The Power of Compound Interest

There’s a famous quote from Albert Einstein on the magic of compound interest: “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

Warren Buffett was another big believer in the concept. He once said: “Read 500 pages every day. That’s how knowledge works. It builds up like compound interest.” (500 pages? Really Mr. Buffett?).

The definition of compound interest is the following: “Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously-accumulated interest.” Got it. It’s easy.

I’ve been thinking about compound interest as we head into yet another election season in Delray Beach and Boca Raton.

And I’ve decided that I want to support candidates who believe in the concept and how it might apply to leading communities.

I’m looking for candidates who believe in learning from the past and those who believe in tapping into the vast knowledge that exists everywhere you look so that we earn interest and not pay the price for ignoring hard earned knowledge and experience.

I recently had lunch two former elected officials including a former mayor who is in the process of moving to Delray.

Inevitably, the conversation turns to shop talk—as we share war stories and opine about local politics.

One former elected said something that I agree with—he felt that the best local elected officials are those who are capable of changing their minds if given new information. That very simple act—seeing something another way–shows that an elected official is capable of evolving.

It also demonstrates that an elected official is capable of taking a position that may—hopefully only temporarily—cause them to lose some supporters.

Because if elected officials are beholden to their base or an influential handler, the chances of growth and success decline markedly. But if they are capable of growth, they will add supporters over the long- term and gain respect for their well-thought out positions.

Now that doesn’t mean that you ignore people or fail to represent them, but it does mean that you have the ability to lead with an open mind based on information that may come to light in the course of debate.

This ability to grow and evolve is in many ways the beauty of local government, where you don’t have to vote with a team as politicians tend to do in a partisan, legislative environment.

That type of blind faith in your team leads to gridlock or progress that gets built and then undone when the opposing team takes office—and the opposition always gets in at some point.

I prefer the compound interest approach to community building where one group builds upon the accomplishments of the previous group. That style tends to build traction and sustainability.

It helps enormously if you have elected officials who follow community driven visions and take the time to set goals.

City Commission’s and Council’s tend to fall apart when you have five free agents or factions working on their own pet projects or those who are hell bent on undermining their colleagues.

That doesn’t mean that elected officials can’t disagree or debate, but it does mean that once the vote is called and decisions are made it’s time to move on. Commission’s that endlessly litigate, refuse to make decisions or continually revisit old issues tend to get nothing done—which frustrates citizens and confuses staff.

I want to support candidates who get this—because frankly if they don’t– they are going to fail.

I don’t want elected officials who believe they only represent those who supported them or worse yet gave them money.

I talk to many business people who feel the need to “cover their bets” by writing checks to everyone even though it’s clear that they may prefer one candidate over another.

They do this is out of fear—because they are worried that candidates are watching and will exact retribution if they get elected.

For the most part, when you support everyone out of fear, you’re either trying to buy votes or insurance against revenge. If you think about that—it’s horrible. Who wants to live and invest in such a place?

Projects should be supported or opposed based on whether they follow the city’s rules, advance the community’s vision or are good for the city. Period. Not whether your name showed up on a campaign report or not.

Those who tend to cover their bets end up spending twice as much as they should and being trusted by neither campaign.

So pick a candidate and have the courage of your convictions. You’ll win some races and lose others, but if we elect the right candidates there won’t be anything to fear. And if you are the victim of retribution take a bunch of people to City Hall and speak up about it. Remember, elected officials work for us. We don’t work for them. It’s called servant leadership.

One final thought on compound interest: it doesn’t mean you can’t be a disruptor or that you must continue to do things the same old way.

In fact, the best elected officials take things to the next level; they push, question, challenge, work hard and don’t stop at the first sign of resistance. They are not afraid to lose their seats if it means doing what they feel is best. They embrace change; they evolve.

They are civic entrepreneurs willing to take calculated risks, push the envelope and ask ‘why not’ when they are told something can’t be done.

But they do study the towns they seek to lead. They learn from the mistakes and from what has worked in the past.

They don’t keep their own counsel…they seek and welcome input from a wide range of stakeholders. Those are the candidates who tend to win and tend to get things done during their terms in office.

The one’s who reap the rewards of compound interest, not those who pay it.

 

 

 

Comments

  1. Scott Porten says:

    Jeff, I could not agree with you more. The best officials are those who come with an open mind and make decisions based the the facts presented. Those with a predisposition on issues tend to be less effective and have a tendency squash the ambition of the non-elected leadership in our City. We need openminded leadership.

    • Jeff, To be effective you have to be open minded and willing to look at each situation and not lump them all together. We need to promote the new start up business and not chase it away. 80% of business in America is a small business.Many our decisions in Delray beach are coming from departments that want to follow their own agenda. Making a decision to not allow a business to open because it might be not a good fit for Delray because you as a department head think that way is your opinion. The community needs leaders who will support the growth of a small business and give it a fair chance. Hire local and support local and stop selling Delray to big money. We need a mayor and commissioners who will support the needs of the citizens of Delray first before giving away the store to the rich outsiders.

      • Jeff Perlman says:

        Well said Patrick.
        I don’t think it’s an either or situation. We need to have rules and standards–and be friendly to businesses of all kinds.

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