If you are an investor, you may have heard and seen the effect of compound interest. It is said that Einstein said that the greatest invention of mankind is compound interest. (Which one?)
If we translate this compound interest into mathematical terms, it becomes an exponential function, but in fact, there are exponential events lurking around us as well. Investors who are familiar with the overwhelming destructive power of compound interest will understand the overwhelming military power of exponential change.
In this article, we’ll discuss the events of exponential change that are all around us and why you should pay attention (and focus) on them.
Why we should focus on events that change exponentially
There is a tendency in the world to believe that you should be able to do everything yourself, and that you should be able to do it all yourself, and to spread your resources around by investing large amounts of time and effort and guts. This is one of the reasons for the long working hours problem. However, such an approach inevitably leads to what is known as a lack of dexterity.
In terms of management strategy, there is a method of diversified management centered on conglomerates, which was popular a long time ago, but its destination tends to be to underperform the market average return. This is because companies specializing in each field are scrambling to gain market share in their field of expertise while investing all the resources they have, and even if they were to enter the market with a half-hearted investment of resources, they would not be able to compete with these sharp companies. And since the aggregate of these highly specialized companies is the market average, it is inevitable that a conglomerate company that chooses to diversify will not be able to earn significant returns, even if it can avoid the risk of a fatal dip in its operations as a result of a downturn in one industry.
As a result, corporate strategy is in the vein of “selection and concentration”. This is also true of personal career strategies.
Large companies, in particular, have trained their personnel in career-track positions to become generalists rather than experts. The idea is to train people to be broad and shallow and capable of doing anything.
This training produces employees who can produce reasonable results in any department within the company and who can manage and manage projects well, but that does not mean that these employees are capable of developing cutting-edge technologies and services. That was fine in the days of seniority and lifetime employment, but now that those policies have collapsed, this policy poses a greater risk to the individual than to the organization.
When you reach the mid-level of the company after receiving such internal generalist training from a new graduate, if you need to change jobs and think about your market value, you will realize that you have only acquired skills that are applicable to the company. There aren’t many companies that want a mid-career person with no sharp skills and no track record. This is because these companies are looking for work-ready talent, not potential.
So, without needing to quote Linda Gratton’s “Work Shift”, in the looming age of the freelance-centric individual, the career strategy for individuals is to acquire sharp skills through “choice and focus”. So what should you choose to do, then, will be an area where you can improve exponentially for the resources you put in.
This is why you should focus on events that improve exponentially for the resources you put in.
Events of exponential change in the world
Now let’s look at the events that cause exponential change!
Academics, language and skills
Have you ever heard of the learning curve shown below?
The learning curve is a measure of your proficiency for the effort you put in when learning something new. As you can see at a glance, when you start working on something new, the rate of proficiency is slow to increase despite your initial period of hard work and effort.
However, after the initial painful period, the dots that were fragmented knowledge begin to connect, and you quickly grow so fast that you wonder what all the hard work was about. This is the exponential transition so far.
Many of us have experienced the learning transition until we eventually enter a period of stagnation called a plateau. But the key here is that the learning curve is a continuous series. After the plateau, there is another exponential upward transition, and then the plateau is reached, and so on.
Many people stop trying during the first hard period. Even if they do, there is a second and third barrier to overcome, and the more they cross that barrier, the fewer competitors they have.
You’ll need a certain amount of talent to get to the professional level, but if you don’t seek that level, the 10,000 hour law will be triggered and you can be in the top amateur class if you continue to work foolishly.
Some things may not be exponential transition, but this learning curve alone is very similar to a function that includes an exponential function called sigmoid function, so it can be called exponential transition. In particular, the long auxiliary interval and the fact that the learning curve grows dramatically beyond it are characteristics of the exponential function, and this is exactly what I want to emphasize in this article.
The subjects I recommend are languages and programming. On the other hand, if you have a high level of skills but no language skills, you will not be able to compete on the international stage, but on the contrary, if you have a language skill, you will be treated as an excellent person for some reason even if you don’t have any great skills (although I am not saying that this is true for all of them). I have been experiencing this strongly as I have been licking my lips for a long time.
Programming is particularly recommended for AI development skills. We are going to be an AI society in the future, by all accounts. In such a society, most of the jobs that machines can do will be replaced by machines, including decision making. I understand this because I’m learning about deep learning and reinforcement learning programs as a hobby, but it’s only a matter of time before this happens.
In such a world, it is the people with AI programming skills that will be recognized as valuable. This could be replaced by AI (we’re already seeing signs of that with AutoML), but I think we have a bit more time to get to that point than other jobs.
In the next 10 years or so, I expect that this is a field where people will be treated very well.
muscle
Many investors do strength training.
The heart of investing is to stay in the market to continue to indulge in the power of compound interest, so you need to be patient. You also need to be able to take a long-term view that is not limited by short-term gains and losses, and you need to have the metacognitive ability to translate this into appropriate action.
When you think about it, it’s inevitable that many investors are muscular people. This is because muscle doesn’t come overnight and bodybuilding requires long-term willpower (willpower) to continue to balance nutrition while also restricting calories if necessary.
It is said that if you start strength training for three days, nothing will change, and after three months you will finally start to see visible results.
health
The next thing to mention is health.
When you are in your teens and twenties, you can live with some indolence and still have no problems with your health.
However, the damage to the body and mind caused by inactivity gradually builds up and becomes visible in the results of health measurements in your 30s and beyond. If you continue to eat and drink, you will have problems all over your body, starting with adult diseases, sleep disorders, high blood pressure, high cholesterol levels, diabetes, liver damage, and heart disease.
This is the result of a series of things that cause ____% more damage than yesterday. The damaged cells multiply in a game of doubling, multiplying those damaged cells through cell division. Essentially, these bad cells are eliminated by the human immune system, which is equipped with a negative feedback function, but if they still exceed the acceptable level, they will eventually go out of control.
I believe this technology will be achieved in the near future, but since current science is unable to halt the aging process, it is inevitable that if we live, our telomeres will be frayed and damage will accumulate from both internal and external sources. Nevertheless, by choosing a healthier lifestyle and incorporating healthier methods into your life, such as 30 minutes of aerobic exercise about three times a week at a time, which have been proven in scientific research, you may be able to reduce this rate of decline and increase your healthy life expectancy.
In addition, the more addictive tastes you consume, the more dependent you become. And the more you depend on them, the more you consume and the more dependent you become. In particular, if you drink alcohol, be sure to take a day off once a week, and don’t drink deeply, but in moderation.
Technology (mainly in IT)
In the field of IT hardware, there is something called Moore’s Law.
This is a rule of thumb proposed by Gordon Moore, one of the founders of Intel, in 1965, which states that the number of transistors placed per unit area doubles in 1.5 years (later modified to 2 years). A rough explanation of this is the law that computer performance doubles in 1.5 to 2 years.
It has been a long time since it was said that Moore’s Law is dead, but in fact, it has been growing exponentially for as long as 50 years. In particular, even if it is difficult for CPUs, due to the paradigm shift of GPUs and even quantum computing, the computing performance of PCs is expected to continue to grow exponentially in the future. In fact, even for CPUs, imec, a national research institute in Belgium, recently announced that it has succeeded in developing basic research and development of 3nm, two generations beyond the current 7nm semiconductor process density (the essence of which is the fineness of electronic circuitry), and this research institute has developed a 3nm semiconductor process that is two generations smaller than the current density of 14Å (1.4nm). We have published a roadmap that shows that we can go to the fine atomic level.
The smartphones we use in the palm of our hands have supercomputer-level computing speeds that would have required hundreds of billions of dollars to build 30 years ago. If you take into account the ability to reproduce ultra-high performance cameras and other apps, the level of speed is beyond money. It is Moore’s Law that shows the history of causing not such a drastic technological shift, but a social shift. If you think this will continue in the future, you will see that it is worth paying attention to.
One rare futurist and inventor I admire is Ray Kurzweil, an American who is currently developing AI for Google. He currently heads the AI development division of Google and popularized the concept of the singularity in his book “The Singularity is Near”, and he argues that exponential transitions like Moore’s Law exist in all other fields of science and technology, and calls it the “Law of Accelerated Harvest”. I named it.
He claims that science and technology itself is advancing in the game twice as much. The driving forces are semiconductor devices (i.e. Moore’s Law) and AI technology. And if this rate of progress is maintained, he argued, there will come a time in 1945 when human intelligence will be completely overtaken by computer artificial intelligence, and science and technology will advance at such an overwhelming rate that it is impossible to predict what will happen. This is the phenomena called Singularity.
I am a Singularitarian who believes that the Singularity will come in the near future, but I don’t know if that will actually happen. Nevertheless, it is true that many technological fields are advancing at an overwhelming rate that seems to be an exponential transition, as we can see from a fixed point of view of cutting-edge science and technology.
Keeping an eye on these technologies and jumping in as a developer if there is an area of interest will give you a tremendous return on your future.
Asset management
As you know, Einstein’s golden words, “The greatest invention of mankind is compound interest,” and the destructive power of compound interest in asset management is tremendous.
As I always write, the U.S. stock market has averaged an inflation-adjusted real annual return of 6.7% for over 200 years under dividend reinvestment conditions. (I’ll write about this as many times as I can because it’s important.)
SOURCE：AAII Journal
As a rule of thumb, if you buy a U.S. stock index linked to the S&P 500 or other indexes and keep reinvesting the dividends (distributions), the average amount will double in about 11 years. You need to keep reinvesting for a long period of time, in good times and bad, but if you can do that, on average, your asset size will grow exponentially.
Summary
The compounding effect, as investors know, appears in many areas if you look around the world.
While there are not many things like compound interest that continue to make exponential progress forever, there are many things like the learning curve, where progress is slow at first, but eventually rises at an exponential rate.
Since we are human beings, our resources are limited due to the constraints of our bodies and time, I think it is wise to play in the realm of the exponential power of the exponential function, which can be called the principle of leverage.
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