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Compound Effect – The Eighth wonder of the world

I have a good news and bad news for you!

The bad news is that you don’t make $200,000 a year spending two hours a day on the Internet, lose 30 pounds in a month, rub 20 years off your face with a cream, fix your love life with a pill, or find lasting success with any other scheme that is too good to be true.

Now the good news is that all of this can be possible if you build a system around habits and then follow it consistently.

Let me start with a question -

Can you tell me one thing common among Warren Buffet, Bill Gates, Elon Musk, Jeff Bezos, Mark Zuckerberg and Charlie Munger is? Obviously besides being successful...
All of them are voracious readers.

Now in order to have multiple ideas we need to have multiple views to the same problem and in order to get that we have to read a lot.
However, I was (and still I am) a slow reader, also non-fiction wasn’t my cup of tea. To add to it, I had lot of scheduled work thus making it tough for me to read beyond certain pages. However, today I am able to cover a book per week. How does it happen?

Ever wonder how did it happened that a guy who did basic exercises at gym, after a year or so, had a chiseled body?

Or maybe a spendthrift colleague, who saved lesser but still, after sometime, have better investment than yours and you must be wondering the reason behind it?

The reason for all these turnarounds is the Compound Effect.

If we go by the mathematics definition, it is the process by which we add interest to a fixed sum, which then earns interest on the previous sum and the newly added interest

The results are usually an exponential shift as compared to linear or additive shift.

In the layman’s term, it’s the incremental affect one sees during systematic habits.
You wanted to read book a week? Start 20 pages per day, after a month add 3 more pages per month and after a year you will be reading over 50 pages per day or over 400 pages per week.

Another example, which Darren Hardy took in his book Compound Effect is -  The real cost of a four-dollar-a-day coffee habit over 20 years is $51,833.79.
That’s the power of the Compound Effect. How? Well you could have saved that amount into bank account and interest keeps on going.

Well I agree it’s becoming too economical but hope you get the idea.
Small things which we ignore end up pretty big over the time. After all, its mosquitoes who bite, not the elephant.

How to use it in your favor?

Make a choice - what thing you want to change or add or delete?
Act on it – This will form your behavior
Turn your action into a habit i.e. repeatedly perform the same
Over the time, this will get compounded and you will reach your goal.




Charlie Munger summed up this whole effect nicely -

“I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up and boy does that help, particularly when you have a long run ahead of you.” - Charlie Munger USC Law Commencement Speech, May 2007
““Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Systematically you get ahead, but not necessarily in fast spurts. Nevertheless, you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day. At the end of the day – if you live long enough – most people get what they deserve.” - Charlie Munger

Next time, instead of planning to reduce 6 Kgs in a month, focus on eating home cooked meal 5 times a week or exercise 30 minutes a day. Similarly, don’t target reading 52 books per year, instead read 50 pages per day. Don’t wish paying off student loan in couple of years, instead save Rs 100 daily.


Improve a little each day. It compounds. When 1% compounds every day, it doubles every 72 days, not every 100 days. Compounding tiny excellence is what creates big excellence.

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