Exponential Growth & Compounding1

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.

icon
Fundamentals
icon
Math & Statistics
icon
Logic & Reasoning
image

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.

MindVault Resources Master

LinkNAMEFormatAuthor

Read

A Short History Of Nearly Everything
Book

Bill Bryson

Read

Scale
Book

Geoffrey West

Read

The Sovereign Individual
Book

James Dale Davidson & Lord William Rees-Mogg

Read

Antifragility
Book

Nassim Taleb

Read

Skin In The Game
Book

Nassim Taleb

Read

Fooled By Randomness
Book

Nassim Taleb

Read

Managing Oneself
Book

Peter F. Drucker

Read

Principles
Book

Ray Dalio

Read

Six Not-So-Easy Pieces
Book

Richard Feynman

Read

Six Easy Pieces
Book

Richard Feynman

Read

Influence - The Psychology Of Persuasion
Book

Robert B. Cialdini

Read

The Infinite Game
Book

Simon Sinek

Read

Start With Why
Book

Simon Sinek

Read

A Brief History Of Time
Book

Stephen Hawking

Read

The 7 Habits Of Highly Effective People
Book

Stephen R. Covey

Listen

Lex Fridman Podcast
Podcast

Lex Fridman

Listen

Podcast

Neil DeGrasse Tyson

Listen

Masters of Scale
Podcast

Reid Hoffman

Listen

Podcast

Scott Galloway

Listen

Mindscape
Podcast

Sean Carroll

Listen

Podcast

Tim Ferriss

Listen

Podcast

Listen

Hidden Brain
Podcast

Listen

Invisibilia
Podcast

Listen

HBR Ideacast
Podcast

Listen

a16z
Podcast

Watch

YouTube Channel

Watch

Crash Course: Statistics
YouTube Channel

Watch

YouTube Channel

Watch

YouTube Channel

Watch

Quanta Magazine
YouTube Channel

Watch

Physics Videos by Eugene Khutoryansky
YouTube Channel

Watch

YouTube Channel

Watch

YouTube Channel

Watch

PBS Space Time
YouTube Channel

Watch

YouTube Channel

Watch

YouTube Channel

Watch

Physics Girl
YouTube Channel

Watch

YouTube Channel

Watch

Minutephysics
YouTube Channel

Read

Venture Hacks
Blog

Naval Ravikant

Read

Lesswrong
Blog

Read

Untools.co
Blog

Read

Edge.org
Blog

Read

a16z Future
Blog

Check Out

Brilliant.org
Courses

Follow

Principles
Instagram

Watch

Wondrium
Streaming Platform

Check Out

Udemy
Courses

Check Out

Khan Academy
Courses