Rule 96.
Maximize compounding loots.
All returns in life,
Whether in wealth,
Relationships or knowledge,
Come from compound interest.
Entrepreneur and philosopher,
Naval Ravikant.
Let's illustrate compound interest with a simple example.
If you invest $100 in an investment that returns 10% per year,
After 1 year,
You will have $110,
A return of $10.
However,
After 10 years,
You will have $259.
That's an average of $25.
90 per year,
More than twice the 1 year return.
Such is the power of compounding.
The returns from the first year generate their own returns in the second year,
And these returns generate their own additional returns in the third year,
And so on,
With a snowballing effect.
Compounding takes place when returns are value-producing assets.
The landmark trait of great investors and professionals is to invest in value-producing assets early on,
Judging them not for the returns they can bring today,
But for the returns that their returns can generate.
Of course,
This applies not only to investments,
But also to friends,
Relationships and skills.
Their returns compound too.
Friends bring more friends,
Skills bring more opportunities,
Which in turn bring more skills,
And so on.
In fact,
The compounding effect exists in many areas of your life.
For example,
Your health.
The more you move and are flexible,
The more likely you are to exercise,
And thus get stronger and more agile,
Or retain those qualities as you age.
If you did not do any sport for years,
Exercising for one minute a day will build the muscles,
Breath,
And flexibility to exercise for two minutes a day,
Which will benefit you even more,
And so on,
Until you will be in great shape.
Your network.
Each new customer is a new person you add to the group of people who know your products or services and can recommend them.
If each customer has,
Say,
10% chance of recommending you,
Then each customer can,
In a way,
Be seen as an investment with a 10% return.
This compounds rapidly.
Your knowledge.
Reading a book on any given subject will give you the tools to read a more advanced book on the same subject,
Which will in turn allow you to read an even more advanced book,
And so on.
Your know-how.
Learning to play soccer in primary school allows you to play on a young team,
Which gives you the skills to transition to a better club where the coach will teach you even more advanced skills,
Which will allow you to access even better coaches,
And so on.
In relationships.
Meeting a person once allows for limited kinds of interaction,
Like small talk,
Casual sex,
Etc.
Instead,
Repeatedly meeting a person opens the doors to more rewarding interactions such as deep conversations,
Intimacy,
Which might in turn lead to more rewarding activities that were previously precluded,
For example,
Starting a family together.
Compounding starts slow.
The returns of the first week are not a good indication of the weekly returns you will get in a few years.
Don't let the small initial returns discourage Do things that snowball.
It's worth it.
For the rest of today,
Pick an area of your life you would like to improve.
Is there any part of it that compounds?
If so,
Act towards it.
The earlier you do,
The more its benefits will compound.
For example,
I want to publish a book.
What compounds?
Two things come to mind.
First,
My writing skills.
The more I write,
The better I write,
And the better I write,
The more I write.
A virtuous circle.
Second,
My audience.
The more people read me,
The more people talk about my writings,
And the more people will read me in the future.
Hence,
I should begin working on my writing skills and building an audience as soon as possible without worrying if my writing isn't great yet or if the absolute improvement is little at the start.
With time and action,
They are bound to improve.
First,
Slowly,
Then fast.
