Related content from my book
In my book “The Rules of Super Growth Stocks Investing“:
- Sections 1-3 provide a detailed explanation of compound interest and multiple examples of repeated calculations.
- Chapter 2 introduces the moat and corporate competitiveness.
In the book “The Rules of 10 Baggers“:
- Section 5-1 introduces linear growth, power growth, and exponential growth, and introduces these three growth methods in detail.
Famous Examples of Exponential Growth
Compound interest
The following are actual manifestations of compound interest:
- Bank’s compound interest fixed deposit: Please refer to my previous related post: “Simple and compound interest calculator“
- Annualized rate of return on investment: Please refer to my three previous related posts: “Why long-term investment is better?“, “IRR Calculator” and “Investors should care annualized rate of return (IRR), How to calculate?“
- Knowledge accumulated through long-term continuous reading: Perhaps the most common example of exponential growth is the accumulation of knowledge. The more you know, the easier it is to learn new things.
- Networks and social networks like Facebook
Note: Regarding compound interest, please refer to several of my previous related posts:
Moore’s Law
Moore’s Law is the most famous exponential technology curve. It noted that the number of transistors on an integrated circuit doubles approximately every two years. In 1965, Gordon Moore of Fairchild Semiconductors wrote a paper titled “Filling More Components into Integrated Circuits.” Moore’s Law was born in this paper, but he only predicted the situation for ten years, that is, in 1975.
Note: For the story of Gordon Moore, please refer to my two previous related posts:
Moore’s Law still holds true today. Apple’s M1 Ultra chip packs 114 billion transistors on a commercial chip. Intel recently stated that it expects the number of transistors on a chip to reach 1 trillion by 2030. When Moore wrote that paper, the number of transistors on the chip was only 50.
Today, some people are worried that Moore’s Law is coming to an end. It has already reached 3nm, how much smaller can it be? ! Others, including Jim Keller, the most famous chip designer of our time, think we still have a lot of room for improvement.
Swanson’s Law: Solar Modules
In 1954, Darly Chapin, a scientist at Bell Labs, tried many methods to convert sunlight into electricity using selenium cells with an efficiency of only 0.5%. Pearson of Bell Labs suggested that Chapin replace the selenium battery with a silicon battery, which resulted in a silicon photovoltaic cell efficiency of 2.3%. After further improvements, when Bell Labs introduced the solar cell in 1954, its conversion efficiency had increased by 6%.
After continuous improvement, in 2022, China’s solar cell conversion efficiency will be 26.81%, setting a new world record. Since 1976, the price of solar modules has dropped by 99.6%.
Moore’s Law is an important input to Swanson’s Law: it has been observed that solar photovoltaic module prices tend to fall by 20% every time cumulative shipments double.
Note: Regarding solar energy, please refer to my previous related posts: “The current development, differences, and related companies of Clean Energy, Green Energy, and Renewable Energy”
Human genome sequencing
The National Human Genome Research Institute reports that since 2001, the cost of sequencing the entire human genome (reading the instructions encoded in the 3.2 billion DNA base pairs in each person) Has dropped from $100 million to $500. In September 2022, after the release of this report, Illumina (ticker: ILMN), the largest manufacturer of gene sequencing, announced that they can now read a person’s entire genetic code for less than $200, down from their established price of $100 The goal is one step closer.
It has dropped by 500,000 times in 21 years. In the past 15 years, the cost of mapping a genome has dropped by about 100,000% (“If you can’t feel it yet, let me tell you that this is equivalent to reducing $100 million to less than $1,000. This decline is far greater than Moore’s Law; the trend has been exponential since 2007, albeit on a logarithmic scale. Genome Law states that the cost of sequencing a complete human genome falls by about half every year.
Overachievers look for exponential growth
Excess return
All investors want to obtain excess returns, and the best situation for so-called excess returns is when your investment can achieve exponential growth. For example, culturing bacteria. When they do grow, they grow exponentially. But finding such businesses worth investing in is difficult because they are rare. This means that investors must spend a lot of effort to achieve such results.
What is a successful startup?
The business of a successful new company must grow at an exponential level; but although most companies in the world have successfully achieved high growth rates, only a very small number can achieve exponential growth.
As a result, you get very different results: companies with high growth rates tend to become very valuable, while companies with lower growth rates may not even survive.
Best investment target
This is also the dream investment target that all investors are looking for. Unfortunately, such opportunities are rare. The central idea of “Zero to One“, a must-read classic book written by Peter Thiel in the venture capital industry, is actually only one, how to find new startups that grow exponentially.
Why is this so?
Successful new companies with exponential growth capabilities will eventually enjoy the benefits of winner-take-all, covering most of the market──because such companies must have the characteristics I described in my book “The Rules of Super Growth Stocks Investing” The second chapter introduces the moat and corporate competitiveness.
Relative articles
- “Exponential growth can produce excess returns“
- “The Compound Effect“
- “The power of compound interest“
- “Simple and compound interest calculator“
- “Why long-term investment is better?“
- “IRR Calculator“
- “Investors should care annualized rate of return (IRR), How to calculate?“
- “The great enviable advantages of young people investing in stock“
- “Traitorous Eight, the origin of the semiconductor and venture capital industries“
- “The Power Law“
- “Zero to One“
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