The Pareto rule says “for many events, roughly 80% of the effects come from 20% of the causes.” Stated otherwise, you get 80% of the results from 20% of the work. A short minute and a half summary of the rule is contained in the attached video.
Take email. Eighty percent is probably worthless. Most of us spend a good portion of time each day sifting through this morass. Just imagine how productive you could be without all the junk that comes through email. When I was a kid, there were always articles about how TV was the “vast wasteland”. Email has taken over those honors!
When investing in stocks, you can get 80% of the results with 20% of the work. You have to do the 20% though, there is no free lunch.
In this world of information overload, many have the tendency to seek information to the nth degree. The faulty bias is that they believe more information protects them, but does it really have that much benefit?
If you read a company’s 10K’s and 10Q’s (federal security and exchange public filings) from front to back, you’ll be well informed. The 20% of work will usually make it clear if a company’s management is dishonest, poor or weak. On the other hand, you may be asleep or overloaded should you read the filings from cover to cover. Why not focus on the meat and potatoes and get on with the other 80 percent of your life? Usually 80% of stock returns come from 20% of holdings.
Now if you would excuse me, I have to get back to sorting through my email…
