There are lots of terminologies/jargons in the world of investing. Most of it is completely straightforward but some depend on the idea of how you will sell and buy stocks. While there are several schools of thoughts, there are 2 very broad categories in this world: the investors and traders.
Stock trading is the act of buying and selling stocks frequently, especially when the trader believes that there’s a short-term benefit/advantage to do so. The short-term benefit/advantage is very important. Your goal as a stock trader is to earn money fast. What the underlying companies do or sell aren’t as important as you believe that price per share is incorrect and will soon be corrected to trader’s advantage.
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Before we delve into accelerating your wealth and/or finances, we will touch a little on the “natural” occurrences of why wealth is distributed the way it is as we mentioned on our first post. It all bases on Pareto’s principle also known as the 80/20 rule.
What is the 80/20 rule (Pareto’s Principle)?
Paretos’ Principle was originally referred to as his observation that the 20% of the population of Italy has produced 80% of the wealth of the said country. If you spend the time to understand this principle, you’ll notice that many things in life are not evenly distributed. For example, 80 of the profit are produced by 20% of a company’s employees. However, it does not necessarily state that everything is in the ratio of 80:20. It could be a 60:40 ratio, or 70:30, 99:1, etc. This is because the main idea behind this is that there is always a minority that produces or supersedes the output of the majority and the minority will likely be able to contribute more results than others.
The said principle has been named after the person who came up with the idea named Vilfredo Pareto. He was an Italian sociologist and economist. He tried testing the principle in various countries and various distribution situations. Through it, he was then able to confirm that the principle can be truly be a model that could be used in predicting, measuring, as well as managing all situations. Read More