How do you take the message of compounding to the “bottom of the pyramid”

Financial Independence, Uncategorized

The concept of the “bottom of the pyramid” was brought forward by the late management guru C.K.Prahlad.  His basic premise was that people with lower incomes also have aspirations which are similar to the middle class.  If the consumer companies can produce products in lower volume packaging and lower margins, then the absolute amount of profit that companies can make will be dramatic.

The typical case was how the volume of shampoo usage went up dramatically when companies started creating sachets which were priced at Rs1/- per sachet (about 10ml).  All brands eventually followed this model eventually and everyone’s business in FMCG space grew dramatically in the 90s and thereon.

During most of their interviews, stock market stalwarts like Ramesh Damani or Raamdeo Aggarwal or Mohnish Pabrai talk that becoming rich is not very difficult.  You just need to make sure that you are compounding at an average of about 24% per year and in 30-40 years what ever value you start you would be about 10000 times in 40 years.  Most of these stalwarts and people like Waarren Buffet have been compounding on an average more than 35% for a long period of time.  At 24% also, if you were to start with $100 today you would have $1million in 40 years.  These stalwarts don’t tire telling everyone willing to given them an ear that compounding is the only magic that anyone needs to understand.

I have tried many a times to tell my maid, the Uber drivers whom I sometimes interact with and a lot of people from the lower income group whom I come across about the power of compounding.  Everyone listens but then no one takes action to start investing.  They are unhappy about their situation but they are not willing to take action.  They are willing to work harder to earn a little more but they are not willing to start investing and let money work for them.

Which brings me to the question – are we happier being in a rut which we know off but not willing to take action to get into another situation which may actually make us better.  Is this true only of people at the lower income levels or is it seen at other levels also.  To be fair there are a lot of aspects of life, where I also tend to be stuck in inertia and don’t take action to move forward because I prefer the known compared to the unknown.

I think we take the simplicity of compounding lightly.  Like all universal principles, relativity, 80/20, compounding is also so simple in its depiction but very difficult for most people to comprehend in its applications. Even well educated colleagues of mine think that compounding results which I show them are good to look at when seen on an Excel sheet but in reality its not possible.  If we keep investing aside, the whole Japanese concept of Kaizen is based of very small incremental improvements having a dramatic result because the benefits compound when done continuously over a period of time.

To return to the topic, how do you take the message of compounding to the masses for every aspect of our life, not only in aspects of finance but for every sphere of life.

Have any of you had success with taking the message of compounding to the masses.  Would you be willing to share it with everyone.

Look forward to hearing from all of you.

Carpe Diem!!!

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