The First Rule of Compounding According to Charlie Munger
What durian farming will teach you about compounding. Also, the first rule of compounding by Charlie Munger is...
“The first rule of compounding: Never interrupt it unnecessarily.” - Charlie Munger
Never interrupt it unnecessarily.
I've been diving deep into learning as much as I can about compounding. On my reading list is a book that talks about the compound effect (linked to James Clear's review of it since I've not published mine yet).
People who understand compounding seem to find success. Or at least, success finds them.
Compounding is best friends with patience, time, the long-game, slow-growth, self-restraint, delayed graitification, endurance, long-term view, staying power and every other long term goal you can think of.
The benefits are obvious, the results clear and the outcome almost guaranteed.
There seems to be nothing negative that can be said about compounding.
Oh, other than the fact that it also amplifies bad habits. I'm talking, ALL types of bad habits.
Let me share some personal lessons on when I did not take compounding seriously:
- Investing - I'm embarassed to say I did not invest much money personally only until recently. I've got into property and mutual funds, but not in stocks. I should have looked more seriously at how I can make my money work for me long term. If anything, I was focused too much on quick wins and instant results.
- Career - While working in real estate, the most successful agents were those who specialise. What it means is that they start farming in one area and focus on making themselves known as the number one person people think about if they needed to sell their property. (farming = a great analogy btw, to talk about compounding. Let's return to that later.) I had too easily given up when I didn't see any results in one area.
- Reading - My biggest regret of the past few years is reading too little, and not applying the knowledge of what I've read. I'm making this my personal goal to read 24 books this year.
Money does grow on trees
Now let's talk durians.
From where I'm from - Malaysia - we have an obsession for a fruit called the durian. Basially, a football-sized thorny fruit that has a smell and taste that can only be described as "smelling like hell but tastes like heaven".
I love durian.
My wife's uncle has his own durian orchard. He practically lives on the orchard, starting his day before sunrise and finishing close to sunset. Fending off monkeys and other animals that come in to steal the fruit is common, as is the thousands of mosquito bites you have to endure.
Here's something you need to understand about durian trees.
Durian trees are challenging to plant. It takes an average of 7 to 10 years for a tree to start bearing fruit. And that is a young tree.
A mature trees where the fruit is tastier and has higher yield takes about 13 to 20 years. There is no guarantee.
As any farmer knows, you do everything you can to save your crop; constant nurturing, have proper water and soil treatments, treat infections and other things that can kill the plant.
But durian trees do pay off in a big way if you are willing to be persistant.
Each fruit can be sold for around USD$15 per kilogram. That photo I shared on the right, could easily cost a few hundred dollars. It's a lucrative trade. It is estimated that global trade could reach USD$25 billion by 2030.
By persisting for 10 years with little fruit to show, he now enjoys - quite literally - the fruit of his labour.
That's the power of compounding for durians.
Imagine the power of compounding for your own life?
Time x Discipline
Understanding the power of compounding means understanding how to use time.
Don't underestimate what you can achieve in the long term, and overestimate what you can achieve in the short term.
Time works wonders for good habits. It also works the opposite for bad habits.
Discipline benefits the most from using time. Time compounds your consistent work resulting in exponential levels of growth. The results are going to be slow coming and you'll need patience and commitment.
Many people have big goals and huge dreams. But few have the patience to start with small actions that compound into big results.
There is almost a guarantee of success, if only you stick around long enough.
Never interrupt it unnecessarily.