An Eighth Wonder

Mike made a proposal to his friend that I will pick the garbage every day from your home for one month. In return, I want double the money that I had received the previous day. On the first day, he got 1$. How much money will he get at the end of one month?

Mike received 1 Billion$ at the end of one month! This is the power of doubling.

The human brain is evolved to think in a linear way. It is counter-intuitive to think in an exponential way. If someone asks you, "What is the result of 9+9+9+9+9+9+9+9? " The answer comes to your mind within a couple of seconds. If someone asks you, "What is the result of 9*9*9*9*9*9*9*9?" The answer won't come as easily as it comes in the above case. You need to think harder to arrive at the answer. Exponential thinking is complex than linear thinking.

The best outcomes in life come through exponential thinking(Compounding). When the small changes are compounded for a long period of time, it delivers outstanding results. Compounding depends upon the runway(the length of time) and the rate at which changes are occurring.

Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things. Charlie Munger

Is it possible to do exponential thinking within a couple of seconds?

Yes, of course. Before deriving the mental shortcut to do exponential thinking within seconds. Let's first understand the core idea behind the compound effect.

Suppose you have invested 100$ in a company that is giving the return of 10% per year. How much money do you get at the end of one year?

Yes, you guessed it right. 110$

The money earned at the end of one year = P + P * R * T where P is Principal, R is Rate, and T is the number of times in a year.

= P (1 + R * T)

The money earned at the end of the second year = P * (1 + R * T ) * (1 + R * T)

= P * (1 + R * T) ^2

= 100 * (1 + .1 )^2

= 121$

Did you notice something?

The money earned at the end of 1st year starts generating money. An extra dollar you earned in the 2nd year is the result of 10$ that you earned in the 1st year. 100$ has generated a revenue of 10$. 10$ has generated a revenue of 1$ in the subsequent year. That is why you get 121$ at the end of two years.

Money makes money. And the money that money makes, makes money. Benjamin Franklin

The money generated at the end of n years = P * (1 + R *T)^N

The shortcut to do exponential thinking in the head, one should know after how time the amount gets doubled?

Let's derive it from the above result.

=> 2 * P = P * (1 + R)^N ; T is 1 because of yearly interest rate

=> 2 = (1 + R)^N

Taking natural log to both sides

=> ln(2) = ln((1 + R)^N)

=> 0.6931 = N * ln(1 + R)

For small R, ln(1 + R) ~ R (In Investing, R is less than 30%)

The equation becomes,

=> 0.6931 = N * R

=> 69.31 = N * R (Taking R in the form of percentage in the shortcut)

The number of years taken to double the amount is = 69.31 / R

69.31 can be rounded off to 72 because 72 has more multiples than 69.

Therefore, the number of years taken to double the money = 72 / Rate of return. This is known as the rule of 72.

Key insights of the Rule of 72

1. As the Rate of return increases, the no. of years taken to double the money decreases. For example, earning with an interest rate of 8% will double the money in 9 years whereas earning with an interest rate of 10% will double the money in 7.2 years.

2. The number of years taken to double the money is independent of the initial investment. For example, suppose the money will be doubled in 5 years then It doesn't matter whether you put 1k$ or 1 Million$, after 5 years the amount will be increased to 2k$ and 2 Million$ respectively.

Applications of the Rule of 72

A) Suppose you have invested 10k $ in a company that gives a 9% rate of return per year. You hold the stock for the next 40 years. How much money will you have at the end of 40 years?

As per the Rule of 72,

Years taken to double the money = 72 / 9

= 8 years

Total number of doubles in 40 years = 40 / 8

= 5 years

The amount of money at the end of 40 years = 2^5 * Initial Investment

= 32 * 10k

= 3,20,000 $

B) Suppose you have invested 800$ in the stock of some company. After 10 years, the money will be increased to 4800$. What is the rate of annual return?

The money will be increased to 6 times over the span of 10 years.

2 doubles will increase the money to 4 times whereas 3 doubles will increase the money to 8 times. Roughly, in 2.5 doubles the money will be increased to 6 times.

2.5 doubles over a span of 10 years.

Years took to double the money = 10/2.5

= 4 years

As per the Rule of 72,

Rate of return = 72/N

= 72/4

= 18 %

The company's stock gives a return of 18% per annum.

C) Why does one shouldn't hire a fund manager?

A simple thought experiment to understand the whole idea.

Without hiring the Fund Manager:

Rate of Interest = 9%

Years = 40

Years took to double the money = 72/9 years

= 8 years

Total number of doubles in 40 years = 40/8

= 5 doubles

Amount of money you will receive at the end of 40 years = 2^5 * Initial Investment

= 32 * Initial Investment

With the help of a Fund Manager:

Fees Charged = 1%

Rate of Interest = 9% - 1% = 8%

Years = 40

Years took to double the money = 72/8

= 9 years

Total number of doubles in 40 years = 40/9

= 4.5

Amount of money you will receive at the end of 40 years = 2^4.5 * Initial Investment

= 22.62 * Initial Investment

Loss incurred by hiring the fund manager = (32 - 22)/32 * 100

= 31.25%

1% fees of Fund Manager incur the loss of 31.25% over the span of 40 years. Sometimes figures are deceptive!

Intentions don't matter. Actions do. That's why being ethical is hard. Naval Ravikant

The compounding effect can also be applied outside the investing domain.

1. A 3% increase in GDP will double the economy in 24 years whereas a 2% increase will double it in 36 years.

2. An increase in inflation from 2% to 3% causes the money to lose half of its value in 24 years instead of 36 years.

3. Paying 16% interest on a credit card the amount you owe will double in 4.5 years.

All the great things in life whether in health, wealth, or relationships come through compounding. Tiny changes extended over a long period of time generate true success and progress. Time plays an important role in compounding. Invest deeply when you find the right people and the right thing to do. Inculcate the habit of exponential thinking to become successful in life. Always choose habits over willpower. Curate an ecosystem that will nudge towards the desired behavior to reap the benefits of compounding.

If you like this post, please share it with others on WhatsApp, Twitter, LinkedIn.

Photo by Alberto Restifo on Unsplash

Transformation of the Self

A man visited the old Zen monastery to seek counseling from the Zen master. He was very rich, indulged in all the worldly pleasures. He was fed with wine and all the worldly things. Indulging in all those things gave him pleasure only for a short duration of time. He was in a search of a permanent state of happiness. He wanted to get rid of all the sufferings. He wanted to know who he is? What was his purpose? He came to Zen master to find the answer to all these questions.

He was waiting for the Zen master in one of the rooms of the monastery. Zen master came and as he was about to speak, The man interrupted him by saying that, "Master, I am very indecisive. I can't stick to anything for a long period of time. If you gave me any technique, I will do it for a few days and then I'll forget it."

Master replied, "It is a very arduous task, Whatever you did to yourself you need a long time to regain your freshness and childlike innocence." Are you involved in anything by doing which you forgot the concept of time? asked the master to the man. I forgot the concept of time while playing chess, replied the man. I stick to this game for a very long time.

Master called a monk who was staying in the same monastery. He was doing meditation for the last twelve years. The master taught him the basic rules of chess. He asked one of his attendants to bring the board of Chess. Master instructed the Monk and man to play the game of Chess. Whosoever loses, he will be beheaded.

Master told the monk, you have become pure by doing meditation. If you lose, you will go to heaven through my grace. Then he turned towards the man and told him, you have been committing sins for a very long time. If you lose, you will go the hell. The man was dumbstruck by listening to the reply of the master! He wanted to escape but he was from a Samurai family. It was a shame for him if he escaped from the game by looking at his imminent death.

The contest started. The man was trembling with fear like a leaf in a storm. He was shivering and perspiring. The opposite phenomenon was happening with a monk. He looked so calm and serene while playing. He accepted the command of his master without any resistance. There is a truth in the statement, "The calmer you are, the more clearly you think."

In the beginning, Monk was winning because he was in a state of deep surrender. An egoless person is always in a state of deep surrender. He became passive and non-resistant. On the other side, the man was worried about his death. Zen master created the condition of emergency for him. Thoughts stopped during an emergency. Thoughts arise only during leisure time. They need some time and space.

Master created the do-or-die situation for him. Thoughts stopped flowing. He even forgot about life and death. He was totally immersed at the moment. He became calm and peaceful. Perspiration helped him to achieve weightlessness. His face became innocent. His eyes were glittering like a diamond. Godliness descended over him. He started radiating positive vibes. He had tasted the honey of meditation.

The calmness of his mind helped him to think ahead of five moves. He started making brilliant moves. Initially, the monk was winning. Now, he was winning. Suddenly, he became aware of his opponent. He looked at his innocent face. Purity is reflected from his face. His divine eyes looked so beautiful. He became aware of the fact that if I will die, nothing will be lost but if this pure, handsome, and innocent monk will die then the tremendous beauty will be vanished from here.

The man started making wrong moves consciously to save the life of a monk. The master was watching the entire game and interrupted them to stop the game. You both have won, asked the master. The master told the monk, "You have been practicing austerity for the last twelve years. You are already on your way to attain Godliness." The master told the man, "while playing the game you have attained the state of no-mind (no thoughts). You got a glimpse of Samadhi. You became compassionate. Compassion is the ultimate flowering of meditation."

The man replied, "Master, I am completely transformed. I am overflowing with joy. My being is dancing like a flower dances in the rain. I am no longer the same person who was here before the contest." You have achieved this state in an emergency condition. You will lose it after some time. I will give you a technique that will help you to remain in a blissful state for the rest of your life.

More smiling, less worrying. More compassion, less judgment. More blessed, less stressed. More love, less hate. Roy T. Bennett

Technique is,

The Zen monk used to start every day by saying aloud to himself, "Master, Are you here?" and he would answer, "Yes sir, I am."

Then he would say, "Better Sober up."

And he would reply, "Yes Sir, I'll do that."

Then he would say, "Look out now, don't let them fool you."

And he would answer, "Oh no Sir, I won't, I won't." The Bird on the Wing

This is a very beautiful technique. It makes you alert. It is not a conversation between two persons rather it is a conversation between you and your inner being.

The monk said aloud to himself, "Master, Are you there?"

The inner being is the master here. It is a reminder for him to be aware of the fact that he is a divine soul. The body is a vehicle that is carrying the divine being. You can verify by yourself that your body is getting older but there is something within you that remains the same as you were a child.

And the voice came, "Yes Sir, I am."

There is constant chatter going on within the mind. The above statement is enough to break the mechanical flow of thoughts. When you become aware of your inner being, you are immediately aware of the present moment. Don't sleepwalk through life, it is not just to pass. The meaning of life is to reach somewhere deep within you. Penetrate at your inner center. Bliss happens only at the inner center. Use life as an opportunity to gain roots and to reach the divine.

Then he would say, "Better Sober up."

and he would reply, "Yes Sir, I'll do that."

Then he would say, "Look out now, don't let them fool you."

And he would say, "Oh no Sir, I won't, I won't."

A gap exists between the thoughts and the one who is observing them. The monk is instructing the observer, "Don't get intoxicated and fooled by the thoughts." In fact, observe your thoughts. Raise your awareness to a level that you are no longer controlled by your thoughts. Cultivate the capacity to accept or reject your thoughts. "Oh no Sir, I won't, I won't", is the acknowledgment given by the observer to the monk.

Meditation is a dynamic phenomenon. It is not a fragmentary thing. It is a continuous effort to remain vigilant about the thoughts. By and by, you become aware of deathless within you. You become peaceful, silent, and blissful. Bliss is not a commodity. It is a quality of a living and the consequence of an alert life. Compassion is the flowering of meditation.

“Silence is a source of Great Strength.” Lao Tsu

In compassion, the other becomes more valuable than you. Love is when you sacrifice yourself for the other. In love, you become the means and the other becomes the end. In lust, the other becomes mean and you become the end. Love is compassionate and lust is cruel.

Meditation gives you the roots on the Earth and wings in the sky. You will achieve the ultimate bliss through it. It creates the possibility of silence around you. When silence happens, laughter will come into your life. A vital celebration happens all around you. Be festive and silent. Never force the inner to be silent. Sacrifice the outer for the inner. Create more and more possibilities around you so that the inner silence can flower in it.

Lips are necessary to sing a beautiful song. Likewise, your existence is necessary to sing the melody of the divine. Silence descends over you when you take refuge in your inner fortress. In that silence, you become the God which is the ultimate experience of bliss.

Photo by Amanda Flavell on Unsplash

The way to Purity

Diogenes was a very wise thinker who lived in Greece. He lived as a naked man like Mahavira for his entire life. He had only one possession, a begging bowl which he used for drinking water. On one beautiful morning, he saw a man drinking water by cupping his hands. The idea of drinking water by cupping one's hand had never come across to his mind. He threw his begging bowl away. The man who was drinking water told Diogenes, "Why have you thrown your bowl?". Diogenes replied, "by drinking water by cupping one's hand one can feel the coolness of the water. The transfer of energy from our hands to water changes its quality. One can't feel any energy by drinking water through a dead bowl."

The same is the case with your senses. They have become dead like a begging bowl. They have lost all their sensitivity and become dull. You can't experience anything through it.

Senses are thirsty for stimulation. The law of senses is that the more stimulation is given to them, the more their need for excitement arises. The more excitement they receive, the duller they become. Let's understand it through an example. You take one glass of wine, your senses are pleased by it because they have received some sort of intoxication. The day after that two glasses of wine will produce the same kind of intoxication. One is not enough to excite the senses. The day after that you need three glasses of wine to generate the same effect. A vicious cycle starts. In the end, your senses become so dull that the entire bottle of wine won't cause any excitement.

Now, you want something more intoxicating to excite your senses. In your effort to increase the sensation for taste, your ability to taste decreases. You can observe the same effect in spicy foods. If you take too many spicy foods, initially it excites your taste buds. As time passes, your senses are adapted to that kind of pleasure. Ordinary food tastes like mud. The problem is not with the food, the problem is with your ability to experience it. You have lost the sensitivity to experience ordinary food.

Mahavira and Buddha were not escaping from the responsibilities when they left their palaces. The deeper truth is, they were renouncing the place of excitement so that the natural purity of the senses can be regained. Ultimate enjoyment is the meaning of renunciation. Your senses become so refined that even the ordinary water tastes like a glass of wine. The more intense your rush for excitement, the lesser will be your capacity to experience it.

Pleasure is born out of sensation and bliss is born out of non-sensation. You see a beautiful car. It is very pleasing to your senses. The desire to possess it arises in your mind. The law of attraction says you are only attracted to something which you are not or which you don't have. You bought a beautiful car. Initially, it gives you a lot of pleasure. As time passes, your mind gets adapted to it. Now it doesn't excite you much. The pleasure, in the beginning, becomes a cause of suffering because now you need an even more beautiful car. Caused happiness is the root of suffering.

Bliss arises out of non-sensation. Senses are not in a rush for excitement. Senses become so pure and refined that even an ordinary thing seems extraordinary. The quality of your being changes that in turn changes your way to experience things.

Friction is involved in pleasure whereas void exists in bliss. In old schools of Zen, masters taught their disciples to meditate on the sound of one hand clapping. In reality, they were teaching their disciples to listen to the sound of silence.

Silence is a source of Great Strength. Lao Tsu

What happens when you utter the word OM?

The moment you speak it, the sound clashes with the atmosphere and become gross. It will produce vibrations on the one who is listening to it. Do one small experiment, close your lips and intone the word om. Listen to the echoes that are generating in your body. By and by, don't even speak the word om, just listen to the voice of the soul which is vibrating with omkar, and experience sat(truth), chit(consciousness), and Anand(bliss).

The voice of the divine is very subtle. Purify your senses to experience the whisper of the divine. Generally, people like loud music. The intense rush for excitement jaded the senses. Understand the whole absurdity of the senses and purify them to experience the ultimate bliss. You will feel joy in listening to the sweet voices of birds. Your being will be mesmerized by listening to the songs of the trees. Ultimate bliss happens when you listen to your divine soul. The way to fulfillment is not by paying attention to the outer things but by turning them towards your inner being.

Purity or impurity depends on oneself, No one can purify another. Gautama Buddha

When the river is cut off from the spring then it dries up. When the tree is uprooted from the soil it becomes dead. The moment you lose contact with your soul, your life becomes miserable. Never move away from your inner center. Sacrifice the outer for the inner. Listen carefully to the voice of silence. The most beautiful things in life happen in deep silence like the germination of seeds, the growth of a plant, rising of the sun. The more you are closer to the truth, the more silent you become.

The deeper truth of the renunciation is to let go of the meaningless so that you become aware of the meaningful, let go of the gross so that you can experience the subtle. The eyes are the most beautiful and delicate part of the human body. Divine is manifested in each and every pore of the universe yet you miss its beauty. Through eyes, one can enter into the being of the other person. Love is an alchemy that transforms everybody. Love everyone so that others can give you their inner space to make direct contact with their being. Bliss happens due to the communion of two pure beings. Always look at others through the eyes of your inner being with pure innocence, without any selfish desire, and experience the bliss.

Kill out the desire for sensation. Look at its absurdity. Never suppress your desires. In fact, go beyond them through understanding. Learn from the sensation that it gives you a false illusion of beauty, that it makes your senses dull. Observe your thoughts of sensation and smile at their foolishness. Only then you can commence the science of self-knowledge. By and by you will start moving towards your inner center to experience the bliss of your divine existence.