December 26, 2012
I’ll start off by saying, that I hope you had a Merry Christmas and had the opportunity to spend some quality time with your family. As I’m in the process of writing the January issue of the Premium Access product, I’m going to a take a break from discussing specific investment recommendations or economic policy in today’s post. Instead I’m going to discuss the 80/20 principle, possibly the most important economic “law” ever discovered and its implications for not only your investment portfolio but also your business or career. In the book The 80/20 Individual: How to Build on the 20% of What You do Best, Richard Koch provides the following history of how the 80/20 principle was discovered.
He found that no matter what country he studied, 20% of the population ended up owning 80% of the wealth. More importantly, Pareto’s principle has been verified across a number of diverse disciplines such as business, sociology and even biology. For example, Pareto discovered that 20% of his garden’s pea pods produced 80% of the peas. Despite devoting the last ten years of his career trying to find an explanation for his discovery, he was unable to find one. Economists and sociologists still haven’t come up with a valid explanation. Even if there isn’t a valid explanation, we can still use the existence of the 80/20 principle to improve our chances of success in not only investing but also our careers.
Personally, I believe that you shouldn’t waste time complaining about the fact that income distribution is skewed but rather focus on how to be in the top 20% of your particular field. At this point you might be wondering, how do you achieve this?
By focusing on the core activities, ideas and actions that will have the greatest impact on your career or business. There is nothing magical about the 80/20 split it’s just an approximation. The key point is that almost 80% of our daily activities, interactions, ideas have very little impact on our long-term success.
Warren Buffett implicitly follows this principle in his own investing methodology when he stated the following: “an investor should act as though he had a lifetime decision card with just twenty punches on it.” Buffett has been successful because he makes fewer investment decisions by buying and holding great companies over the long-term rather than trading in and out of stocks in an attempt to time the market.
You should take the same view with your career. Identify the key things that will truly make a difference and discard or delegate the rest. You probably know people that appear busy all day but don’t really end up accomplishing much. Invariably the reason for their inability to succeed is due to their focus on activities of low value. Brian Tracy in his book Eat That Frog!: 21 Great Ways to Stop Procrastinating and Get More Done in Less Time provides excellent advice by stating the following:
“Before you begin work, always ask yourself, ‘Is this task in the top 20 percent of my activities or in the bottom 80 percent?'”
If you can implement the 80/20 principle into your daily routine, you’ll be well on your way to career advancement, growing your business and investing success.
P.S. I think it’s a fair assumption that only 20% of my readers made it this far. But that’s ok, because you are exactly the people who will understand and value our Premium Access service. If you want more time to focus on your own career and business, while being secure in the knowledge that your investment portfolio is being managed by someone who is solely focused on your investment success click here now.
P.P.S. Please help me serve you better via the Value Investing India Report, by taking the brief survey below (it’s only 8 questions). It will help me focus on the 20% of topcis that you’re most interested in reading about.
Tags: Pareto Principle