Exponential Growth & Compounding

The Idea

Contributed by @philhagspiel |  Edited and curated by @philhagspiel

Small things will inevitable become huge over time if they grow at an exponential rate.

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Fundamentals

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Math & Statistics

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Logic & Reasoning

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Compounding is a mathematically simple, yet powerful concept that impacts many areas of our lives, from finances and investment, to education, learning, biology and relationships.

In its simplest form, a compound growth processes describes a scenario in which the absolute amount of growth isn't fixed but depends on how much is there already — the more there is, the higher the absolute growth.

This leads the phenomenon that even if something is rather small in the beginning and only grows by very little regularly, it will become extremely big in a foreseeable time. Exponential growth is what we observe if compounding is at play.

Compounding and exponential growth underpin many phenomena we observe in reality:

  • the rapid global spread of viruses that leads to pandemics,
  • the returns that turns small investments into fortunes over time,
  • the spreading that turns small fires into catastrophes,
  • the virality that produces social media hits,
  • the word-of-mouth that generates millions of users for new apps over night,
  • the rapid population growth that leads to billions of more people in a few years,
  • the extreme improvement of computing power that leads to smartphones and artificial intelligence.

The are less straightforward and less calculable examples where compounding can lead to extremely strong gains over time:

  • an increasing learning curve over time as we use our added knowledge to add even more knowledge,
  • an ever stronger widening of our social networks as each new contact potentially connects us to more people,
  • a continuous deepening of social relationships as newly gained trust and understanding leads to ever deeper layers of connection.

Exponential growth is a poorly understood concept as humans have an innate bias to think in linear models.

Understanding the basics of compounding and exponential growth is a fundamental skill to comprehend change in our modern world.

“The greatest shortcoming of the human race is our inability to understand the exponential function.”

— Albert Allen Bartlett

“The extinction of the human race will come from its inability to emotionally comprehend the exponential function.”

— Edward Teller

“Small, Smart Choices + Consistency + Time = Radical Difference”

— Darren Hardy

Explore

➞ For a deep dive into the basics of exponential growth and how it relates to biology, physics, finance and the internet, read this Wikipedia article.

This article introduces you to compound interest as the basis of compound growth in finance and investment..

This video gives you a few intuitive examples of how powerful compound growth truly is.

➞ Watch this clip from the Lex Fridman podcast to understand how exponential dynamics govern more and more of our world.

Resources

If this idea resonates with you, some of these resources might add value to your life.

LinkNAMEFormatAuthor
A Short History Of Nearly Everything
Book
Bill Bryson
Scale
Book
Geoffrey West
The Sovereign Individual
Book
James Dale Davidson
The Sovereign Individual
Book
James Dale Davidson & Lord William Rees-Mogg
Antifragility
Book
Nassim Taleb
Skin In The Game
Book
Nassim Taleb
Fooled By Randomness
Book
Nassim Taleb
Managing Oneself
Book
Peter F. Drucker
Principles
Book
Ray Dalio
Six Not-So-Easy Pieces
Book
Richard Feynman
Six Easy Pieces
Book
Richard Feynman
Influence - The Psychology Of Persuasion
Book
Robert B. Cialdini
The Infinite Game
Book
Simon Sinek
Start With Why
Book
Simon Sinek
A Brief History Of Time
Book
Stephen Hawking
The 7 Habits Of Highly Effective People
Book
Stephen R. Covey
Venture Hacks
Blog
Naval Ravikant
Lesswrong
Blog
Edge.org
Blog
Untools.co
Blog
a16z Future
Blog
Lex Fridman Podcast
Podcast
Lex Fridman
Startalk
Podcast
Neil DeGrasse Tyson
Masters of Scale
Podcast
Reid Hoffman
The Prof G Show
Podcast
Scott Galloway
Mindscape
Podcast
Sean Carroll
The Tim Ferriss Show
Podcast
Tim Ferriss
Science Weekly
Podcast
Hidden Brain
Podcast
Invisibilia
Podcast
HBR Ideacast
Podcast
a16z
Podcast
Closer to Truth
YouTube Channel
Crash Course: Statistics
YouTube Channel
Zach Star
YouTube Channel
3Blue1Brown
YouTube Channel
Quanta Magazine
YouTube Channel
Physics Videos by Eugene Khutoryansky
YouTube Channel
Up and Atom
YouTube Channel
Verge Science
YouTube Channel
PBS Space Time
YouTube Channel
Arvin Ash
YouTube Channel
SciShow Space
YouTube Channel
Physics Girl
YouTube Channel
Crash Course
YouTube Channel
Minutephysics
YouTube Channel
Brilliant.org
Courses
Udemy
Courses
Khan Academy
Courses
Wondrium
Streaming Platform
Principles
Instagram