Book Notes: The Joys of Compounding

Book: The Joys of Compounding
Author: Gautham Baid

Summary

Firmly embedded in the landscape of Munger literature, in the tradition of Peter Bevelin and Guy Spier. Hard pressed to find things here that are also not there, except references to Gita and the Indian stock market. Nevertheless, a good reference book for some very fundamental mental models - compounding, delayed gratification, checklists, incentives, opportunity costs, role of luck and randomness.

Notes

• On seeking wisdom
  • It involves a lot of hard work, patience, discipline, and focus. Read. A lot. This is how Warren Buffett, one of the most successful people in the business world, describes his typical day: “I just sit in my office and read all day.”
  • Self-improvement is the ultimate form of investing in oneself. It requires devoting time, money, attention, and hard effort now for a payoff later, sometimes in the far distant future. A lot of people are unwilling to make this trade-off because they crave instant gratification and desire instant results.
  • After hearing Buffett talk, Combs started keeping track of what he read and how many pages he was reading. Eventually finding and reading productive material became second nature, a habit. As he began his investing career, he would read even more, hitting 600, 750, even 1,000 pages a day. Combs discovered that Buffett’s formula worked, giving him more knowledge that helped him with what became his primary job—seeking the truth about potential investments.
• Continuous learning
  • In Michael Eisner and Aaron Cohen’s book Working Together: Why Great Partnerships Succeed, Buffett talked about his and Munger’s fierce dedication to lifelong learning: I don’t think any other twosome in business was better at continuous learning than we were…. And if we hadn’t been continuous learners, the record wouldn’t have been as good. And we were so extreme about it that we both spent the better part of our days reading, so we could learn more, which is not a common pattern in business…. We don’t read other people’s opinions. We want to get the facts, and then think.
  • In the long term, the daily investment in learning something new and improving yourself goes a long way. So, the best investment of time is to invest in personal development.
• Compounding is one of the most powerful forces in the world. In fact, it is the only power law in the universe that exists with a variable in its exponent. The power law of compounding not only is applicable to investing but also, and more important, can be applied to continued learning. The fastest way to simplify things is to spot the symmetries, or invariances—that is, the fundamental properties that do not change from one object under study to another.
  • The only way to gain an edge is through long and hard work. Do what you love to do, so you just naturally do it or think about it all the time, even if you are relaxing…. Over time, you can accumulate a huge advantage if it comes naturally to you like this [emphasis added]. —Li Lu
• Focus When Bill Gates met Warren Buffett for the first time, their host at dinner, Gates’s mother, asked everyone around the table what they believed was the single most important factor in their success in life. Gates and Buffett gave the same one-word answer: “focus.” Both men agree that relentlessly focusing on one specific passion leads to achievement. And that means pushing aside other ideas and interests until a goal is reached.
  • Buffett biographer Alice Schroeder writes about Buffett’s intense focus: “He ruled out paying attention to almost anything but business—art, literature, science, travel, architecture—so that he could focus on his passion.”
  • Many of the highly successful people in the world attribute their success to a singular focus—a deep commitment to the pursuit of one main goal. Focus directs your energy toward your goals. The more focused you are, the more energy you put toward what you’re working on.
  • Buffett’s secret to success is his intense focus—instead of doing more, he does less. He once told his personal airplane pilot, Mike Flint, that Flint needed to do three things to reach his goals. The first was to write down his top twenty-five goals. The second was to circle the top five most important ones. Finally, he should separate the top five goals into a separate list—and put goals six through twenty-five on a “not-to-do” list. Buffett concludes by stating: “Everything you didn’t circle just became your ‘avoid at all cost list.’ No matter what, these things get no attention from you until you’ve succeeded with your top 5.”
• Energy as competitive advantage
  • The truth is, so few people really jump on their jobs, you really will stand out more than you think,” Buffett explains. “You will get noticed if you really go for it.”As the well-known saying goes, “Choose a job you love, and you will never have to work a day in your life.” You know that you are doing things right in your life when you go to bed at night and cannot wait to wake up and live the next day.
• It is our duty to act as moral exemplars and to inspire others to do the same. When I was an officer in the military, we had a rule called Conduct Unbecoming an Officer. It was not specific, but it said there were certain ways to behave as an example for others…. If you rise high in a corporation or elsewhere in life, you have a duty to be an exemplar—you have a duty to take less than you deserve, to set an example [emphasis added]. —Charlie Munger
• Relationships
  • Spend time building new relationships. Too many stop building relationships after school, or after marriage, and then you find yourself in a rut and your only relationships represent who you used to be & not where you want to go. —Ian Cassel
  • Making connections by e-mail or phone is nothing like meeting in person. You need to really make a genuine effort to create strong bonds with people who are on the same path as you. If you do this with utmost sincerity, your network of compounded relationships will open many unexpected, joyful doors for you in the future. Just take that first small step.

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