Is it a bird? Is it a plane? It's compounding📈

#93

Hey folks 👋

How are you, hope you’re doing well.

Welcome to Wisdom Letter #93

Today we are talking about the idea of compounding👇


📈 Compounding - The Mental Model

Mental models are everywhere, once you start learning about them, you start seeing them all around you.

It’s certainly true for the mental model we are talking about today.

Compound interest is a concept of finance and mathematics. The mental model of compounding derives from it.

And it applies to almost every aspect of life.

Whenever you see exponential gains in anything in life, you can almost always attribute them to years of compounding.

Be it your health, wealth, relationships, or knowledge.

That’s what we dove in today.

And we have tried to make it as simple and actionable as possible, with images like this one —

So enjoy the article.

Here’s what it contains:

  1. A simple definition of compounding

  2. 5 domains where it works - and how it works there.

  3. 1 little nuance of how compounding doesn’t work in finance

  4. The less discussed idea of negative compounding.

So dive in, hope you enjoy it👇

Why compounding works 📈


🔗 Related

  1. What Are Mental Models & Why Are They Important (With A Simple Example)

  2. The 5 Most Important Cognitive Biases Holding You Back


📚 Further reading

  1. The Wisdom of Atomic Habits from Wisdom Letter #75

  2. Naval Ravikant on compounding in relationships

  3. Warrent Buffet’s biography. Goodreads link -> The Snowball

  4. Warrent Bufferts bio movie is a must watch. Trailer -> Becoming

Buffet is the personification of compounding.

He has invested in financial markets across 9 decades, there’ a lot to learn from him. Do watch the bio movie even if you don’t read the book.


🐦 Birdwatch


Thank you for reading🙏

Hope you enjoyed today’s mail.

If you liked today’s post, please forward it to just 1 friend and ask them to subscribe.
If enough of our friends do that, then we will enjoy the power of compounding and will be able to reach many more like minded people.

See you next week.

Cheers,

Ayush & Aditi

PS: Things… they are a brewing…☕, more updates soon😊