In 1897 Vilfredo Pareto, an Italian Economist wanted to figure out why wealth was so unequally distributed throughout the world. What was it, he wondered, that the rich knew that the poor didn't? While at the time it seemed self-evident that the majority of the world's wealth was concentrated in the hands of the few, what wasn't obvious was the extent of the inequality of distribution and thus the 80/20 rule was born. Simply put this rule stipulates that in any given time in any given place that approximately 80 percent of the wealth is controlled by 20 percent of the people. While the exact percentages will fluctuate, sometimes it's 90/10, 75/25, or 60/40 the point is that in all cases the distribution of wealth is skewed to an elite minority. Even more surprising is the fact that more than 100 years later the rule is as relevant today as it was when Pareto came up with it.
In fact the 80/20 rule or Pareto theory as it's come to be known has revolutionized the way we think not only about wealth, but the world in general as it has become applicable to so many facets of life. For instance when applying it to business we find that 20 percent of a company's products are responsible for 80 percent of its profits. Likewise 20 percent of customers will provide 80 percent of a company's revenues. Twenty percent of criminals are responsible for 80 percent of the value of crimes committed. With regard to driving 20 percent drivers are responsible for 80 percent of the accidents.
If you think about life we will spend approximately a one-third of our lives sleeping, one-third of our lives working and the rest of the time trying to have a life. So again the smallest portion of our life is responsible for our greatest amount of joy.
So in any given situation the question to ask yourself is what is the 80 percent and what is the 20 percent. In other words if you want to be happy ask yourself what is the 20 percent activity that will account for 80 percent of your happiness. If you want to be wealthy ask yourself what is it that the 20 percent do differently that allows them to control 80 percent of the wealth. If you want your business to be more profitable ask yourself what is the 20 percent that is accounting for 80 percent of your profits and focus in on that.
Palmer Owyoung is the Founder of http://www.OptionSpreadTrades.com
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