Is it a bird? Is it a plane? It's compounding📈
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:
A simple definition of compounding
5 domains where it works - and how it works there.
1 little nuance of how compounding doesn’t work in finance
The less discussed idea of negative compounding.
So dive in, hope you enjoy it👇
📚 Further reading
The Wisdom of Atomic Habits from Wisdom Letter #75
Naval Ravikant on compounding in relationships
Warrent Buffet’s biography. Goodreads link -> The Snowball
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.
Thank you for reading🙏
Hope you enjoyed today’s mail.
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See you next week.