All the real benefits in life come from compound interest. (Naval Ravikant)
Fragments from imaginary dialogues
“What do you mean by compounding?”
“On one hand, I mean exponential growth.
The best known example is compound interest in Economics. A sum of money grows by a percentage of the entire sum. As the sum grows, so does its rate of growth. This is a positive feedback loop.
Another example is a snowball rolling down a mountain. As it rolls, it gathers an amount of snow proportional to its size.
On the other hand, I mean incremental growth.
Another name for it is marginal gains.
Small changes add up. Taken individually, a single drop of water is insignificant. On a long enough time-frame however, drop by little drop fills an ocean.
Moreover, small incremental change is invisible. It takes time for its cumulative effect to become manifest.
In the realm of personal growth, both meanings of compounding are important.
Incremental growth means having the insight to see the invisible, to see that every little one of your actions adds up [<link; medium read].
Exponential growth means having the insight to focus your efforts on the things that produce exponential returns.
I expressed it in terms of growth, but it goes in the other direction too.
Effective productive time compounds. Wasted time compounds as well.”