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What you can make will depend on your time frame, the market you trade and your investment style.

I think that the base return must always be the stock index of the market you invest in. If you don’t perform better than this, you might as well be an indexer.

The table below shows the returns from various markets taken from my post ‘baby steps into the investment universe part 1"

You can see even if you have a 20-years investment horizon, you can still lose money buying the index in some regions. 


If you invest in the wrong market, no amount of skills is going to help. But if you happen to invest in the "right" market, you can easily make money.  

So you can be skillful and lose money if you happen to be in the wrong market. Personally I think this was what Bursa Malaysia was like over the past few years.

Warren Buffett has said that his success was due to being in the US. Of course he is now going international in a bigger way. 

Moral of the story - maybe it is better to invest globally so as to hedge your bets.

To maximize your investment returns and optimize your investment skills you may like to consider the Pareto Principle in Investing:

Pareto Principle in Investing: 80% of the profits come from only 20% of the trades we make in our portfolio.

Those who accept that there is no exception to the Pareto principle will focus on making sure that they milk the 20% as much as they can while minimizing the underperformance or average performance from the other 80%.

Reference:
1) https://www.drwealth.com/pareto-principle-investing/
2) https://fi.money/blog/posts/the-80-20-ru...w-it-works
3) https://www.wealthprofessional.ca/news/i...ing/372870

You are looking at it from a traders perspective. If you are a stock picking value investor with about 20 to 30 stocks at any time, I am not too sure about the Pareto. Sure there will never be equal contribution. But Pareto works for large numbers. When you have holding a "concentrated" portfolio, you don't want to rely on the Pareto principle.

If your 'concentrated' portfolio of stocks all have exceptional share price performance, I extend my congratulations on your excellent stock picking skills. You may have unknowingly apply Pareto Principle to correct identify the 20% of the stocks you screened to be the winning ones and focus on these and put them into your investment portfolio. The rest of the 80% of the stocks you screened, you also correct identify them as likely average performers and discard them. Keep up the good work!

(27-06-2023, 09:56 AM)weii Wrote: [ -> ]If your 'concentrated' portfolio of stocks all have exceptional share price performance, I extend my congratulations on your excellent stock picking skills. You may have unknowingly apply Pareto Principle to correct identify the 20% of the stocks you screened to be the winning ones and focus on these and put them into your investment portfolio. The rest of the 80% of the stocks you screened, you also correct identify them as likely average performers and discard them. Keep up the good work!

Sometimes, I wonder if Pareto Principle is actually a phenomenon or method? Ie. Do people actually consciously apply Pareto Principle to get those skewed results, or actually the skew results itself show that the world distributes itself as such? In other words, is the Pareto Principle an end result, rather than a means to the end?

Personally for me, the Pareto Principle isn't much about letting winners run/cut losers. The laws in behavorial finance already taught me that. But the Pareto Principle does grounds me - it tells me that I need to lay the groundwork. I need to be open. Because only with a big enough sample size, will then that "20% produce the 80%" thing happens. And the only way to generate a big sample size is to keep doing the work while been completely open to be proven wrong and accept new things (that we previously rejected). Sometimes you rather be watching youtube/netflix or chill out at the shopping malls (been really frank here). But thanks to Pareto Principle, some of us will keep going on.

Pareto was originally a statistical analysis. But I think people some times confuse the 80:20 rule with the time management idea of focusing on the important things. In the context of a stock picker, it is not Pareto at work. It is more of the time management approach. But even if you are constructing a large portfolio for say factor investing, it is not Pareto at work but rather finding stocks that meets your criteria. So are we giving too much credit to Pareto?