Making the “Pareto Principle” Work For You

What does the history of Italian land ownership have to do with your portfolio? According to economist Vilfredo Pareto, the connection is clear. The earning power of your investments is often concentrated in just a few holdings. KINFO can help you find them faster.

Learning From Peapods

In his 1896 paper, Pareto discussed that just 20% of the population in Italy owned 80% of the land. He explored this phenomenon further. He later learned that 80% of the peas grown in his garden came from just 20% of the crop.

It turns out that this concept of yield applies to more than just vegetables. Investors have learned time and again that their gains often derive from precious few holdings. Consider this: Just ten stocks have driven almost 53% of the S&P 500’s 4.7% gain in 2017 as of April 18th. In this case technology giants like Facebook, Alphabet and Apple are part of the big 10.

This principle begs the question “what if one could somehow focus on just these key performers?” Those investing in the S&P 500 have capitalized on the success of these impressive ten holdings. However, Can an investor do better? Users on KINFO believe the answer is yes.

The Haystack

Passive investors will agree that to find the needle you need the haystack. Therefore, the only way to benefit from outperformers like these ten stocks is to commit to the entire S&P 500 index

Users on KINFO have a different outlook. We want to dig deeper and see if we can actually discover those high performers without having to haul the haystack home. The problem, however, is volume. The analysis necessary to sift the best prospects from the pack would take an investor months. This challenge is where KINFO comes into the picture.

With our growing user base, we’re developing a foundation of knowledge that helps investors get to the core performers without the churning. When you link your account and login, you immediately have access to the performance trends of other users. Drill down further, and you’ll see what key positions are driving the strongest returns of out top performing users.

Why Pareto Is Alive and Well

Why does this strategy matter? For one, costs become less burdensome. As investors seek to snap up more index shares, ETFs and individual stocks they also snap up costs. These expense ratios add up over time and eventually defray the value of a portfolio. When the strategy becomes more focused, you can incur fewer costs while reaping more rewards.

If an investor had focused on just a few of these ten winners they would realize outsized returns relative to the broader market. Apple grew by 22%. Amazon reached 20%. Facebook brought home 23%.

KINFO users want to find these winners, and with more users, we think we can do it. For one person the challenge may be too great. With a community, it can be done. Login and link your account to get the insights that bring returns.

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