3 Degrees of Freedom

In-Between Episode: How Evolution and Compounding Go Hand In Hand with Derek Clifford

• Derek Clifford • Season 3 • Episode 159

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In this episode of "Three Degrees of Freedom," Derek discusses the interaction between evolution and compounding for personal growth. He introduces the concepts of evolution and compounding, highlighting their prevalence in fields like biology, finance, and technology. Using a story about two brothers and compounding, Derek emphasizes consistency's role through personal anecdotes and stresses maintaining discipline in compounding assets. He delves into the power of slight shifts over time, inspired by Einstein's compound interest quote, and relates it to evolving with an open mind. The episode encourages a "wabi-sabi" mindset, concluding with an emphasis on balance, wellness, positive influences, and ongoing growth for success. Through relatable stories, Derek motivates listeners to embrace continuous development.

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If you really enjoyed this content and are looking for more, you can continue to learn more about us in several different places for free!

If you'd like to have a FREE copy of our 7 Ways Commercial Real Estate Syndications Protect and Build Wealth, simply click the link below. We are here and vested in your long-term success! elevateequity.org/7waysEbook

Hello everyone and welcome back to another In-Between episode of The Three Degrees of Freedom Podcast. Today, is one of my favorite topics to talk about, which is evolution and compounding and how they go hand in hand. And the first thing I'd like to do to set the conversation table, so to speak, is to talk about compounding and what evolutions are, independently. Before we start going in, how they actually go hand in hand and what we can do to utilize this force for our advantage. So compounding and evolution are both natural processes. We find them all throughout nature. They're in biology, they're in finance technology. We see them in the way that sells double in value. We see it in interest rates and gross domestic products. And, All types of things in finance and then in technology it's pretty easy to tell, as far as like networks and, leaps in technological advances and how one technology that is pushing the envelope then becomes the basis for the next pushing of the envelope and so on and so forth. Right. And as far as compounding goes, I am reminded of a long time ago, a story about two brothers that they're set to inherit an estate from their father, and they're given two choices. And the two brothers, obviously, you know, to be good for the story, decide to take two different paths of the offer. The two different offers that their father, their father, who is, passing away, or has passed away, gives them two choices. One of them is you can take whatever's in. The box in box one, you have, a million dollars or whatever, million units of currency back then. And then in box two, his executor or his assistant, or, One of his people, has instructions to go to the second box and double everything that's in that box for 30 days. And of course, the first box has one penny in it and the second box has a million dollars. And box one, is a straight million dollars or a million whatever units. And then the second box was one penny. And the catch is that penny comes with a doubling component to it every day for 30 or 31 days. And as you can probably tell, you know, one of the brothers takes the million dollars and sees that, their other brother is just sitting there, you know, after 15, 20 days even with just a pittance, right? Like nothing. In that box and like the return is just not there. And , it's really, really sad right? For him. So the first brother says to the second, oh, you know, you made a terrible choice here. You know, you want some money, we've got plenty to spend. And he ends up spending it on a whole bunch of extravagant stuff. But the second brother just sits there and watches the box grow in his patient and sees it multiply every single day. And you can kind of tell where the story is going that over. The course of 30 days, one brother, the one who took the original box, had the mindset of they have plenty of money, and they ended up spending all of it before the time was up. And then the other brother ended up with two times the amount because on day 30 he had a little bit over $1 million or units of currency in that time. And then on the last day, it doubled again to 2 million, right? And that's a great story on a lot of different levels is because obviously one, it's not what things immediately appear. And that compounding is an extremely powerful force, especially if it's applied consistently over a long enough time period. Right. So I've found in my experience that consistency is actually the key to success in almost everything that I've done personally, because people come into. Failure and challenges in almost everything, including, you know, this podcast, right? If you go back and listen to episode number one or episode zero of this podcast, you can tell that there's a little bit different production value, and comfort in my ability to speak and to inform, educate, ask questions. And so things that change over time. And so the businesses that become successful are the ones because they. They fail because they give up early. And it's the consistency that's the key to success in everything. Another small point I wanna make on this is that many investments that people make where they lock themselves in with, its with a high return. Like for instance, a multi-family investment type thing, or commercial real estate investment or um, some sort of cd. Or something where they lose control of the capital because now discipline is no longer part of it. It's already locked away. It's working, it's going to work in some other asset, and you can't pull that money out because a lot of people would be tempted to do that. And that is what undermines the success of a compounding asset. And when you take out the compounding, you lose all the power. So that's point number one. Compounding over consistent timeframe is a very powerful force. Number two is even a small, subtle shift over time has infinite power, There's a quote from Einstein, and I remember specifically him saying that because it was so shocking for me that someone like. Albert Einstein would even say this, but it makes sense because he's a scientist and a deep thinker, but he's quoted to have said that compound interest is the most powerful force in the world. I dunno if that's true, if he said it, but I remember seeing that out online several years ago and. Compound interest from a monetary perspective makes sense, right? I mean, it's, you put money in and you put the, you let the penny double every single day, and it's just a matter of time before it'll just go bonkers, right? And if it's only a 10% return, right? Like that 10 cents turns into 11 cents, and then, you know, eventually it grows to 50 cents, that turns into 55 cents, right? And then a dollar goes to a dollar 10. So pretty soon that 10% starts to compound on itself a lot, right? Those little shifts in behaviors they add up to be a lot over the long term. So a 1% rate of return difference over a long enough time period has a huge impact over what the results are that you're gonna get. Because if you take a 4% compound and apply it over, I dunno, 30 years, you'll get. Some number, right? But if you take a five or 6% compound and apply it over 30 years, I bet you'll get twice as much, if not three times as much for that 1% increment increase, right? That compounds over time. That's how powerful it is. So a small little shift over a long period of time has an infinite. Power to it. There's another story that I want to tell to you about this. It's really quick and it's about how a flight, when they leave, when you get on a airplane and you go from Seattle down to Miami. They establish a flight path, and if they are one degree off and they just kept going straight in a straight line and they're one degree off, you'll probably end up in Atlanta or in Georgia instead of down in Florida. Right. Maybe you'd be in the Carolinas even. That's how powerful a one degree difference is compounded over time. So just think about that, right? That one degree off, it just keeps the difference, keeps growing and growing and growing over time and over a a long distance. And this subtle shift, while it's easy to understand this from a monetary perspective and maybe even from a distance perspective, thinking about planes, what about from a mindset perspective? What about for what's going on in your head? If you can elevate the quality of your thoughts, the quality of your communication by 1% every day, or do 1% more of a run every single day over a consistent time period over a year, right? So let's say you run one mile for the first day. Then you keep adding 1% every single day and you're running every single day. You add 1%, it doesn't gonna, it's not gonna seem like a lot, right? Because every day, you know, the first day you run a mile, and then the second day you run 50 feet longer, or you know, 5,000 feet from a mile, right? So you run 5,000, you run a whole mile, and then another 50 feet, and then you're done, right? And then the next day you do a mile and 50 feet plus another 50 feet or another 55 feet, right? And you just keep doing that, and then by the time you get to the year, you compound that 1% over 365 days and you're gonna be running three miles, four miles. I don't know what the math is. I'd have to, I'd have to do it, but it's a lot. It ends up being a lot, and it doesn't seem like a lot, but it's the fact that you're being consistent and adding small bits. Of effort over time. So if you can per improve your communication by 1% every day, that's a very noble pursuit. And make that commitment, you're gonna be a completely different person by the time period's over, as long as you set a long enough time period. What's really powerful is when this becomes a new habit for life. Can you imagine that? Not just once per day, but you commit to compounding and adding 1% to your runs. For an entire lifetime, you're gonna be able to run a marathon every day, no problem. So I want you to think about that a little bit. A small subtle shift over a long period of time has infinite power if you're tracking it and looking at it. And it's that if you're that serious about it. If point number three, when we evolve and learn with open-mindedness over a long period of time, We can open up new paradigm shifts that make it easier for us to go from two x thinking to 10 x thinking. So again, obviously the inspiration from this is from the book. 10 X is better than two X, which the last couple of, in between the episodes that I have mentioned has been from that book because I'm in the middle of going from a two x mentality to a 10 X mentality for a lot of reasons, which we can talk about on another time. But, Going back to this, evolution is a normal thing depending on, you know, whether you believe in evolution or you believe in not evolution. Things over time grow, right? things change. Like a very simple explanation for this is how media has evolved over time. It used to be that we'd listen to tapes and then we went to CDs and then. There's tv or tv. It was with radio, and radio was before even all of that, right? So you have radio, tv, CDs, MP3s. Now we have podcasts listening through the internet, live streams. I have no idea what's coming next, but I'm excited to see. But you can see how things evolve over time. That's just an example of how media evolved, right? Everything evolves. And to put it. Into perspective again, let's go back to the plane example of going from Seattle down to the south, right? In Florida or down to Georgia. I hear that the plane when making that flight is only on path for less than 10 to 20% of the time. And the reason for that is because they're making small adjustments. Maybe they overshoot that. That angle, maybe, you know, they're on the flight path and then they end up going over 1% to the left, and then they go over two degrees to the right and then back two degrees to the left, and then back two degrees to the right. Well, the important thing is, is that it doesn't matter because you are continually keeping your focus on that and the consistency is there. So, Little adjustments in a plane's flight path over time will still eventually get you to the destination, and that's why we always end up at our destinations. Many companies in the past have executed with this type of mindset, right? Where it's more this kaizen strategy, Honda and Tio and Toyota. The companies that I've come to really respect as a business as an M B A candidate and an M B A graduate, I learned a lot from Honda and T Toyota and some other great companies out there, but they perfected Kaizen, which is get just a little bit better each day, get a little bit better each day, and they did that to the extreme and now they are the best for a certain segment of the market. Obviously there's competitors coming in, right? But. They perfected that and look at what it has gotten them just by focusing on improving a little bit each day on each small little thing. Things that don't seem to matter that much. It's that culture of evolution over a consistent time period that allowed them to become as successful as they have. So I encourage you to follow this little loop, this kaizen loop of. Planning, then trying something, then do it, then reflect, then plan it, then try it, then do it, then reflect, then plan it, try it, do it, reflect. That's how my whole life has been. And so far it's given me incredible success in blessings that I could never dream of. And you just have to give it time to work like it has for companies, businesses, people. Biology, finance, technology. Those have both been compounding and evolving over time, and they go hand in hand. The last point I want to make here is that as you evolve, you start folding into new behaviors that simply become a part of who you are. As you pick up expertise and new areas of mastery, and you start to move from this model of being consciously incompetent. To being consciously competent and then being unconsciously competent. You go through this continuum and as you start making your adjustments and you start evolving while being consistent, you end up picking up areas of mastery right in your career. Things that you never knew you needed to do. Like, you know, for me, learning how to podcast like this, now I'm extending this out to people that I know and I'm showing them how to do, how they can do it, and they're looking to me for help. Do you think I was born knowing how to podcast? Absolutely not. I learned this all on my own from trial and error, and it's evolved and it's been a consistent part of my life for the past three or four years, and it's something I'm extremely proud of. You'll learn so much more about yourself if you commit to evolution, inconsistency, and how they go hand in hand. And as you learn these things, they become new tools in your tool belt. you end up taking them with you and you can run with them. You can teach them, you can use it to solve problems. And then what ends up happening is you get this expertise, this level of expertise that allows you to then. Make the claim and show other people that you've already solved those problems and that you're worth more, you as a person can solve more problems because you've solved so many problems in the past and you have in a, an approach and a way to be able to get through these problems. Over time, you become more valuable. Warren Buffett, you know, just to. Na, you know, to drive this home and to kind of beat a dead horse a little bit. Warren Buffet says that the only thing that doesn't go down in value is knowledge and experience. Any investment that you make right has the potential to go down in value. And, and Warren Buffett, as you know, is the most successful investor in history, but he has that track record of success because he has been consistent and he is now evolving. To the point where he's now investing in tech companies. He's now investing in Apple, right? It's a big part of his portfolio. But before, even when his autobiography was written and I sat down and read that, or listened to it actually, and it was a great book. I highly recommend you listen to his biography. He felt a little bit of disdain for investing in anything he didn't understand or trust, which is a great maxim. But even he has to learn things in his seventies and eighties. So that he can involve and compound that evolution to success. Last thing I'm gonna leave you with here on this point is the idea of Wabi-Sabi, which is good enough or. Imperfect action or moving forward. It's this Japanese concept, just like Kaizen. Kaizen talks about incremental improvements each day. Wabi-sabi means moving forward with imperfect action, and it may seem frustrating, but imperfect action is actually progress. It's actually evolution because that's the only way you're gonna discover problems and figure out how to solve them. So being consistent. Living in Wabi-Sabi and being dedicated to both consistency and evolution, even though you may not be aware of it, there's ways to put it on autopilot, which I'm gonna discuss here in just a minute. Both of these things will lead you to massive levels of success. I think I've said enough. I hope that you guys get the distinction between evolution and compounding and the difference between them and how they go hand in hand with each other to create incredible results. So some things that I've found successful, and by no means am I, you know, the biggest business person out there, but I've had some success in building a portfolio up with just hard work and effort and learning and consistency. And I would say some of the top things that can help you quite a bit is consistency. Finding a way to build that into your routine if your. Goal is to become financially independent. Well, why don't you devote one hour to becoming financially independent before you go to work every day? You don't have to know what that is that you're gonna do in that one hour. Just know that you're gonna try to figure it out, and you're gonna spend that hour deciding what you're going to do to take action to make it happen. Then meditation, I think reflection. And being able to sit in stillness while there's burning fires around you is an important thing to do, especially if you're like me and you overemphasize or you overthink worry and you get too worried about things when they don't need to be worried about, or you want to control things so desperately and you lose control, then it starts stressing you out. The meditation piece is really important for the longevity because if you're happy with the way that you're. Adjusting to your lifestyle or moving forward with imperfect action in Wabi-Sabi. And it's gonna help you stay consistent. And then the last thing that I'll recommend is that feel it is just balance in feeling the best person that you, feeling the best that you can. And that comes with wellness. That comes with eating the right things, taking care of yourself, right? Understanding where your limits are, giving yourself some grace, right? Being patient with yourself, understanding what foods give you energy and which takes it away. Knowing what your bio rhythms are, when you should be waking up, when you should go be going to sleep, and what time you should be spending with who. And what relationships you should cultivate. So there's a lot of consistent things in there, but basically surrounding yourself with the right people is super important, which is gonna be our next topic next week. But I just want you to know that consistency and evolution are an extremely important part of you growing to your maximum potential. So please take advantage of it, find ways to implement it, and. I want to thank you for listening to my ramblings once again, and I hope that it was helpful for you to think through all of this with me, because when I teach this to others or when I start Mussing on and on about this stuff, it actually kind of cements some of it into my head even further, more than I it already has been. And so I want to thank you for allowing me to do that. And if you like what you heard, please go. Wherever it is that you are listening to this podcast, whether it's YouTube, you're watching it, or you are listening to it on iTunes or Spotify or some other place, please leave a thumbs up. A like a comment. It means the world to us because then we know that we're serving you best and we're giving you the right content that is helping you directly because that's what it's all about, is helping other people and providing. Some light for those out there who maybe are in a dark place. So thank you guys for listening and I'm looking forward to coming back next week to talk more with you, about some other success mindset ideas. We'll see you guys next time. Talk with you soon.