The Time Value of Knowledge

David interviews Blair about his recent article in which he takes a lesson from investing with compound interest to understand the increasing returns we can receive from our relentless pursuit of knowledge over time.

Links

“The Time Value of Knowledge” article on WinWithoutPitching.com

Transcript

David C. Baker: The time value of knowledge. I got to say, when I got your note for this--

Blair Enns: I can hear the cynicism just dripping in your voice.

David: No. When I got it, well, first of all, I thought, "Oh, there's some bullshit in here." You sent me straight to a Google search and it's like, "Oh, no, that was true. That wasn't bullshit. Okay, now I'm really listening." If you wanted to know how interested I am in your topics, it's the length of the notes I write. I've got a lot of notes written here. You have stumbled once again on success. [laughter]

Blair: The old blind squirrel finding the occasional nut. That's me.

David: This is a fantastic topic and it also saved me some money because as I was reading through this, I was saying, "Oh, yes, I'm not going to do that now that I see this." I'll bring you into my thinking later. Thank you for this topic.

Blair: You're very welcome.

David: Let's talk about it.

Blair: I will say I just came from visiting my parents and my eighty-five-year-old mother commended me on this post.

David: Oh, she read it.

Blair: Yes. She read it. I don't know if it's the only one she's read. She doesn't commend me on the other ones. It's like, "Hey, finally, the old blind squirrel found a nut." [laughter]

David: She's read every single thing you've written.

Blair: And not said a thing, just bit her tongue.

David: Talk about this. What's going on here?

Blair: What was the impetus for this? I have this scientist friend and we have the greatest conversations because I bring my business experience to his domain of science and he brings this scientific rigor to my domain of business. We're constantly cross-pollinating our worlds and we have these-- I think it's mutually beneficial conversations where we're both so better off by having had the other person's perspective on what it is that we do.

We were hiking this past summer and he was commenting-- he just turned 74. I write about him in this post a little bit. In his own words, he was retired from 18 to 45. He went back to school at 45, got his PhD at 50, and he's just lit his world up. He's just climbed to the very top of his world. I'm so impressed by what he's accomplished recently, like in the last two years.

I made this comment at first, I thought it was a Charlie Munger quote, then I see it's attributed to Albert Einstein, and then I see it's apocryphal. He likely never said it. That is the most powerful force in the universe is compound interest. I made the point that compound interest, the power is it just keeps compounding in this exponential way. If you just plug away at something and you keep up a steady pace, the most important variable in your ability to make a contribution or in the financial world to net a return is time.

We'll get into the formula a little bit, and I just made the analogy to his career, how just in the last two years of what's a 25-year career, he's a person who's clearly been driven to keep learning, and he's always learned at a very fast pace. You can just start to see the compounding effect of a steady rate of learning in his business, and then I started to draw analogies elsewhere. I realized that there's this idea of the time value of money, and you can, not perfectly, not exactly, and we'll talk about where the flaw is, but you can apply that idea to knowledge and you can apply it to your career, whether it's your business or your own personal career.

Time is a really important factor. It's more important than the point at which you start, the knowledge that you had when you started, and then in the investment world, it's the rate of return. If I get into the formula here, the three most important variables in an investment in terms of the future value of that investment are number one, the principal amount invested, which is known as P. Number two is R, the rate of return, and number three is the length of time the money is invested. T for time. P for principal, R for rate of return, and T for time invested.

It's a little bit counterintuitive to most people, but the most important variable is time, the amount of time that you're invested. It's not actually the rate of return or how much you invested initially. Time can just smash both of those variables when it comes to netting a return on your investment. You take that idea of investing money and you transpose it to the idea of investing learning or knowledge, you get the same effect. Time is really powerful.

David: It's the kind of thing that we've all said to our kids or to younger people that we know, it's like, start your retirement early, with the same principle. I'll tell you what I thought when I heard this, and all of a sudden, I sort of connected a couple of things in my mind. What I thought of when I read this was the Iron Butt Association. Have you heard of that, Blair?

Blair: Are these motorcycle riders?

David: Yes. I mentioned it in a previous podcast. I had a friend who's still a friend. He's a prosecutor in the Chicago office, and he won all kinds of awards in the Iron Butt Association. He said he would always tell me the secret to what I do is not how fast I go, the secret is to just keep going. Get up early and just keep going. Don't worry about the rate of speed, just keep going.

I thought, "Well, listen, if you go a little faster, couldn't you stop and spend more time resting or stretching or whatever?" All of that is true, but there's just something about how if you just keep going, that's way more important than the speed. I did a ride. I didn't register for it, but I rode back from one of our events. It was in Scottsdale to Nashville. It was 1,634 miles. We did it in 33 hours.

I was riding with a friend and we would just swap motorcycles and keep riding. It's really true. We even stopped and spent six hours at a hotel one night. Something about that, it just made sense when I heard this. This wasn't a new thought to me when I read your notes, but all of a sudden, I thought about the implication on the knowledge economy and just wondering if the fact that we're changing jobs more frequently than ever has sort of limited our ability to see-- we quit diving deeper at a certain point. We go somewhere else or maybe our lack of positioning. There's just so much to explore here that I haven't even thought too much about. It's really fascinating.

Blair: I think for me, that idea that maybe we quit things too early, that comes up a lot when thinking about this idea. Somebody said to me recently, I don't remember who it was or the source that they were citing, but there's somebody out there, one of these people giving advice to startup founders saying this idea that you can't quit your idea until it has generated at least a hundred thousand dollars in revenue.

When that was just shared with me, I thought, "Oh, I see the power of that because I think we give up too early on some ideas." I think we give up too early on some careers or even businesses. Now, we'll get into the variables here because I think that the rate of return in this domain of knowledge, it's actually the rate of learning. That's the tricky variable.

I think maybe we all assume that we're always learning or that we learn at the same pace, but I've just observed in other people, people that I know think they're continuing to learn at the same pace. I actually think some people go backwards. I actually think what passes for learning among some people is getting more information to cement your own biases. I think you can't continue to learn if you're not a critical thinker, which means you're not willing to dispose of your old ideas. That's one of your strengths, quite frankly, as a friend observing. You are willing to abandon old ideas in the face of new information.

David: Yes, I think that's what keeps me alive, but it also terrifies me because what keeps me listening all the time is this little quiet notion that I might be wrong and I hate to be wrong. When I'm in a conversation with a client or with a fellow advisor or something like that, and I have this immediate visceral reaction where it's like, "Okay, that was a perfect set. Now I'm going to spike my opinion on this conversation."

Blair: [laughs] Anybody who knows you would appreciate that sentiment, but go on.

David: Yes. Over the last, I don't know exactly how long, maybe five or six years, I've tried to train myself when I see that defensiveness or this eagerness to spike an opinion, like maybe I'm wrong. Your clients hire you because you're confident, you're an expert in something, but that can go against this notion of continuous learning. You have to bring this really unique mix of confidence, but openness to something different.

Contrary to what you said just a couple of minutes ago about how some people just get their opinion cemented more, which means that they're closing down their rate of learning, there has to be a deeper and deeper curiousness about life, but it has to be mixed with a confidence too. I don't know, you probably have an answer to that unique combination of openness and confidence at the same time.

Blair: I haven't thought about it deeply, but I'm not sure how important confidence is because I consider overconfidence to be the advertising disease, and I see it in big ad agency people. I see this overconfidence and an inability to listen because they always need to transmit and transmit with confidence. It's a massive generalization. Obviously, I'm painting a large number of people with the same brush, and that's absolutely not true. I've just seen the commonality of it.

I thought a lot about where it comes from. I think it comes from this idea that tied to creativity is the ability to think on your feet. It's a confidence in their ability to think through a problem quickly. That is a valid confidence that serves you well in a pitch or a presentation. It's a valid source of confidence, but it's not the same thing as the confidence that comes from knowing a subject matter deeply.

I think in the mind of these people who are overconfident, I don't think they understand that difference. That's the thing about confidence, is you're good at something, you draw strength from it, and then you port that confidence over into other areas of your life. That's how you become more confident. I think there are people who do suffer from overconfidence. Can I talk about one of the thought experiments that I posed to the audience in the post?

David: Oh, yes. I love this one.

Blair: Because I made an error, and the error just helps to elucidate this point about the fact that people do not think exponentially. In the time value of money, there's this little thought experiment that says, "Okay, imagine you invest a dollar and that a dollar has a really big return. It returns 100% a day, and it's invested for 30 days. You invest a dollar, a day later, it's worth $2. Two days later it's worth $4. Your rate of return is 100%. The investment doubles. It starts out as just one dollar and it doubles every day. Then the question is, how much do you think that investment is worth at the end of 30 days? People come up with big numbers, but the real answer is just over a billion dollars.

David: Yes.

Blair: I did the math on that. I've been aware of this little thought experiment for years, and when I wrote the post, I wrote $1 million, not $1 billion. I got it wrong by three orders of magnitude and only one person commented that, "Hey, this is actually $1 billion." When he said that, I went, "Yes, I know it's $1 billion. I wrote $1 billion." Then I went and I looked at the post and I wrote $1 million, and not just once, multiple times in the post.

That example illustrates a few things, certainly not the power of P, the principal, the amount you invest. In this case, the rate of return R is massive. It's 100% over the doubling period, which is a day, but the key to it all is how this doubling effect, and again, in this example, the doubling period is a day, but in a typical investment, the doubling period might be something like seven years if you're invested at 10% or 10 years if you're invested at 7%, that's known as the rule of 72. People are familiar with it.

Your doubling period is a lot bigger, but the key takeaway is, it doubles, it doubles, it doubles, and it's not just the initial amount that doubles, it's the principal plus interest that doubles, and after 30 days, you get to $1 billion. After I think it's 40 days, you get to $1 trillion, and before the end of the year, it's more money than has ever been generated in the entire history of humanity.

David: Yes. The way I've heard this is you give somebody a choice and say, "Would you rather have a million dollars right now? Or how about if I give you a penny and I double that every day for a month?" Almost everybody takes a million. Basically, they're taking 1/1000th of what they would get otherwise, right?

David: When you apply this to the knowledge economy, you're saying, "Listen, the longer you stick with something, the more valuable your insight, the more valuable your knowledge." That's the point, right?

Blair: There's two key points. Number one is just that, that as long as T time is large or long, P and R don't really matter. They're not all that material. The time is the most important factor. The second lesson is, and this to me is the most profound one, is all the gains come at the end. You think of that example where in 30 days that one dollar is worth a billion dollars. Then there's a follow-up question. Okay, at what point in that 30 days is that billion dollars worth half of that? Is it worth $500 million? Most people intuitively go, "Oh, it's somewhere around day 15." It's actually day 29. It's the day before.

You start with a dollar. In the first doubling period, it's worth a dollar. In the 30th doubling period, that same amount is worth $500 million. That's the lesson. The lesson is if you have a constant rate of learning, or if you continue to learn, the value of your knowledge with time gets to be massive, but all of the gains come at the end. If you quit a year or 2 or 5 or 10 years too early, you've passed on all the possible gains. They all come at the end.

Now, I think the mistake we would make in listening to this is to think, okay, well, let's just work for a long time. Between the ages of 60 and 65 or 65 and 70, or however you do the math, you're going to reap the largest gains from your knowledge. That's true if you keep learning. This is the problem because I think the tricky variable is R. First of all, I don't know how we would measure rate of learning. Do you?

David: No, I don't. Just for those of you listening, P is the principal amount, what you start with. R is a rate of return. T is the length of time the money is invested. As we talk about P, R, and T, those are the things again. No, I don't know how we would measure that.

I'm thinking through this, and I pitched this idea to you and you were decidedly not warm about the idea. I don't know exactly why, but I was thinking got two and a half million words written over the years of my career. I should feed all that in. Then there could be this large language model of how David would answer a question. Then something you wrote in here is like, "Oh, no, that's just stuff in the past. I haven't even started to learn. I'm just at the beginning of things."

That just freezes everything in time. It was so clear to me how that's a bad idea with what you're talking about. Then I started thinking about all kinds of things. Why do we not hire older people who have learned all their lives? Why do we favor-- my mind exploded at that point. I went back to your notes. [chuckles]

Blair: You're talking about this other thought experiment where I say, consider the idea of somebody building a chatbot version of you. I think this has happened for you. I know it's happened for me. More than one person has reached out and said, "Hey, I've entered all your stuff into a large language model. It basically created a Blair bot."

What I say in this is, okay, imagine somebody has done that to all of your work, all of your public work, whatever that means, your thought leadership, whatever the nature of your work is, everything that's out in the public domain. What's your reaction? Are you angry that you've essentially been replaced by an archived version of yourself?

David: Yes, that's exactly my initial.

Blair: Yes, that's my initial reaction. Then when I think about it, when I heard from the first person who said they did this, I laughed out loud because I thought, "Oh, my old stuff, man, so much of it I have walked back or improved upon or let go of completely." If you're just a person entering everything I've ever done into an LLM and you don't know how to weigh it, you don't know which ideas have been surpassed, which ideas I've decided are stupid ideas, which advice I would never give again, or where I understand I have some nuance that I didn't previously have. You didn't know how to weight this.

It's as likely to spit out garbage as it is to spit out something that's the opposite of garbage, something that's worthwhile. My attitude is, well, as long as I'm writing-- that's how I think about it. You and I have talked about this before. I'm learning. I'm writing at a pretty good pace. I feel like I'm learning at a pretty good pace. The world can have or my competitors, however you want to think about it, can have everything that I've created up until about two years ago.

If all of that stuff was just entered into a Blair bot two years or so in previous, I would think, "Ah, it's not very good." Maybe it's more helpful than unhelpful. Maybe that's just me blowing smoke up my butt thinking that I continue to learn. Maybe the reality is something far different from that. My attitude is keep learning. The stuff that I've learned in the last two years is way more valuable than the stuff that I've learned in the first 18.

David: You didn't address this earlier, but I'd be interested to hear your thoughts on this and specifically how it relates to positioning because one of the things that really hit me between the eyes, almost like a bright light came on is just how all of this ties together. You don't really start learning at a rapid rate until you see patterns in things. You can't see patterns in things until you have similar scenarios dropped in your lap.

Blair: Your field of vision has to narrow enough so that you can see the patterns. You get a body of repetition of similar things, and you can start to see the patterns.

David: Your rate of learning doesn't really accelerate until you have those opportunities. Those don't come until you're more tightly positioned as a firm. The main point here is the power of time, how long you have to do it. I turned that thought around and said, "You know what? The sooner you start to see those patterns, the better, because then you can start layering and layering and layering things so that you can see this stuff." Is that a valid thought? You're not sure?

Blair: No, I actually think it's potentially dangerous because remember when we did the book review of David Epstein's book, Range, where it was making a case for generalists over specialists? In the end, in the last few pages of that book, he basically said what he really thought, which is completely contrary to the subtitle about how generalists rule over specialists.

He said, just don't make the mistake of specializing too early. There is something about going down these different branches and dead ends, stopping, backing up, going over again. I think as long as you're learning in these domains, markets, or disciplines in which you're specializing, as long as you're learning something that can port over to wherever you go next, I think that's advantageous. I think there is this danger in specializing too early.

As you and I are talking, I'm wondering, well, if I'm five years into my career, if I launched an agency or a firm of some kind five years ago, what message am I supposed to take away from this? Is it that I don't know anything five years in? That certainly isn't true. I felt like I knew a lot five years in. Maybe the reality of how little I knew, it was probably to my advantage that I didn't know what I didn't know. This maybe speaks to your point of confidence. That probably carried me through the first 5 or 10 years. What do you think you'd do with this idea if you're five years into your firm?

David: I think of specialization as sort of a way to organize information. It's like all the hooks on the wall. It's not dangerous to look for patterns and early conclusions everywhere, as long as when you see something that's relevant, you can hang it in the closet and use it in other ways. If you have blinders on and you're ignoring the rest of the world, then I think, yes, there's a lot of danger in specializing too early.

If you are a balanced individual with all kinds of other interests, I don't think there's any of that danger at all. You remember we asked each other in an earlier episode, if somebody gave me a million dollars, what would I do with it? I would invest in research in this field just because it would accelerate my learning, and it could validate or correct some of the assumptions that I'm making.

One of the things that drives success here is this insatiable curiosity to know more and more. Some people give up on a career or a pursuit because they're bored. I don't understand boredom in that sense because there's always so much more to learn. I'm going to fall on the side of start focusing in an area as soon as you can, but don't have blinders about the rest of the world on it and keep testing it. Keep having really interesting conversations with people that don't know your field so that they can sort of raise their hand and stop you and say, "Hey, you're crazy." If people start telling you that, well, then you ought to listen to it, right?

Blair: Yes. I'm really struck by what you said about how you don't understand boredom in this context. I'm with you. As you said it, I realize, and maybe this is just only tangentially related to the topic, but as you said it, I realize the people who make the case for not wanting to specialize because they're worried they'll be bored by such a narrow domain, that never passes.

When they make the decision, what happens is you crawl into this tiny little closet, and then it opens up into Narnia. These little niches are massive. The boredom from specialism in the context that we're talking about, like I've said before, Adam Smith talked about the mental mutilation of having to do the same physical task over and over again, but boredom within the context that we're talking about, specialization, it's actually the fear of the idea of how boring this would be.

Once you specialize, you're never bored because you get into this niche and it opens up again like Narnia, and it's massive. It's a whole world that you couldn't see from where you were standing.

David: Right, you couldn't see all the doors in the room until you entered the room. You've used that image before. Take us through these two lessons to wrap this up and how you would specifically apply them to folks who are listening to this. Lesson one is-- the first lesson is that P, that is the amount that you're investing, and R, the rate of return, aren't as important as how long you stick with it. How do you want to apply that first lesson?

Blair: Yes. In our world, P, you can think of it as the amount invested at the starting point of your career. What did you know? What was your education? What were your experiences? What were your ideas? How much knowledge did you have at the beginning? Then R is your rate of learning. Neither of these are as important as time.

The lesson really is just to keep going. If you feel like you're on the right track but the returns aren't coming, and I can see how this would be dangerous advice if you've chosen poorly, but just understand that it's a little bit of the Sisyphus pushing the boulder up the hill. The returns come with time. Just like your friend said, I could go faster, but the key to my success is I just keep going. Was that it?

David: Yes, exactly.

Blair: Just keep going. Understand that time is the most important variable. Then the second lesson is understand that most of the gains come at the end. When they come, they come in massive amounts. You can see this. We can all look around at people we know who struggled early or did okay early. Then what's the line about an overnight success 25 years in the making? That's really what we're talking about here. It's an overnight success 25 years in the making because what's doubling in those later doubling periods is way bigger than what the initial amount was.

It does look like an overnight success 25 years in the making, but you have to keep learning and that's the tricky variable of R. I don't know what advice to impart to people on this subject because I made this snarky comment in the post that our idea of what passes for learning, I think it diminishes with age just as our idea of what passes for exercise diminishes with age until one day we start to think of walking as exercise. I make the snarky comment that it's not walking as an exercise. I've heard from a couple of people on that.

I think you have to be careful as you age and you have to ask yourself, am I really learning at the pace I learned at when I was younger? As long as there is a pace of learning, and I don't think learning is just the ingesting of information. I think because many of us, maybe even most of us, seek to ingest the information to cement our own biases instead of ingesting information that challenges our ideas, challenges our thinking. If you're doing that, if you're critical thinking, if you really are continuing to learn, then time is your friend and the gains are at the end.

David: Yes. Charlie Munger, that's what prompted some of this thinking here, his passing. He stuck with it for a long time and I'll bet you anything he changed his mind on a few things even towards the end because he kept that level of curiosity up all the way.

Blair: Yes. Died at 99, it's almost absolutely certain to be true that he was still learning. The things that he learned in his last 5-10 years of life would have been massive compared to anybody else.

David: Yes. Thank you, Blair.

Blair: Thanks, David.