Compound Interesting

In simpler times you had to go out of your way to find useless motivational banalities. There'd be an aisle in the shops that you could easily avoid or a spot on the office kitchen wall next to the milk rota that you could stare straight past while the kettle boiled and you fantasised about another job. 

These days, unless you've vacated social media, it's much harder to avoid having decontextualised generalities with a side of misleading infographics thrust in your face.

I scroll hard past that crap but I was reminded of one that comes around frequently the other day. It goes something like these (1, 2, 3):

"Ready to unlock your 38X potential in just one year?"

"Imagine being offered a 365% return on any investment!"

"Every day: 1% stack or 1% slide. You choose."

Naturally, "better" and "return" and "stack" are pretty vague and the directions for achieving these easy wins are even more so, but we're humans and we tend to like this kind of thing. Or, at least, we like reading about them, mentally committing to them, and imagining ourselves basking in the success of achieving them. But we're less keen on questioning or actually doing them. See also New Year Resolutions.

The 38x or 365% numbers seem large, and wildly different, but they are (at least mathematically) correct in some sense. Imagine a metric with value 1 on January 1st. If you can increase the metric by 1% of 1 (i.e. the starting value) every day for year, its value will be 4.65. That's where the 365% comes from. If you can increase the metric by 1% of the previous day's value then at the end of the year you'll have 37.78 and that's the 38x bounce. 

In terms of a savings account, the first is simple interest and the second is compound interest. Naturally, compound interest gives a bigger return but that doesn't stop some of the claims using simple interest instead. Why? Perhaps we'll consider the psychological benefit of claiming 365% rather than 38x, a marketing device I've seen called the rule of 100%, another time.

Monetary interest on savings is *ahem* interesting because it's a simple metric with an objective method of increase and evaluation. Growing yourself or your skills or your influence or whatever is, well, just plain messier.

We all know this but that doesn't mean that compounding can't work for us. It can, but we need to take the hype and hyperbole out of it. These are some of the practices that I think compound for me:

• deliberate practice
• targeted research
• background reading
• looking for efficiencies in anything I do regularly
• trying new things
• trying old things in new ways
• biasing to action rather than inaction
• identifying connections and parallels between things
• sharing problems and potential solutions with others
• implement in small iterations and reflect after each one
• getting tools

I don't aim to do these more by 1% every day, but I do look for opportunities to do them and encourage myself to take those opportunities when there are no compelling reasons not to. 

The benefits I see do not accrue linearly and can even be hard to discern, at least initially. Compounding, as the graph above shows, looks like little or even no change to begin with. In fact, at the outset things might feel harder, take longer, and have a higher chance of failure. You can de-risk this by doing smaller pieces, time-boxing the effort you are prepared to invest before giving up, and prioritising safer actions (whatever that means for you in a given context).

The more you do this, the more chances to benefit from compounding you will have. Over time, I find that previously out-of-range tasks become doable and then second nature, that new scenarios show similarities to ones I've encountered before and so patterns of solutions are immediately available, and that skills I've honed in one area (writing a blog) are transferred directly to another (writing a report).

What it also contributes to, that I don't see called out, is confidence. As you try more, learn more, and succeed more, you are more inclined to try more, and then learn more, and then succeed more. This is where the greatest value is, and I think that's compound interesting.
Image: Reddit