The mathematical function that rules your life

This book is about investing, and it’s about technology…

Risk and Reward hits your inbox every day in a short, staccato burst of text.

One day it’ll be 800 words on what Trump means for the market. Another day it’ll be 400 words on a trading opportunity. Then a short pitch on a company I’ve been researching for The Penny Share Letter. Or a link to a sales letter.

And it’s the way it should be – the whole point of Risk and Reward is to alert you to investment opportunities. And lots of them cross my desk every week.

Emails are great for keeping in touch with the markets and learning quick new ideas. But I have to admit, they have their limitations. Stories that are important but slow-moving lose out to stories that are urgent and fast-moving.

That’s why it’s been great to slow down and read Nick O’Connor’s new book, The Exponentialist. The book is about investing, and it’s about technology. But it’s not about the technology story of the week. It’s about something much bigger than that.

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Nick is basically saying that most people are missing something very important.

It’s down to how we’re wired, he says. We perceive the world linearly – in other words, we imagine the future by drawing a straight line from the past to the present. So, for example, we imagine that our lives will be as different for our children as our parents lives were from our own.

Nick says it doesn’t work like that. Progress doesn’t move in straight lines. It goes in curved lines – exponential functions. This might sound trivial to you, but Nick argues that it has huge implications.

And the simple fact is, the vast majority of people find it almost impossible to comprehend the scale and speed of exponential growth. We might each have the most powerful supercomputer in the universe whirring away between our ears, but we find it incredibly hard to visualise and anticipate just how rapidly the exponential function alters the world.

The reason for that is that we’re conditioned to think in terms of “linear” growth. That is, we look at how big something is now compared to, say, last year or last month, and tend to draw our conclusions from that. My house is worth 12% more than last year. My wage has grown 2%. The stock market is up 5% this year. This is how we view the world. It’s how we’re conditioned to think. In the investment world we’re constantly told that past performance has no relationship to the future, but the fact is, it’s part of being human to base our view of the future on our most recent experiences…

If we were to map this growth out on a chart, it’d essentially be a long, at line for a very long time, before a sudden explosion upwards on the right hand side of the chart. This is sometimes called the “knee” of the curve. It’s the point where things go vertical. In investment terms, it’s the point where vast sums of money change hands.

Here’s how the fantastic Wait But Why depicted it:

“It seems like a pretty intense place to be standing—but then you have to remember something about what it’s like to stand on a time graph: you can’t see what’s to your right.”

Get a copy of The Exponentialist for free

I’m just giving a flavour of Nick’s argument here. Over the course of the book he makes the case that exponential progress rules out lives, even if we’re not aware of it. And he shows exactly where you want to be standing when we hit the “knee of the curve”.

It’s a book for investors, thinkers and technology fans. AND… I’ve made a special deal with Nick. He’s willing to send a free copy to Risk and Reward readers.

To claim your free copy of The Exponentialist, click here.

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