Learn The Stock Market And How to Trade

Back in 1906 Italian economist Vilfredo Pareto created a mathematical formula describing how 20% of the people owned 80% of the wealth.  This has often been coined the 80/20 Rule and it is one of my favorites for every day life. 

It doesn’t take a lot of research to know this rule is true in your life in general. 

• You get 80% of your best work done in 20% of the time
• In your company 20% of the employees create 80% of the value.
• You gain 80% of your weight by 20% of your eating habits.
• 20% of your investments earn you 80% of your gains
• 80% of your losses were caused by 20% of your trades.

You get the idea, feel free to make up a few of your own.  The last two on the list are the ideas I want to unravel a bit today.  By recognizing what those 20% of investments the make you your money look like and what those that make you lose money are like you can learn to recognize those as they present themselves to you.  Self reflection is a good thing.  If you worse losses are those water cooler tips accept that, and in your official trading plan (you do have an official trading plan right?) write: NO INVESTING ON OTHER’S HOT TIPS.

If your best money has been in day trading spend 80% of your efforts in day trading.  Often we try to learn what we’re bad at, however we’re often only optimizing the tail which returns little for our efforts. 

I commented on another personal finance blog the other night about how in my personal finances I bucketed up where I spent my money.  In the past I tried to save money by cutting back my coffee habits or candy bars, but when I did a pareto analysis I found my opportunity was in horse feed and gasoline.  I drive a lot!  With some creative feeding changes and a gentler lead foot I found I was able to save well over $600 per month!  That would have been a lot of snickers and Starbucks.  You have to focus where it matters.

As this blog rolls along and I get more feedback from you guys and gals in comments, emails, traffic, and monetization I’ll try to focus my writings and examples to what matters to you.

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1. How Is Your Personal Finance Health?
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