Interesting...very interesting!

Call me sad - you won't be the first - but the most mind-blowing statistic I've read in a very long time was in a recent issue of The Economist. To make matters worse, the stat in question related to the exciting topic of…compound interest!

Please do hear me out though, because I confidently predict that you'll be as gob-smacked as I was.


To kick things off I’ll quote directly from The Economist article (weirdly it was on the subject of climate change, but that’s by the by):

‘At a modest 2% rate…a single cent rendered unto Caesar in Jesus’s time is the equivalent of about $1.5 quadrillion (or about 30 times the value of the entire world economy today)’

Probably easiest if I say this for all of us…wow!

If you thought I was slightly sad to be so excited by a random stat like that, then you’re going to feel even more sorry for me when I tell you what I did next – I picked up my calculator and started doing some sums. And the more numbers I tapped in the more amazed I became. Here are just some of the weird and wonderful things I found as I investigated the mind-blowing effects of compound interest over very long periods of time:

1066 and all that

It’s not that rare to hear of people in the UK claiming to be able to trace their ancestry back to the time of William The Conqueror. So to make things a little more fun I decided to start this exercise in 1066 rather than in the time of Caesar. But having denied ourselves more than a thousand years of interest growth I think it’s only fair that we use 3% per annum rather than 2% – to be fair still a very modest interest rate.

Of course this is all entirely hypothetical (sadly given the results below). But the one thing that every single person in the world today has in common is hundreds, more likely thousands, of ancestors who were alive a thousand years ago (a very interesting exercise in itself, but that’s for another day). So at least we can allow ourselves to dream about what would have happened if just one of them had, in 1066, had the very bright idea of tucking away a single penny as a nest egg, to be untouched over the ensuing generations, for your enjoyment in 2010.



The numbers

- By way of context, at a rate of 3% per annum, a saver will double their money approximately every 23.5 years if they allow the interest to roll up.

- In our example, this means that the initial penny would have turned into just over £1 by the year 1230 when Henry III was on the British throne. Not a big sum after more than 130 years of growth, but we all know the saying about little acorns...

- By 1395, when Richard II was on the throne one penny would have grown into a more impressive £100 – a more than worthwhile sum of money in those days.





- By 1466, during the Wars of the Roses, the penny would have grown into £1000. Now we’re talking serious wealth in the context of the times.

- By 1700, with William of Orange on the British throne, this single penny saved at 3% compound interest would be worth well in excess of £1m! A millionaire in that era would undoubtedly be one of the wealthiest individuals, not just in Britain, but in the entire World.

- Billionaire status would have arrived sometime in the 20th Century, between the 1st and 2nd World Wars. Without doubt the holder of this savings account would have been the world’s richest individual at that time.

- As to the future, trillionaire status would be expected to arrive sometime in the second half of next century.


And my point is?

These remarkable numbers, hypothetical and just a bit of fun though they are, do help bring to life the extraordinary power of rolling up interest over time. And if you were wondering how much interest a penny invested in 1066 would have generated by 2010 had the annual interest been taken out each year rather than rolled up, it would have amounted to a princely…28 pence!!)

For anyone who has children and wants to teach them one of the most valuable lessons they’ll ever learn in life (at a time when they’re young enough to reap at least some of the benefits), could do a lot worse than show them the above figures in order to start getting them excited about what compound interest can do for them. They might even learn a bit of history at the same time.

Now whatever happened to that penny I dropped down the back of the sofa earlier…?

‘Seats to Vote Share (SVS)’ projections suggest democratic car crash is on cards

So let’s get this absolutely straight. If, as seems entirely plausible based on the latest polls, the Lib Dems win more votes than Labour in the upcoming Election, this is likely to translate into around one third as many seats.

Much as we in the UK have learned to live with the absurdities of the ‘first-past-the-post’ electoral system, the above scenario is still truly shocking...at least it is to me. It makes a mockery of Britain’s self-image as the 'Mother Of Democracy'. In fact it would not be too much of a stretch to argue that such a outcome would mean than the composition of the next parliament would have more in common with the pre-1832 Reform Act era of rotten and pocket boroughs than with a proud 21st Century democracy.

The reason why the failings of the FPP system are, over the course of the next three weeks, going to be laid bare as never before is, of course, the spectacular emergence of the Lib Dems as a truly credible political force. In today’s Observer, the results of last Friday’s YouGov poll were dissected and projected into electoral seats with the following results:

Conservative: 33% (and projected to win 246 seats)
Labour: 28% (and projected to win 276 seats)
Lib Dems: 30% (and projected to win 99 seats)

The very real prospect of Labour remaining the largest party after the Election, having been actively rejected by more than 70% of voters (and, based on 2005 total turnout figures, actively supported by less than 20% of the total UK electorate) is surely an appalling one for any lover of democracy.

The extent of the bias of the current system in favour of Labour, and to a lesser extent the Conservatives, is shown even more starkly if we translate the above figures into a ‘Seats to Vote Share’ (SVS) calculation (using 100 as a base number – i.e. representing a ‘neutral’ / completely fair – seats per vote share outcome)*:

Conservative: 33% of votes would translate into 37.8% of total seats = SVS factor of 115% (ie. 15% more than ‘fair’ share)
Labour: 28% of votes > 42.4% of seats = SVS of 151%
Lib Dem: 30% of votes > 15.2% of seats = SVS of 51%
*Above figures are based on the YouGov poll on 16 April.

Surely even the most rabidly-blue Tory or the reddest of Labourite would, in their heart of hearts, find it impossible to find anything remotely democratic in the above scenario with Labour standing to win more than 50% more seats than justified in terms of votes and the Lib Dems scraping barely half the seats merited by their popular support.

There has been much well-mannered campaigning on the subject of Proportional Representation over the years. However I now hope, and predict, that the democratic car crash that is about to unfold will provide the shock to the system (literally) that's been needed for so long. This coming election will make an unanswerable case for a move to Proportional Representation and I confidently predict that the momentum toward its introduction will then prove unstoppable.

Conquering the Social Media Hydra

Hercules had it pretty easy. At least when he was fighting the nine-headed Hydra, he only had to contend with two new heads every time he cut one off.

When it comes to getting to grips with the challenge of social media in the modern age, however, things are a lot more complicated. Every time you feel you’ve got the measure of the latest hot new social media trend, website, network or gadget it seems like at least half a dozen more spring up demanding your attention. 

No surprise then that so many people become completely overwhelmed by the sheer volume of information that’s constantly being thrown at them and the seemingly impossible task of keeping on top of everything.

So what’s the solution? 

First of all don’t listen to anyone who tries to give the impression that they’re on top of every single new development in social media. Chances are that they’re either a) Kidding you b) Kidding themselves or c) Living a very, very sad life. 

Back in the real world, most of us have three basic choices when it comes to dealing with the challenge of social media overload: 

1)    Valiantly battle to stay on top of anything and everything new that comes along – an approach that will almost certainly end, sooner or later, in defeat.

2)    Decide that it’s all far too difficult and go into denial mode, reassuring ourselves that this whole social media thing is ‘only a passing fad anyway’.

3)    Take the approach that I strongly recommend, which is to fully embrace social media but to do so in a way that puts it in its proper context and ensures that you are mastering it rather than vice versa.

I don’t pretend to have all the answers – no one has. But as a starting point my suggestion is that it will pay huge dividends to adopt some basic coping strategies - just as Hercules did when he finally realized that frenetically chopping off heads was actually making the situation worse not better.

Here are a few common sense principles that I recommend that you to follow and which are essential to keeping your social media sanity while so many around you are losing theirs.  

Quality not quantity. Spend your time on small number of sites which are most relevant to your particular objectives rather than frantically trying to spread yourself thinly across lots of sites and doing nothing properly.

Little and often. Precisely the opposite approach works best when it comes to managing your time most effectively. You should try to spread your social media time evenly throughout the day rather than in large chunks.

Don’t believe all the hype. It’s easy to fall into the trap of thinking that the grass is greener elsewhere and that, whatever you’re doing and whichever site you’re on, there are people having more fun somewhere else.   

Remember the tortoise and the hare. When it comes to learning new stuff and looking at interesting new sites you’ll find it far more rewarding in the long run to spend time researching things in depth rather than flitting between lots of different sites and not really taking any of it in.

Keep your perspective. Remember that social media is ultimately just another tool to help you run your life more effectively.  If it becomes the most important thing in your life, chances are it's time to rethink your priorities. 

Taken together, the above principles will help you tame the social media Hydra. They will also ensure you get the maximum return from social media for any given amount of effort you put in.