Some reactions produce, as a byproduct, more of the very catalyst that speeds them up — growth that feeds itself, for better or worse.
Munger's core idea: autocatalysis — a chemical reaction whose own products accelerate the reaction further — is nature's clearest picture of a self-reinforcing loop, and self-reinforcing loops, once started, are ferociously hard to stop, whether they're compounding a fortune or compounding a collapse.
A minor product of the reaction happens to also speed the reaction along.
More product means more catalyst means an even faster reaction — the curve bends upward.
The loop either burns through its fuel and finds a new equilibrium, or it runs away entirely.
Discovered by Boris Belousov in the 1950s and further studied by Anatol Zhabotinsky, this oscillating chemical reaction is a canonical laboratory example of autocatalysis — its own products drive further reaction, producing self-sustaining, self-organizing patterns still studied in chemistry today.
PayPal's early referral program paid both new and referring users a cash bonus for each signup, a well-documented growth mechanic from the company's early history. Each new user's incentive to invite others made the acquisition engine self-reinforcing, driving rapid early growth in its user base.
Silicon Valley Bank's March 2023 collapse spread through social media and instant digital withdrawal requests far faster than traditional bank runs. Fear of the bank's failure prompted withdrawals that then made the failure more likely, an autocatalytic panic that regulators seized the bank to stop.
Identify what output of the process is quietly feeding back in as more fuel for the process itself.
Distinguish a loop that compounds real value from one that only compounds appearance or leverage.
Ask what finite resource the loop is consuming, and what happens when that resource runs out.
Watch for the same mechanism in reverse — loops that build fortunes can just as easily unwind them.
Intervene early; autocatalytic processes are far easier to redirect before they reach full speed.
Munger's core idea: compounding is not only a financial concept, it is a chemical one — any self-reinforcing loop, once it gets going, tends to keep going with very little further help from you.