Due to the nature of compounding interests growing exponentially over time, the immediate benefits of such an effect are small compared to the benefits at the end. This can make it hard to see how certain actions and behaviors lead to compounding because it can take a long time. It makes intuitive sense for things like money (people understand to contribute to a 401k for example), but requires more faith for actions like reading a lot. This explains why a lot of good advice is unlikely to be followed and example of Gate’s Law.
- Naval Ravikant talks about the importance of compounding interests in life and wealth creation.
Links to this note
It’s easy to be intimidated or anxious when doing something big all at once like writing an essay. Turning a large project into a ‘slow burn’ helps remove that worry—it’s easier to do small parts over a longer amount of time across several projects than in one big effort in a short amount of time sequentially.
People are generally bad at thinking and making decisions about long-term consequences. Gate’s Law observes that people overestimate the short term and underestimate the long term. People are motivated by loss aversion which leads to status quo preserving behavior and biases people towards keeping things the same.
Markets exhibit the Pareto principle in that most of the advantages accrue to a small number of players—mostly number one. These advantages include growing faster, network effects, recruiting the best people, expanding to new opportunities quickly and most of the 7 Powers.
There are two approaches for creating something of significance, the cathedral and the bazaar. The cathedral is best for creation and the bazaar is best for growth.
I’ve noticed that discussions on Zettelkasten forums and comment threads in HackerNews when a new Zettelkasten-like tool is shared are overly fixated on the tools and correctness of the process. Because there is an original source implementation (Niklas Luhmann), people judge the ‘purity’ of an implementation rather than focusing on the activity itself. This makes some intuitive sense, it’s hard to judge the effectiveness of a tool because note taking has compounding effects and most compounding benefits occur at the end so instead people judge in a more near-term way.
Completing a tasks, documenting the problem and what you did to solve it serves as a kind of automation for the future. Anyone can read it and pattern match to the situation before carrying out the sames set of tasks to fix it again. This also ends up becoming research or a spec for how to automate the task programmatically (a higher order form of automation).
Charlie Munger’s first rule of compounding is to never interrupt it unnecessarily. Because of the way compounding works over time, to prematurely interrupt it (e.g. selling your shares or stopping to contribute) will forgo the largest upside—most compounding interest benefits occur at the end.