Compounding with Long-Term People

Snowball Effect - High-Time Preference - Incremental Progress - Positive Sum Game

Hello, I am Nicolas Bustamante, and each week, I write about concepts and methods to build successful businesses.

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I love the following Einstein's quote: "Compound interest is the eighth wonder of the world, who understands it, earns it, who doesn't, pays it." Compounding is like a snowball effect in which you take a number and increase it by a certain percentage over time. Because it's a percentage of a growing principal, the more time passes, the more you earn. All the good things in life, such as friendships, business relationships, or love, compound over time. It is thus essential to play long-term games with long-term people and never break the compounding effect. 

This is, admittedly, a challenging mission. Long-term compounding requires a delay in instant gratification. It requires a high-time preference in which one favors future consumption or well-being over the present. When facing lof of possibilities, a long-term compounder never takes shortcuts. It means investing instead of speculating, opting for a romantic relationship instead of a one-night stand, savings over debt, sport over binge drinking, or learning over recreation. What matters is to make slow but incremental progress that will grow big over time. 

A key question to ask ourselves is: "does it compound over the next sixty years?" It helps avoid fake friendships, fragile business relationships, living in the wrong city, launching a venture just for the money, speculating to make quick bucks, etc. Short-term perspectives create zero-sum games in which one loses for the other to win. On the contrary, long-term views benefit from positive-sum games in which everyone wins in the long run. When it comes to compounding, one has to trust the process because results will appear after decades. To illustrate this point, Warren Buffet earned 99% of his wealth after this 52nd birthday, and Apple added more market value over the past six months than in all its existence. 

The fundamentals are to start early, be patient and disciplined, and keep investing over time. It's particularly true for relationships. Avoid relationships that don't compound over time. A small number of solid connections are always better than a lot of loose ones. Find what compounds over decades and then invest a lot. It's the same reasoning for life's purposes. Find your life mission and start investing now!


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