Tag: exponential growth

• Thinking exponentially and the rule of 72

  3/
  
  But in finance/investing, we need to think *exponentially*, not *linearly*.
  
  Money compounds. Growth doesn't happen at a constant pace; it *accelerates* over time.
  
  Most of us are not programmed to intuitively "get" compounding — over the long run. pic.twitter.com/YVeJ6Os8W9

  — 10-K Diver (@10kdiver) December 19, 2020

  I came across the above Twitter thread last night before bed and I thought it was great. It’s about the importance of thinking exponentially, as opposed to linearly, when it comes to finance and investing.

  In it, the author provides a quick rule of thumb to help reframe our mind when it comes to compounding. It’s called the “rule of 72” and it works like this.

  To calculate the approximate number of years to double your money, simply take 72 and divide it by the annualized rate of return (%). For example, if you had an annualized rate of return of 10%, this rule of thumb would tell you that you’re going to need 7.2 years to double your money.

  If the annualized rate of return were to increase to 18%, it would now only take you 4 years to double your money. Of course, this rule of thumb is an approximation. It only really works within a certain band of returns.

  If the annualized rate of return were 100%, this formula would spit out 0.72 years, whereas an annualized rate of return of 100% actually means that you’re doubling your money in the span of one year.

  It’s a rule of thumb. The reality is that compound returns are incredibly powerful over the long-run, not only for finance and investing, but for life in general. Worthwhile things take time. If you’ve got the patience and discipline, the long-run curve ends up looking pretty sweet.

  2020.12.23

• Big bad (software) developers

  “There is no higher God in Silicon Valley than growth. No sacrifice too big for its craving altar. As long as you keep your curve exponential, all your sins will be forgotten at the exit.” –David Heinemeier Hansson

  Snap Inc. went public last week. Offering price was $17. Closing price on the first day was $24.48. Given that the company is not profitable and may never be profitable (their caveat, not mine), many people have been asking: Is a valuation somewhere around $34 billion justifiable?

  This is a common question when it comes to tech companies. And the answer usually comes down to something along the lines of this:

  The Snapchat story “is all about growth,” Mr. Nathanson said. “It’s not about economics.”

  It’s about the future.

  I love Snapchat and I think the company is run by a very creative founder. But now that Snapchat Stories was stolen by Instagram, they need, in my humble opinion, something new and killer to stick.

  How else will they meet their growth targets?

  On a related note, I recommend you read a piece by David Heinemeier Hansson called: Exponential growth devours and corrupts. That’s where the quote at the top of this post is from.

  Here is an excerpt:

  What sucker wants to earn $10 million/year at a 52.5% tax rate when you can get away with hundreds of millions in one take at just 15%? Nobody, that’s who.
  

  It’s hard to argue that boards, founders, and their financiers aren’t just doing exactly what the incentives are coaxing them to do.

  Which is why growth is now everything and residual value is nothing. In fact, the latter can be outright harmful to the former. When you’re being priced on the hopes and dreams of potential, reality can be a dangerous and undesired competitor. Best just to appeal to the exponential curve and let the imagination roam free. An epic capital gains score awaits!

  2017.03.05