“The first rule of compounding is to never interrupt it unnecessarily.” Charlie Munger
For six years, tens of thousands of households bought and sold stocks through one discount broker. The ones who traded the most earned 11.4 percent a year. The market returned 17.9 percent. What set them apart was how often they traded.
I traded my habits the same way. A habit would be running fine and I’d swap it for another. I counted the upside of the new habit. I left out what the trade itself cost.
Each night, I score how the day went, from minus four to plus four. I call that number my tempo. For months it crashed on a two-week rhythm. Each crash followed a trade. The trades were the cause.
A new habit takes time to settle. The system around it takes time too. While the system settles, the work goes into adjusting. Gamblers have an old name for the choice I kept getting wrong: explore to find what works, then exploit it and pour it all in. Between them sits the step I kept restarting: adapt. Explore, adapt, exploit. Each trade dropped me back to adapt. The payoff stayed one step away.
A trade costs more than the one habit you changed. Clear the sea otters from a stretch of coast and the kelp forest dies. Otters eat sea urchins. Urchins eat kelp. When fur hunters wiped the otters out of the Aleutians, the urchins multiplied and grazed the kelp down to bare rock, a dead zone divers call an urchin barren. Later, killer whales began hunting the otters that came back. Their numbers fell by more than half and the kelp collapsed again. One species moved and the coast changed with it. Our habits run in a web. Change one and the rest change too. The system takes time to re-settle into a new balance. The trade looked small. The cost applied to the whole system.
So I called a stop, for now. I locked my habits for the month. The first few days of each month are my one window to change anything. The two-week crashes stopped. My tempo sits at plus three today.
A system allowed to mature gets cheaper to run.
Maturity is a discount.
Touch one part and the system starts adapting again. You lose the discount until it settles.
I make room for change when the world shifts and the system has to adapt with it. Munger’s rule is to never interrupt compounding unnecessarily. A change earns its place when a shift in the world makes the gain clearly beat the cost of settling the system again. Few of mine ever did.
Leave the system alone and it grows. Change it for no reason and it stalls.
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What’s one working system you could lock and let compound?
