Delayed Gratification and Compound Interest
Happy New Year!
I hope everyone had a safe and healthy Holiday season and is ready to get back on the grind. Or, if you are like me, you never stopped. I don’t do resolutions, but I do think it is important to take time to pause and reflect. Unless you are a procrastinator, then you need to get the fuck up and do something because you have probably been reflecting your ass off all year.
Don’t take that too harshly. The point of this article is that you actually don’t have to be too hard on yourself. Should you set goals with varying degrees of audacity? Yes. Should you hold yourself accountable? Yes. Should you beat yourself up because you failed, fell short, had a setback, took a break, or otherwise reflected your ass off? Definitely not.
Here is where I am going to take a quick stock of where the world has been heading psychologically and emotionally, and contrast that with what is actually healthy and beneficial for society.
Dopamine Addiction
In my very first article, I wrote about the Attention Economy, and how Netflix was stretching out their shows to keep people’s attention longer. There are only roughly 16 waking hours in the day and most of the companies that drove the S&P from its low in 2009 to it’s recent peak were built monopolizing those 16 hours. Netflix is a different type of drug, more of a low dose Tramadol compared to the crack cocaine that is social media apps, but Attention is the currency of Tech nonetheless.
The apps are designed for quick bursts of dopamine to get users hooked. Likes, retweets, @s, mentions. Every part of the digital experience can be gamified to make you hungry for more. Obviously they have been very successful, but there is a reason that the inventor of the iPhone didn’t allow his kids to have one.
We have one brain. Even if you are not a social media addict, it is likely that you are bombarded by emails and texts all day long, riding high off the Cortisol drip making you feel the desire, nay, urgency, to act expeditiously. This is not all bad, this is the chemical that allowed humans to survive in nature, and it is the same chemical that propels high-energy execs into seats of power. However..
We have one brain. All of these digital externalities are rewiring it to get things done quicker, faster, more efficiently. They are rewiring it to want to share every stupid, inconsequential life moment, and crave the immediate attention of those in our social circle. We love this shit so much it spurned a whole Creator Economy, which is just a subset of the Attention Economy. Big Tech captures us on our devices, and permits Creators the right to further capture attention for their own capitalistic intentions (using Authenticity), deepening the reliance and addiction.
We have one brain, and it is narrowing our focus down to only the immediate future, and not in the cool, “focus on the Now” meditative sort of way. We use pharmaceuticals to deal with our problems, and our kid’s problems, because it is the quickest solution. Even things like hunger have to be satisfied immediately with things like DoorDash, UberEats, Postmates, GoPuff, GrubHub, and ToastTab. (it took me all of 12 seconds to name these which means there are probably 75,000 more)
All of this affects the market. Stock go up, everyone buys, contagion. Realization it is overvalued, everyone sells, crash. But this is just a microcosm of the bigger effect, which is the change in our psychology, the desire for immediate gratification, and the repressed memory of the most basic math fundamental of investing.
Compound Interest
Somewhere along they way of recent history, somewhere between the “no child left behind” policy and when they changed the way they taught long division in grade school, people have gotten really bad at math. I get that not everyone has a “math brain”, but that shouldn’t be license to not learn the fundamentals. Fundamentals are useful, and can open your mind to understanding things in a new way without having to be able to perform the underlying formulas. Much like most of us don’t know quantum physics, but we all know that particles react differently when they are observed for whatever reason. Math itself is a compounding knowledge, with each incremental block being required to learn the next concept. This is probably why people fall off. They miss one lesson and all of a sudden nothing makes sense anymore, and rather than catch up, they become English or Philosophy majors.
The magic of compound interest is that if you put your money into something that pays a return and (this is key) you re-invest that return, it doubles in a way that almost doesn’t make sense. Something gaining a 12% return will double every 6 years. A $10k investment at age 22 will turn into $2.5M at age 70, doubling 8 times. Inflation/recessions/bubbles/yaddayadda aside, this is still an astonishing fact! What would be the tangential sentiment when applying this to daily life?
Delayed Gratification
We have one brain, and it is being rewired to expect immediate gratification, when all this amazing growth happens when you simply remain patient. How can we expect the same brain that is trained on getting dopamine hits in increments of seconds, to suddenly zoom out and think in months, years, and decades?
It is not just about financial investing. Delayed gratification can (and should) be applied to any part of your life. Relationships, careers, building businesses, writing a book, training for an event, learning a language or instrument. The idea is that these are things that cannot be obtained instantly. You can’t marry someone you just met just like you can’t compete in a marathon with no training. Well, I mean you could do both of those things, but there could be dangerous consequences. But dating is hard! And so is running a marathon. It’s much easier to go on a series of shallow dates than it is to pick a person and truly get to know them (and let them know you). And it is much easier to go on a 1 mile run every day than it is to build up to something bigger.
These bigger things are what make life great, and progress us as a society. The rapid advances in technology that brought us from an agrarian culture to an industrial one were based on compounding interest and delayed gratification. The steam engine was developed over a period of 100 years. It took 180 years to build Notre Dame. The people building those things knew what they were doing. They knew that they were contributing to something greater than themselves. they were delaying gratification, not only for themselves, but for society. That is an order of magnitude away from where we are today. Not only are things today built with the urgency to get it completed right away, but they are designed specifically for financial gain, and on top of that, specifically personal financial gain with the greater good be damned!
There are exceptions of course, but look around at the products that are being invented and ask yourself if this is contributing positively to culture, or is it just a money grab? VC culture of growth at any cost, and the ability to sell shares on secondary markets have contributed greatly to this. The reason I could name 6 food delivery services off the top of my head is that they were all funded by VCs, who were hoping to grow them as fast as possible and get a possible exit, or sell their shares on the secondary market on the way up. Hundreds of millions, possibly billions of dollars were poured into these food delivery apps and were able to get their products to market quickly. Versus, pouring that amount of money into a really hard problem and working on it for a decade plus.
This is the mentality that I talked about spurring the Degen culture of Crypto and the YOLO investing culture of WallStreetBets. The future seems so uncertain with the news constantly proliferating coverage of climate change, global pandemics, and Russian invasions. Coupling the “world is fucked” view of the news with the dopamine addiction of modernity, it is no wonder that people feel hopeless. And when people feel hopeless they will just cave to their immediate desires. Good things often take time, and sometimes there can be the appearance of no progress over many years, and then all of a sudden things click and the compounding becomes visible. Just take a look at WB’s net worth from age 14 on.
The world needs some sort of anti-app to combat this thematic shift in our collective psychology. Waiting for things has to be seen as cool. Working hard has to be seen as cool. Massive, selfless projects have to be seen as cool. Otherwise, we continue our march towards a Brave New World.
So if you are making resolutions, think about delayed gratification and compound interest. Don’t think about making wholesale life changes on January 1st that last a few weeks, only to be tried again next year. Think about small, continuous improvements compounding over time. Getting 1% better every day compounded daily over a year is almost a 38x improvement in 365 days. My personal mantra is “just do stuff and let growth compound”. It’s an easy, non-stressful way to feel productive, and it only has one key component: just doing stuff.