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 you 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 you 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

You have a preference to look for immediate and most obvious reactions in whatever you are doing or seeing. This is a problem in achieving something great. You cannot achieve any big wins quickly. You need to make hundreds or thousands of repetitions to achieve greatness. These repetitions creates the compound effect. You quit too early and you 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, you need to practice thousands of hours. These means that the amount of repetitions is huge.

You have to be patient and need to trust the process. Consistency is the key. For example, in order to lose 10 kilograms, you can make big changes to your diet for a short period of time like couple months and hope you have enough willpower to survive it or you 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 are achieved by 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. You go through them every day. Most often, their effects are so small that you are not noticing. You need to focus on them and choose which kind of effect on you they have. You should always aim for more positive than negative effects. For example, your diet is responsible for many compound effects. Their effects are not only on our weights. Good diet will let you make better decisions, feeling more refreshed, more focused, etc. Bad diets will lead you to bad decisions, tiredness, or maybe become even depressed.

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

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

Sources:

Compound-Effect, Darren Hardy
Tipping Point, Malcolm Gladwell
Poor Charlie´s Almanack, Peter Kaufman, Charles T. Munger
Peak, Anders Ericsson

-TT