I think this is a fantastic insight by Peter Kaufman on simplifying a very powerful force in nature, compounding or as Einstein called the 8th wonder of the world. Once simplified to dogged incremental progress over a long period of time (or PIPER), you can test to see if it holds true across different disciplines that have different sample sizes.
I think this is a perfect example of what Charlie Munger has stated as “a few models carry 90% of the freight in making you a worldly-wise person.” Compounding is one of those models that carries a majority of the freight and testing it across disciplines makes it clear.
As stated in the quote below, the largest sample size available is the physical universe which is ~13.8 billion years starting at the Big Bang. The theory states the physical universe expanded from a small high density, high temperature state. Through dogged incremental progress over a long period of time, the universe’s energy has expanded exponentially creating galaxies, planets and life forms.
The second test would be against the organic, biological system. The earliest life on Earth has a smaller sample size at ~3.5 billion years. The first living organisms were microbes similar to bacteria and through evolution, another name for dogged incremental progress over a long period of time, a wide variety of multi-cellular organisms developed.
Then we get to the human systems of achievement, mentioned below. The sample size is the smallest at 200,000 years (for modern humans). All human advancements, be it technology, standard of living conditions, civilizations, etc., came from our ability to harness dogged incremental progress over a long period of time.
So if dogged incremental progress over a long period of time has worked for everything else, it should work for any of us trying to achieve a personal, investing or business goal. We just need to be comfortable with deferred gratification. As Munger stated at the DJCO 2017 meeting:
The PIPER acronym from above, created by Chris Begg, is an easy way to remember this phenomenon. That quote above is from East Coast Asset Management’s 2014 shareholder letter found here.
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