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The Power of the Compound Effect
Become great with small steps and actions over time
Kevin Ham
December 12, 2024
Great things are not done by impulse, but by a series of small things brought together.
1. Seeing the Compound Effect
Here’s the bottom line: You already know all that you need to succeed. You don’t need to learn anything more. If all we needed was more information, everyone with an Internet connection would live in a mansion, have abs of steel, and be blissfully happy. New or more information is not what you need—a new plan of action is. It’s time to create new behaviors and habits that are oriented away from sabotage and toward success. It’s that simple.
You may have heard of the Compound Effect by reading books like “The Compound Effect” or “The Slight Edge.” These are great. I lead by intuition but follow through with data, logic, and reason, and the compound effect is mostly the latter.
Einstein described the power of the compound effect as, “The most powerful force in the Universe is compound interest.” This is only one application of the compound effect in the world of finance. The compound effect is a power law that can be applied to every facet of life.
Compound interest = P [(1 + i)n – 1] where:
P = principal, i = annual interest rate, n = number of compounding periods
A mathematical mind would see this as:
This is exponential growth. Can you predict the compound growth in years and decades? Can you see it?
If you can, it’s hard to unsee the power of the compound effect.
But what most people don’t realize is that there are both positive and negative compound effects.
Let me explain the positive first—the negative in another newsletter.
2. The Power of Positive Compound Effect
Instead of writing down what you’re going to do (chances are you’ve been doing that your whole adult life anyway, and it doesn’t make you any better at doing them), write down at the end of the day what you did do that day.
Most people recognize that doing something consistently over time, improving continuously, like the practice of kaizen, eventually makes one great.
Medical students study medicine for four years and become doctors. My friend Kim Mijung practiced judo for five years and won Olympic gold in Barcelona in 1992. You practice proving a hypothesis, and you become a Ph.D. in five years. Bruce Lee practiced martial arts and became a master.
There was a young 11-year-old from Italy who moved to Philadelphia. His father was an NBA basketball player. He wanted to make his dad proud and joined the summer league. He didn’t score a single basket all season. His dad said, “Son, whether you score 0 or 60 points, I will always love you.”
The boy determined he would score 60 points one day and dedicated two hours of basketball practice every day when his peers were out playing. The following season, he scored 20 points. The season after that, he became the best player in the league. He became the youngest player drafted in the NBA at 18. He then woke up at 3 am to practice three times a day, starting at 4 am, in order to get in one more practice than every other player. Within five years, he was one of the best players in the NBA. His name was Kobe Bryant.
3. Starting Small with the Compound Effect
Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it's the only thing that ever has.
Improving 1% compounded daily leads to remarkable results:
2.5 times better in 3 months
6 times better in 6 months
38 times better in a year
1400 times better in two years
54,000 times better in three years
2 million times in four years
77 million times in five years
Warren Buffett, hailed as the greatest investor, applied the compound effect by investing in value-priced companies. He became a billionaire when he was 56 years old. His long-term investments have yielded dividends (literally) and great compounding wealth. He’s now 94 and worth $150 billion.
But simply knowing this is different than applying the power of the compound effect to your life.
Let’s ask and ponder how you can leverage the Compound Effect in your life.
Read on for my big life question and three life lessons (only one-minute more). They have helped me in my life and I hope they help you in yours.
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