The Human Brain’s quirkiness

Affirmative action, compounding, Financial Independence, Human Brain

Dr. Peter Diamandis and Steven Kotler recently released their new book The Future is Faster Than you Think. Being a voracious reader I have been devouring this book as well. We will keep the details of the book out of this post.

This book is part of a trilogy. Their earlier books Abundance and BOLD were amazing and really make you think that we are living in a world which is much better and safer than what our forefathers ever got. If you have not read these books, I would highly recommend you reading them first before you read this one, because it will give you a context to this book. I read their books also when I am feeling low. These books show you that the world is moving in the right direction and human beings have an ability to bounce back and always pivot to a higher level in life.

What I wanted to share from this new book, The Future is Faster Than you Think, was content of two paras which the authors used and which has stuck to me.

They talk about the medial prefrontal cortex which is the part of the brain which gets activated when we think of ourselves. As per them it gets deactivated when we think of others. Surprisingly whenever we think of our future selves it gets deactivated. And the further you project into the future, the more it switches off. Which is why people are not able to save for their retirement because for your brain (medial prefrontal cortex) the person who will benefit from the tough choices you make today is different from you. Now you see the quirkiness even within our own brain. What is supposed to actually get functional when you have to think about yourself, switches off, when you project yourself into the future

The other issue is that our brain does not have the capability to think in exponential and global terms. Due to this anything which is depicted by an exponential equation is difficult for the brain to comprehend.

Which brings me to my fascination with compounding. Compounding in its very nature is exponential in nature. And therefore even though I keep talking about compounding in almost every post, I still find most people read what I write but don’t take action.

Coupled with what I have written earlier about habits, I think that is one of the key reasons why more people are not financially free. They sell time for money and because their brains don’t comprehend compounding they don’t let money work for them.

I once read money is a good “servant” and a bad “master”. So if you can make money work for you by using the laws of compounding, you can aspire for a Future which is much bigger and better than your past.

Till next time then

Carpe Diem!!!

Keep your Systematic Investments Plans (SIPs)

compounding, Financial Independence, Human Brain

The market has gone down and rebounded. That’s the way the market behaves. You don’t know which way it will decide to turn. However the pandemic is real. People losing jobs is real. But more than anything else is the fear psychosis that things will never come back to normal. The media keeps bombarding you with news about the number of cases of Covid 19 which have grown by the hour.

Fact is that the media earns its money by playing on people’s fears. The pandemic is real there’s no doubt. But the human race has always found solutions to the toughest of problems. Ingenuity of human beings is directly proportional to the number of human beings (Julian Simon the Ultimate Resource). Today when we are more than 7 billion people on earth, we have much better lives than when there were 1 billion people on the earth. Sometimes it takes a little longer sometimes not so much.

This virus has been playing games for sometime, and the vaccine is still seeming elusive, so yes there is a lot of uncertainty. But already in most countries we have been able to now reach numbers of people getting cured and getting reported at almost similar levels. A lot of pharma companies are talking about having a vaccine ready by September this year (2020).

So now let’s get to you. If you still have a job – congratulations. You may have the job with reduced salary or normal salary. I don’t know your exact situation. I hope you and your family are safe and healthy.

If you don’t need the money immediately don’t encash your investments – the world will not come to an end. If you can somehow last these next few months without encashing your investments, then you would reap tremendous benefits because compounding will always play a role – Covid or no-Covid. If you let the compounding equation work uninterrupted you will have created a base to hit your financial freedom. If you have just started your investment journey over the last few years, you may not think that there is too much you have been able to accumulate. That is the way of any exponential equation as you will see from the graph above. Its only after the 15-20th period that the numbers suddenly explode. So staying the course till you hit that 15th period or near about is the key to your financial freedom.

In the long run the stock market in India has given 12-15%. So if you have SIPs going on – then when the stock market crashed couple of months back you would have been able to buy a higher number of units with the same amount of money, which means you would now have a higher number of units on which appreciation will happen when the market goes up. And markets in the long run have always gone up. In India because of higher inflation they have been at 12-15% average while in the US it is lower because of lower inflation.

The same logic would hold even if you have Fixed(term ) deposits. If you have a recurring amount getting deducted to invest in a term deposit, please continue similarly. Don’t let the compounding equation break. You may think you will restart later, but the later never comes…..that’s pure human nature.

So whatever investments you have been able to make, keep them as far as possible so that you are on the continuum to take advantage of the compounding equation

Till next time.

Carpe Diem!!!

Law of compounding – for real life improvement

Affirmative action, compounding, Human Brain

I read – maybe 10 years back – Delivering Happiness by the CEO of Zappos – Tony Hsieh. I don’t quite remember everything in the book except that it was the journey of Zappos. However there is one statement from the book which Hsieh makes, which has remained with me since then, if you can improve even 1% everyday, imagine the improvement you will have at the end of the year – 367%. However inspite of having read it and also put it on a board where I could see it everyday, I have not improved 3670% in the last 10 years. The idea is simple I understand it but I still don’t go about achieving it.

The Japanese have a incremental improvement method called Kaizen which is about bringing about small incremental improvements continuously resulting in massive improvements over a period of time.

Both seem to be very simple concepts but we don’t end up following them. If you have been following my blog for sometime you would have noticed that as I am getting more experienced at writing things I am also questioning things about how I can be improving myself. Right now I am working on improving my reading capabilities. I have an agenda to read at least 3 books every week, consistently over the next few months, inspite of all the extended working hours we are having due to the lockdown. I want to check if I can improve my reading, which means I gather more knowledge, which then I try to put into action and therefore improve myself on a regular basis.

Yesterday however I was watching a YouTube video of Dan Sullivan of Strategic coach and he explained a very simple concept because of which I may not be achieving our goals for real life improvement. His logic is that there are no impossible goals, there are only impossible timelines. And because we give impossible timelines to ourselves, we end up messing up on achieving our goals. In case you are interested you can watch the video here.

As per him if we were to give ourselves long enough timelines, then our brain will not put barriers. The timelines he talks about doing a 10X is 25 years and breaks it down into quarters. So in 25 years there will be 100 quarters. If we were to use our compounding equation S=P*(1+r/100)^n. So if we put P=X and S=10X and “n” =100 then “r” turns out to be just 2.5% growth per quarter.

Is it feasible to improve 2.5% per quarter or less than 1% per month. Should be possible. If we were to break down our improvement points into clear bite sized goals then 1% per month should be very feasible and 10X in 10 years should also be feasible.

The reason this compounding works is because as a human being when you improve the first time, the next improvement is over the previous improvement and this cycle can continue forever. This is exactly how compounding works on your money and this how compounding works in real life as well. However our brain is conditioned to think in terms of linear activities. It is just not capable of comprehending non-linear equations like compounding and therefore whether it comes to money or self improvement our brain plays games with us.

Its one of those laws which are universal in nature and should apply to me as well. If I can improve by more than 1% every month in different areas of my life, based on the knowledge I acquire by reading the books and taking action, I should be able to grow. Let me see how this goes. Just to share the progress in the last 3weeks I have been able to complete 8 books. All non fiction books. These include Crushing It by Gary Vaynerchuk, Bold by Peter Diamandis, Attackers Advantage by Ram Charan, Triggers By Marshall Goldsmith etc. All these books are quite dense, as you will see in the picture, but I am trying to keep to my target.

Let me know if you also see Compounding in other areas of your life. I will be very interested in hearing your story.

Till next time.

Carpe Diem!!!

Unfinished Tasks – Zeigarnik Effect

Affirmative action, Human Brain

These days while we stay locked down in our homes because of Covid19, I have had a continuous feeling of tasks that have still to be done. It’s like when I get up in the morning, I remember all the transactions which were pending with my team and with our customers and vendors. Even though today is a Sunday, as soon as I got up, my mind has played out all the tasks that need to be closed and then some.

This is pretty frustrating. Already because of the lockdown, the computer/tablet never shuts down, customers, bosses, colleagues all think they can call up at any time and talk. And now on a holiday when you get up you have all these unfinished official tasks staring at you even before you get out of bed. Now these things weigh on my day making my other tasks harder to finish and not giving me a sense of accomplishment. These unfinished tasks also create a sense of overwhelm for me. I have a hyperactive mind – so these pending tasks also make me end up thinking all kinds of situations because of these pending issues.

In the beginning of May I bought a book by Jim Kwik – Limitless. I had heard about Jim from Dave Asprey in his book and podcast. Jim is supposed to be a master at quick reading. I am an avid reader myself and buy books faster than I can read them. Each time I make up my mind to not buy any more books till I have finished the earlier lot, within a matter of days I end up buying more. Earlier when you had to buy physical books you still thought a second time, because the books would take time to come. However now with Kindle you end up getting an instant download, so I now have even more UNREAD books.

So I thought maybe Jim will talk about how to increase my reading speed and therefore I will be able to finish the books on my shelf faster. The book is really good and I learnt a lot of things, not only for speed reading but also on memory and thinking etc. I would highly recommend you reading it.

While reading the book, he mentions about the Zeigarnik effect – that uncompleted tasks create a level of tension that keeps the task at the front of our minds until its completed. This was an Aha moment. So its not only me, everyone else also has a similar situation.

I went out and Googled on the Zeigarnik effect and it seems Bluma Zeigarnik was a Russian psychologist who noticed that waiters in a restaurant always remembered which orders were pending for which person and the moment the order was fulfilled they would forget all about it. While searching on Google I also found so many people/authors who have created various courses, methods, processes for utilising the Zeigarnik effect to improve your lives.

There are detractors to this theory as well and I saw a lot of articles on Google which show that other researchers and academia say that this may not always be true.

Well not sure about the researchers, but I finally found a possible cause for my unnecessary stress levels on a holiday.

What’s your view? Do you also seem to remember all the official pending transactions even when you are on a holiday. Pls put in your comments below. If you have a better explanation than the Zeigarnik effect, then too let me know.

Till next time.

Carpe Diem!!!