Tuesday, October 31, 2017

Compound effect

Definitions

Compounding effects mean little things that repeatedly multiply themselves. They will give big results after lots of repetitions. After a small amount of repetitions, the compounding effect do not have much influence. In the long run, it means everything. When we talk about compounding we talk about exponential growth or decline.

Examples

Universe´s expansion is accelerating all the time due to the compound effect. Repeating an action again and again will create a reverse compound effect by saving energy out brain needs for executing it. If we have a debt, its amount is compounding as fast as its interest on interest. Inflation has a reverse compound effect on the value of cash. After twenty years of 3% inflation, cash has lost about 45 per cent of its value.

Repetition, repetition, repetition

We all have a preference to look for immediate and most obvious reactions in whatever we are doing or seeing. This is a problem in achieving something great. We cannot achieve any big wins quickly. We need to make hundreds or thousands of repetitions to achieve greatness. These repetitions creates the compound effect. We quit too early and miss the compounding effect. This is a sure way to fail. There are no short-cuts even though some companies or people are willing to offer them. In a highly competitive field of expertise, we need to practice thousands of hours. These means that the amount of repetitions is huge.

We have to be patient. We need to trust the process. Consistency is the key. For example, in order to lose 10 kilograms, we can make big changes to our diet for a short period of time like couple months and hope we have enough willpower to survive it or we can make a small change of eating hundred calories less every day for two to three years. The second way will probably be more sustainable and its results will be better. The results will take time, but fast fixes normally lead to fast setbacks. Bigger payoffs just smaller changes, more time and more repetitions. The best way to get the magic of the compound effect is repeating things long enough. Depending on things, the best results are achieved through years or even decades of compound effect.

Compound effect is always working

Compound effects are everywhere. We go through them every day. Most of the times, their effects are so small that we are not noticing. We need to focus on them and choose which kind of effect on us they have. We should always aim for more positive than negative effects. For example, our diets are responsible for many compound effects. Their effects are not only on our weights. Good diet will let us make better decisions, feeling more refreshed, more focused, etc. Bad diets will lead us to bad decisions, tiredness, or maybe become even depressed.

Our habits are the most important thing about compounding effect. Our good and bad habits and the sum of their effects make all the difference in our lives. The older they are the more difficult it is to change them. Repetitions make them stronger and easier all the time. We also need less effort to maintain them after every repetition. A daily routine built on good habits makes a difference in our success. We all have good and bad habits and the the sum of their effects is the sum of most of what we are accomplishing.

Our environment and the people we are with are important in getting the right compound effects. We are constantly bombarded with desirable and undesirable impulses through our environment and from our friends. We need to think the inputs our brains get every day. We get most of the impulses without noticing. The sum of these impulses compound over time. Therefore, we need to control our environment and avoid all the unnecessary negative impulses like advertising, other people complaining, negative feedback without critical thinking, etc. We also should get as much positive impulses as possible, like constructive criticism, hanging around with more positive people, etc. We are the sum of the people we most often are with. We do not notice these things, because these things happen so slowly. And people also think they are not influenced by these things, because we think we are always rational. We should increase our awareness and start thinking about our environment, our friends, and their effects on us. Then we can increase the positive effects of compounding.

Most of the readers have probably noticed that I haven´t mentioned much about money and compounding. It is true that compounding money is one of the most important things about this mental model. The reason I have left it out of this text, is that it needs more space than I can offer in this text. I will get back to it after I have introduced all the mental models.


-TT

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