![]() But by concentrating on those things that do, we can unlock the enormous potential of the magic 20 percent, and transform our effectiveness in our jobs, our careers, our businesses, and our lives. The unspoken corollary to the 80/20 principle is that little of what we spend our time on actually counts. Although the 80/20 principle has long influenced today's business world, author Richard Koch reveals how the principle works and shows how we can use it in a systematic and practical way to vastly increase our effectiveness, and improve our careers and our companies. The 80/20 principle is one of the great secrets of highly effective people and organizations.ĭid you know, for example, that 20 percent of customers account for 80 percent of revenues? That 20 percent of our time accounts for 80 percent of the work we accomplish? The 80/20 Principle shows how we can achieve much more with much less effort, time, and resources, simply by identifying and focusing our efforts on the 20 percent that really counts. "Upon reflection, you look back and say, 'You know what, for the forty years that I was an investor, 80% of my returns came from 20% of my portfolio.' You're probably not going to know until after the fact, or a period of time, when you can see what that 20% was," says Schlesinger.How anyone can be more effective with less effort by learning how to identify and leverage the 80/20 principle-the well-known, unpublicized secret that 80 percent of all our results in business and in life stem from a mere 20 percent of our efforts. In this regard, the 80/20 rule is most relevant as a metric for evaluation, not prediction. "80% of the people who hit their goals concentrate on their goals, not on their investments." "It tells you about history, it doesn't tell you about the future - nobody knows the future," says Jill Schlesinger, CBS business analyst and host of Jill on Money. However, using the 80/20 rule to try and hand-pick stocks that will potentially yield 80% of your returns is ill-advised. The 80/20 rule can be effectively used to guard against risk when individuals put 80% of their money into safer investments, like savings bonds and CDs, and the remaining 20% into riskier growth stocks. ![]() Though its applications can be widely observed, investment professionals advise against trying to apply the 80/20 rule when building a portfolio. ![]() Since then, the concept has been applied to business strategies, software development, healthcare, and more. He went on to apply the concept on a much broader scale, noting that 20% of Italy's population owned 80% of its wealth. The 80/20 rule first originated when Pareto observed that 20% of the pea pods in his garden yielded 80% of its peas. But because of the stock market's unpredictable nature, this rule is often seen as an effective way to evaluate past investments instead of guide future ones. The opposite can also be true, with 80% of investment losses tracing back to 20% of holdings.
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