus faced – long waiting lines at restaurants nearby. They made reservations at the most in-demand restaurants and, closer to the time, sold those reservations for up to $20 to customers who were thrilled they could beat the queues and head straight to their meal.
Another team offered free checks of bicycle tyre pressure to students, and if their air was low – they charged a dollar for the fill-up.
The winning team saw the $5 for what it was – a distraction. They realized that the 5 dollars were really a proxy for ‘nothing.’ They asked themselves, “What would we do if we had no money?”.
Asking that question opened up a whole set of new avenues.
They realized their most precious resource was not the $5 or the 2 hours but the 3-minute presentation to the class.
They decided to sell those 3 minutes to a company looking to recruit students from their class. They made a commercial for the company and played that during their presentation slot.
Narrow Framing in Decision Making
This is what happens when you have a limited number of options to do anything. Your mind is limited because you have tied it to the little that you have. Hence you tend to look for the answers from a perspective of scarcity instead of a perspective of abundance.
In their book, Decisive, Dan and Chip Heath have Narrow Framing as one of the pitfalls to good decision-making. Narrow framing is the tendency to define your choices too narrowly.
“What’s in the spotlight will rarely be everything we need to make a good decision, but we won’t always remember to shift the light. When we pursue a single option, we spend most of our time asking; “How can I make this work?” Meanwhile, other vital questions get neglected; “Is there a better way? What else could we do?
Narrow Framing in Investing
I have seen narrow framing also hinder people from making proper investing decisions.
One of the most common questions I get is this, “Let’s say you have this amount of money, where and how can you invest it for the best returns?”
When I first got this question, I quickly turned into financial advisory mode and got it wrong as everyone else would. I started thinking of asset allocation, the best assets that would give me the highest returns. I suffered from narrow framing.
This is What Matters The Most in Investing
Your actions and decisions in the short term or when getting started do not impact your investing journey that much. When getting started, you have very little savings.
When most people ask where they would best put their money, they are looking for the best way to scale the wealth ladder in the shortest period of time and with the least bumpy of rides.
They do not realize that the best way to scale the wealth ladder is not a one-time decision. It does not depend that much on where they make their first investment. It’s a lifestyle that you have to adapt to.
In investing, what happens in the short term does not matter much. What matters is your performance in the long run.
In Atomic Habits, James Clear writes,
“It doesn’t matter how successful or unsuccessful you are right now. What matters is whether your habits are putting you on the path toward success.”
It would be best if you were far more concerned with your current trajectory than your recent results.
When getting started with investing, where you put your money, the timing of the market, and your portfolio allocations do not matter that much.
“Just Keep Buying. This is the investment mantra that can change your life. These three words can make you rich. What I am talking about is the continual purchase of a diverse set of income producing assets. You should think of buying investments like you buy food – do it often. Make it a habit to invest your money like you make it a habit to pay your rent.”
Focus on The Right Things
Unless the money you are talking about is a considerable amount that your investment returns cannot achieve or beat through the years, then it does not matter how you start investing.
Provided you adhere to the fundamentals of investing, your returns in the short term will not affect your long-term journey of wealth creation.
Most of us will never win lotteries or receive huge sums of money that can instantly change our lives financially.
Most of the money we invest is accumulated savings from our regular incomes. Our only way of building wealth is by saving from our steady incomes and then investing the amount in income-generating assets.
For if yours is the lifestyle of a successful investor, wealth creation will never elude you.