The Eighth Wonder of the World
Invest in compound growth. It is what built the seven wonders of the world.
The Colosseum.
The Great Wall of China.
The Taj Mahal.
Christ the Redeemer.
Machu Picchu.
Chicen Itzá.
Petra.
Compound Growth.
The eighth wonder of the world is compound growth.
Let me explain.
Much of the world’s innovation stems from one person coming up with an idea, another person taking that idea and making a few changes, another taking those findings and making it a product, and then yet another person taking the product and combining it with something else. It all builds on each other like compound interest.
The Great Wall was built through slow, incremental progress of the work of millions of people who combined millions of bricks, stone, and soil. There were multiple iterations and phases. They slowly built it out over 2,000 years. With each year of work, the wall would get bigger and better. The work compounded on itself.
The Colosseum took seven to eight years of work to construct. Millions of pounds of concrete stacked upon each other with each day of work building upon itself. The historical feat was completed thanks to compounding.
The result of a long period of compounding to build these wonders was astounding. Laying a couple of tons of concrete a day doesn’t seem like much, but if you do it every day for eight years you’ll have The Colosseum and every day for 2,000 years you’ll have The Great Wall. All it took to get there was bits of incremental growth linked together for an extended period.
There was probably nothing fun about building The Great Wall. However, certain jobs require you to work diligently for years before you get to the good part. The great work, in this case, The Great Wall, is produced by focusing consistently on something you care for. After all those years, The Great Wall now provided a barrier to defend Northern China from attacks.
Laying a few bricks a day, at the time, didn’t seem like much, but when they paused to take stock or decided to stop construction, they could see how far they had come.
Just like dollar cost averaging the S&P 500 into your 401k every month doesn’t seem like much, it is when you look back five, ten, or 40 years down the line and see how much you’ve made. Sure $200 a month, or $500 a month, may not seem like much at the time but the small things compound and come together to produce great things. The small things provide the stepping stones to reach the bigger things.
Compounding is hard for the human brain to wrap its head around. We underestimate the cumulative effect of work. We look at Warren Buffett and we see a $115.1 billion man. What we don’t see is a man who started investing at the age of 11. We don’t see a man who obtained 90% of his net worth after age 65. He is a man who has been compounding for eight decades. It is the cumulative effect of his daily actions for 80 years, and inactions for that matter, that have provided the large majority of his wealth.
He is quoted saying,
“Our favorite holding period is forever.”
Very few are competing in 80-year windows. It is each day within those 80 years that have built upon each other to produce the outsized returns and amass the large amount of wealth that he has.
It is hard to understand the consequences and effects of your daily actions or your monthly dollar cost averaging of the S&P. It seems negligible. Cumulatively, however, the consequences are humongous.
Think about working out or any athletic endeavor. The reason you can bench 225 pounds, run a 6:00 mile, or hip thrust 300 is not because of one single action. It is the result of days, weeks, and years spent in the gym that have built on each other. Slow, incremental progress of slowly chopping the wood down to reach those heights.
The same exists on the other side. The reason why we might add a few pounds, add a few minutes to our 5k, or not be able to lift as much as we used to is not because of the one ice cream bar we ate or the one run/lift session we missed, it is the result of ice cream every night and multiple sessions missed that are now culminating together negatively.
It is all rooted in consistency. That’s how we do great work or fall from grace. People who do great work like getting outsized returns on their portfolios, retiring comfortably thanks to their 401k, or running sub six-minute miles for a 5k don’t really get a lot done each day. The difference between those who have it and those who don’t is largely indifferent in a single day.
It is when you look over months, years, and decades that those things begin to realize and begin to become noticeable. They don’t do great things every day; they just get something done, rather than nothing. It is when the days of something stack upon each other that something great is built. It is built because of consistency.
It is important that consistency is also not interrupted unnecessarily. The reason consistency works is because it is a constant output and those outputs then build on each other. Think about investing in real estate. The reason why people tell you you should buy a house is it is one of the few assets that you will actually leave alone and let compound for 10 or 20 years. That was until people thought they could buy a house and sell it a year or two later and always make a decent return.
The reason why you can see houses as a decent investment is because they compound. You can lose with compounding in 1-2 years but it is pretty hard to lose over 30. One avenue doesn’t let compounding work because it disrupts it. The other avenue lets compounding work because it allows for consistency.
It is important to understand both the power of compounding and the difficulty in reaching it. It takes time. It is hard to wrap your head around the idea of your income doubling over the next few decades. However, doubling the average income over 30 years works out to be only about 2.3% growth per year.
Right now, that is nearly the cost of inflation. All it would take is a raise to adjust for inflation each year. It seems like a massive leap and difficult to attain but seeing it is only 2.3% per year helps you to understand the power of it. The interest just compounds on top of each other. Something so small yet so powerful. We underestimate compound interest and compounding.
Much of the great work in life is a result of two things: a stubborn commitment to consistency and compounding. Often, we underestimate just how powerful those things are.
Warren Buffett is one of the richest men in the world because he has been consistently investing since age 11. Today, he is 93, that is 82 years of work and 82 years of compound interest. The Great Wall of China is one of the marvels of the world and behind it is 2,000 years of work and 2,000 years of compounding.
It is the small wins that allowed this to happen. The small wins slowly grew the interest and slowly accelerated the growth before we were left with something astounding.
When you do work that compounds, you are left with exponential growth. The more money you have, the easier it is to make more. The curve may feel flat or minimal to start. However, as the base grows larger so does the rate at which it compounds. Invest in compound growth. It is what built the seven wonders of the world.
Thanks for reading.
-Scantron
Scantron’s Selections - A few things I loved this week
Jimmy Carr - Modern Wisdom - Yet another banger episode from Modern Wisdom. To put it lightly, Jimmy Carr is brilliant and brings so many good ideas and truths to the table.
How to waste your career, one comfortable year at a time - Apoorva Govind - “If you are ambitious and want to build a good reputation for yourself in the valley, if you don't want your talent to go to waste - treat complacency like cancer.”