Tag: compounding

Compounding & Cumulative Negative Odds

~ cafebedouin

When we talk about the power of compounding, this usually is a discussion about finance and why it is good to save earlier in life. I prefer to think about compounding in terms of skills. Time spent learning new things tends to help you with learning new things, and it helps deepen specific topic areas, such as understanding the underlying technology of the Internet.

But, there’s another aspect of compounding that people often try not to think about, cumulative odds of some negative outcome. For example, nuclear war:

I saw this graph in this tweet.

To put that 1% of nuclear war in a more personal context, if you use the Social Security Actuarial Life Table for 2017, you reach a 1% chance of dying once you reach the age of 59. Your odds of making it to 59 years of age? It’s just over 85%. It’s not something that’s intuitive if you just focus on the small percentages by year.

The Power of Compounding

~ cafebedouin ~ 3 Comments

“Things add up. You learn one skill. Then another. You finish one project. Then another. Over time, your accomplishments add up to form an impressive feat.

This is especially true for money. Most people earned their money over time. Few people make a big financial splash. Forget about the Conor McGregors and Evan Spiegels of this world. These are people who hit the career jackpot.

But you don’t need special talent or skills to succeed in life. If you take the long road, achieve one goal after the other, and build up your wealth step by step, you are more likely to live a good life.

It’s simple. And it always works. People who say it doesn’t just haven’t had the patience to apply it to their own life.”

-Darious Foroux, “The Power of Compounding.” dariusforoux.com. September 4, 2017.

Over the Long Term: Good Market > Good Team

~ cafebedouin

“These data points made me think about an important piece of advice that a well respected hedge fund manager once told me — most of your financial returns will come from the markets you select to invest in, rather than the actual securities you decide to hold. Another way to think about it is through the lens of entrepreneurship advice “When a good team meets a bad market, the market wins. When a bad team meets a good market, the market wins.”

So much of compounding is predicated on the idea that a high rate of compounding will continue for decades. If you’re successful in finding one of these markets, the challenge won’t be in making many good decisions, but rather in having the discipline and emotional control to avoid making any decisions at all. This is ultimately where I think bitcoin is at the moment. It continues to compound at an impressive rate. You just have to be patient enough to outlast everyone who can’t think long term.”

–Anthony Pompliano, “Warren Buffett, Bitcoin, and Compounding.” pomp.substack.com. December 14, 2021