80/20 Rule

Do you ever think about a company and critique what they can do better?  There are steps they could take to make themselves twenty percent better and you have found the path.  We are clients to some who could do things better and we have the answers.  But the question becomes what do you do with this information.  And what I see in our space and beyond is too many spending 100 percent of their energy obsessing about the 20 percent a firm could do better, forgetting how hard it is to build the 80, to their own detriment.

For a clearing firm it can be the short list.  “They should find a way to expand their short list.  If they did we would trade more and they would make more money.  What is wrong with them?”  Ever heard anyone say this about a clearing firm?  This is all fine until what can happen next.  Next comes the banging and the screaming midday,”Why can’t I short this stock?  If I would have gotten this stock I would have crushed …….”  And for the next week it is 100 percent of your energy on the twenty percent the clearing company could do better.  All this energy that could have been spent on trading improvement is now reserved for 24/7 complaining.

Every platform I have ever traded on found some who became experts in the platform’s deficiencies.  A common outburst: “The charts on this platform stink.”  And then midday there is the banging and the screaming and proclamations of chops if only the charts worked.  And for the next week it is 100 percent of their energy on the twenty percent the technology provider could do better.

Then there is your firm.  There is an unlimited number of things you could complain about here.  I have heard them all by now as a firm trader and now firm co-founder.   My new favorite is I heard  someone complain to a partner that that partner had given them bad advice because they advised they trade financial stocks during the financial meltdown.  Then there can be the air conditioning is too cold during the summer preceding the next complaint of the air conditioning is not strong enough.  Traders then spend a hundred percent of their time obsessing about the twenty percent the firm could do better.  This is a lot of missed opportunity to rip through charts, talk trading, watch trading video, visualize, journal, work with your mentor, crunch your trading stats, think trading.

This behavior extends to politics.  Opposing parties today have too many politicians spending a hundred percent of their energy carping about the twenty percent the other party could do better.  It has gotten so bad that the opposing party is now not just incorrect but are demonized for their differing views.  This behavior can extend to relationships.  Partners obsess about the twenty percent their significant other should do better to the point they manufacture a person no one could love.

There is such a lack of respect for how hard it is to get the first 80 percent correct.  How many of those obsessing about the twenty percent a firm could do better could build the first 80 percent that firm got correct?

Aren’t we losing a great deal of potential productivity with this behavior?  Aren’t we distorting the true value of so many firms?  Isn’t this apposite to your self-interest?

A good trading firm, clearing firm, trading platform will seek constructive criticism.  This is essential to grow and improve.  Offer your valuable constructive criticism and then move on.  A certain to be undeperforming trader/person is one who obsesses a hundred percent of the time about the twenty percent that could be better.

Mike Bellafiore

Author, One Good Trade

5 Comments on “80/20 Rule”

  1. I agree one needs to focus on what you are doing right and do more of it. However, working for corporate Amercia for 20+ years (GE, Siemens) before becoming a full time options and futures trader, there are too many upper executives how do not really listen to employees and their issues. There are even more executives who do not follow through with on going issues to correct them. They are afraid to take risk, worry about failure and their career, too comfortable, etc….

    So, in a sense you point is well made. However it is no excuse not do address and fix issues with good plans and follow thru.

    Do you ever think people focus on issues repeatedly because leadership is not listening and acting?

  2. Great post. I sit by a few of these people down here in Austin. They complain about our technology all day every day when we have some of best technology I’ve seen. While they love to complain, they have developed very few new trading plays in the last few years.

  3. If you are thankful, you’ll be on the 80%.
    If you complain, you’ll be on the 20%.

    And you’ll no doubt be a part of the old 80-20 rule, on one side or the other, depending on which you are…thankful or complaining.

  4. 8020 all the way. Sometimes I miss out like today with Visa. I took my profits on all trades by 730 (pacific time) so that is exactly 50 minutes of active trading for 300 dollars or 300/50/60 360 per hour for active trading. So there is the missing out but so often it kept me in trades to my detriment. LIke for example visa dropped another 2 points after 730. the other trades were marginal winners and smaller losers. 8020 in trading also allows you to optimize your focus time….I perform better with one hour of 100% focus, then some hours of a break, then anouther hour of 100 percent focus .

    It may take time to get to this point. For me, once a week, it takes an hour to identify support (these are my target levels because I prefer to short) in my current basket of stocks. I write the symbol then the next 5 or 6 support levels at the beginning of the week.

    I keep these on a paper and add any new stocks that my screening brings up on the eod data scans. Once in a trade i place my closing order at that next support level. That level takes me out often enough to make money. Many hours of working finding a system you can employ, but once it verifies it’s profitability, then minimize the time involved. When I traded at a firm there was always pressure to make trades all day long. Now that I trade at home I only care about profits and living a great lifestyle: being healthy, having time, improving the system but keeping in mind the 80/20 application (or 90/10, 99/1). 8020 allows me to do this in trading. And again you can say maybe you miss out, not being in an office, maybe you miss out on some stuff, but the most important thing about trading well is finding a profitable plan you can execute and then optimizing that along 8020 lines.

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