The compound interest of knowledge

Most of us are familiar with the amazing power of compound interest when it comes to money. There’s a famous quote (attributed to Einstein, but likely wasn’t from him) that simply says: “ The most powerful force in the universe is compound interest. “ Charlie Munger shared similar thoughts throughout his life.

Compounding interest with money is fascinating to study. There’s the famous example of taking a single penny and doubling it every day for 30 days, with a result of more than $5M at the end of 30 days.

Perhaps more interesting is to think about when that money was halfway to the $5M mark. You’d kind of think it must be around day 15, but it’s not — it’s day 29, the day before. All of the gains come at the end. If you say “ I’ll stop after 25 days, it should be close “, you’d end up with just $167K. Not a bad sum, for sure, but it’s just 1/32 of the total value!

Knowledge

These examples are talking exclusively about money, but a recent episode of the 2Bobs podcast argues that knowledge works the same way. Knowledge can compound as time goes on, making each year of learning far more beneficial than the one before. On the show, Blair compares leaving interest on the table when it comes to knowledge, saying:

That’s the lesson. The lesson is if you have a constant rate of learning, or if you continue to learn, the value of your knowledge with time gets to be massive, but all of the gains come at the end. If you quit a year or 2 or 5 or 10 years too early, you’ve passed on all the possible gains. They all come at the end.

The entire episode was thought-provoking, and I encourage you to give it a listen.

Originally published at https://www.mickmel.com on January 31, 2024.