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Eighty-20

The Pareto principle: 20% of causes lead to 80% of the consequences. Italian economist Vilfredo Pareto observed that 80% of land in Italy was owned by just 20% of the population. It was then noted how often this relationship existed in the wider world.

The Pareto principle: 20% of causes lead to 80% of the consequences. Italian economist Vilfredo Pareto observed that 80% of land in Italy was owned by just 20% of the population. It was then noted how often this relationship existed in the wider world.

As far back as 2002, Microsoft noted that fixing 20% of computer bugs solves 80% of the errors a program faces. Taking that further, 1% of bugs cause 50% of issues. It may seem obvious that a uniform distribution of inputs to outcomes doesn’t exist but what is fascinating is how closely the relationship tends to 80/20.

In baseball, 85% of team wins were caused by 15% of players. 20% of criminals commit 80% of the crimes. 20% of patients take up 80% of the health costs.

The takeaway for investing is understanding the impact just a few positions can have on your portfolio. Just a few positions can be responsible for the majority of your gains or losses. I am sure you can attest to this anecdotally.


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Stakeshop Pty Ltd, trading as Stake, ACN 610105505, is an authorised representative (Authorised Representative No. 1241398) of Sanlam Private Wealth Pty Ltd (Australian Financial Services Licence No. 337927) ('Sanlam') and an authorised representative (Authorised Representative No. 1241398) of Airwallex Pty Ltd (Australian Financial Services Licence No. 487221) ('Airwallex'). Stake is not authorised by Airwallex under Airwallex’s AFSL to arrange for clients to be issued with securities as Airwallex is not authorised under its AFSL for this purpose. Stake is not authorised by Sanlam under Sanlam’s AFSL to arrange for clients to be issued with a non-cash payment facility as Sanlam is not authorised under its AFSL for this purpose. Stake SMSF Pty Ltd (‘Stake Super’) is not licensed to provide financial product advice under the Corporations Act. This specifically applies to any financial products which are established if you instruct Stake Super to set up a self managed super fund (‘SMSF’). When you sign up to Stake Super, you are contracting with Stake SMSF Pty Ltd who will assist in the establishment of a SMSF under a ‘no advice model’. You will also be referred to Stakeshop Pty Ltd to enable your trading account and bank account to be set up in order to use the Stake Website and/or App. Stakeshop Pty Ltd will also run marketing and promotions to you under. For more information about SMSFs, see our SMSF Risks page.The information on our website or our mobile application is not intended to be an inducement, offer or solicitation to anyone in any jurisdiction in which Stake is not regulated or able to market its services. At Stake and Stake Super, we’re focused on giving you a better investing experience but we don’t take into account your personal objectives, circumstances or financial needs. Any advice given by Stake is of a general nature only. As investments carry risk, before making any investment decision, please consider if it’s right for you and seek appropriate taxation and legal advice. Please view our Financial Services GuideTerms & ConditionsPrivacy Policy and Disclaimers  before deciding to invest on or use Stake or Stake Super. By using our website or service in any way, you agree to our Privacy Policy and Terms & Conditions. All financial products involve risk and you should ensure you understand the risks involved as certain financial products may not be suitable to everyone. Past performance of any product described on this website is not a reliable indication of future performance. Stake and Stake Super are registered trademarks in Australia.

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