On compounding, pain and how we think about time
We carry all of our history with us.
I wasn’t thinking what you might be thinking I was thinking when I had this thought.
It came to me while making notes on James Clear’s Atomic Habits (why and how I make notes is a topic for another day), and as often happens one idea sparked another and I ended up somewhere else entirely.
Clear was talking about how our outcomes are a lagging index of our habits: not a direct relationship, to be sure—but there’s certainly a relationship. As he put it:
“You get what you repeat.”—James Clear
(Now I’m sure you’re already imagining all sorts of exceptions to this, but keep in mind, it’s often it’s not a direct relationship. At any rate, let’s take it at face value for now.)
The key point is that bit about outcomes as a lagging index: a pointer to something that happened in the past, like how thunder is a slightly lagging index of lightning.
That struck me because we tend to think of time as an obstacle. I want something, and I want it now, but between my efforts to get it and actually getting it is this obstacle: time. Admit it, you do it too, it’s not just me.
We see time as something in the way.
What if, however, we flipped that script? What if we saw time as the way? As the thing that gets us where we want to go?
That’s how smart investors take advantage of the magic of compound interest, after all. It’s how the rich get richer—not just because systems are set up to make them that way, but because on a level, that really is how the universe works.
Consider the wheat and chessboard story. Imagine an ancient court official whose king asks how he might reward his service, and his response is to bring out a chessboard and to put a grain of wheat on the first square and then double it on the next, and so on, each square the double of the last. The king laughs. At the fifth square there are only 32 grains.
A few hours later, the king is no longer laughing. The total number of grains by the time it’s over on the 64th square?
(If you’re wondering how to even say that, click this link—here’s a hint, though: it begins, eighteen quintillion…)
But here’s the really important part of that story is this: no one ever guesses how insanely large that number will be. I mean, you may have thought it would be large, but there’s no way you’d be thinking it would be that large.
To use a more modern version of the problem: Would you rather have a million pounds or a penny doubled over each day for a month? Because you know it’s a trick question you’ll probably choose the latter. So instead I’ll ask you to guess how much that would come to. (To avoid you seeing the answer before you’re ready and have had a chance to guess, I put it at the bottom—just scroll down.)
What’s most fascinating about both examples (and the many more that abound hidden in everyday life) is the psychology at play. Basically, our intuition about compounding is wildly wrong. The only way to grasp the size of the impact is via the math, and even then it still somehow feels insane.
Not only that, it’s also psychologically difficult to practice. Imagine taking the penny option: 2 pennies the next day, 4 the day after that, and in the next 4 days, 8, 64, 128, 256. By the end of the first week, you’re still short of £3 (I’m in the UK, don’t judge). And while what you have is insanely more than your original penny, it looks like nothing compared to your friend who took a million on day one. In the exercise you can use the certainty of the math to overcome your intuition screaming at you. But real life doesn’t come neatly enough to do the math for in that way. How do you compound with habits, in relationships, in putting in the work for the career you want?
We have to find another way to overcome our wrong intuition, and I believe the key, as I hinted earlier, is to think differently about time.
Storing and unleashing energy
Here’s the thing: compounding is always a function of time.
It’s a little adding up over a long time. And our intuition being so wrong about compounding is a clue to how way off it is about time. You have to wonder: in just how many ways have we taken the immediate option because we couldn’t possibly grasp intuitively how much more was possible if we let time do its magic?
But what exactly is this magic?
Think of it this way: compounding is using time as a reservoir of energy.
Why do I say this? Well, if you think about it, what’s happening in compounding is you’re doing a little, but repeatedly. Over and over and over again, with no immediately visible results (which is the bit that is so difficult). But with time (where the magic happens) you somehow at some point it blows up. In the money exercise you go from 1 to 10 million pounds within just the last three days—that is, it takes you 27 days to get to about the level of your friend who took the million and ran, but in the next two days you’re at more than ten times their wealth.
It’s an explosion.
In a sense, what’s happening is time acting as sort of a reservoir of energy. During the time your actions seemed to not produce results, they weren’t being lost. They were being stored up to be, being accumulated, and then when it reaches a critical mass—boom.
And yet—this is where we must again consider the psychology—without a knowledge of the time you’ve put in, the results would appear to a random observer to be “out of nowhere.” At best it would seem you just “blew up”. Which, yes, you did —after accumulating a ton of “energy” in the form of repeated actions.
It brings to mind the biblical idea of things being “stored up”—justice, prayers, and so on—until a time when, “out of the blue”, one more seemingly small, maybe even insignificant, action “suddenly” tips the scale, unleashing a “disproportionate” outcome.
Time is a reservoir of energy. And nothing is ever truly sudden.
But there’s one more thing.
The past is never truly past
Yes, each passing moment is lost to us, in a sense—each slipping from our fingers even as we grasp at it. And yet, in another sense, every present moment contains all of the past within it. Like a tree’s rings contain its history. Like our DNA encodes not only our past (and the potential for our future), but also that of all those who came before. Like our scars carry our pain.
The past is never lost—we carry it encoded within us, or literally on us. And it can compound, sometimes, into trauma. And sometimes, when there’s enough energy accumulated, it explodes. We’re seeing that in America right now. Before that, we’ve seen it with the pandemic.
But it’s also happening everyday, in smaller ways, all around us. Time is a reservoir, and we are storing up energy in it every single day, in our relationships, in our work, in our leisure, in what we read and watch and talk about.
What have you been storing up? Better yet, what can you start storing up today?
The future is a compound of the past.
Yours in time,
The answer to the doubling pennies exercise: after 30 days you’d have nearly 11 million pounds! (£10,737,418.23 if you want to be precise). Again: unless you’re very familiar with the exercise, there’s no way you’d guess it’d be that much.