Compound Interest
"Einstein called it the eighth wonder of the world - money making money on money"
Origin: Ancient (known to Babylonians), popularized by Benjamin Franklin and others
The Key Insight
Compound interest is real math applied to idealized conditions. The actual insight from biology is: compound aggressively in stable conditions, but maintain reserves and optionality for when conditions change - because they will.
What People Think
Small consistent returns, reinvested, lead to exponential growth over time. Patience and consistency beat timing and heroics.
The Deeper Truth
Compound interest is exponential growth in financial form. It's powerful, but biology reveals the hidden assumption: it requires a stable environment where returns can be reliably reinvested. In nature, exponential growth phases are always interrupted - by predation, disease, resource depletion, or competition. The 'magic' of compounding assumes conditions that never persist indefinitely.
Biological Parallel
Compound growth is how populations work - offspring have offspring. But no species compounds indefinitely. The question is always: what's the carrying capacity, and what happens when you approach it? Some species (bacteria) boom and bust. Others (elephants) grow slowly but sustainably. The strategy depends on environmental volatility, not just the math of compounding.
Business Application
Compound interest thinking is valuable but incomplete. It applies well to: skill development (learning compounds), relationships (trust compounds), knowledge (insights compound on each other). It applies less well when: markets shift (your compounding asset becomes worthless), competition increases (returns compress), or you face tail risks (a single catastrophic event wipes out accumulated gains). See Buffett's success - but also Long-Term Capital Management's failure.
When It Breaks Down
Compounding fails when: (1) the underlying return rate changes (interest rates shift, markets evolve), (2) you face forced liquidation at a bad time, (3) inflation erodes nominal returns, (4) you encounter a tail risk that wipes out principal, or (5) the thing you're compounding becomes obsolete. Compounding your expertise in a dying industry isn't valuable.