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The 90/10 Principle

Published on April 20, 2009

The 90/10 Principle

April 20, 2009

While just about to start my work, I saw this great presentation from one of my friends, talking about 90/10 principle from Stephen Covey. I feel blessed to have such friends who not only discuss business but also shares life enriching thoughts time to time.

This post is about “life” and the “options that life offers” us. Without further introductions, let me get to the 90/10 principle first-

According to Steven Covey “10% of life is made up of what happens to you, 90% of life is decided by how you react“. W Mitch also mentioned something similar It’s Not What Happens To You – It’s What You Do About It“. I fist met Mitch about 8-9 years back when he was visiting Japan. It was quite inspiring hearing his stories and how he got back to the life.

Along the same lines, there is another relevant quote from Viktor Frankl, Austrian neurologist & psychiatrist who survived Holocaust in his work “Man’s Search of Meaning”: The last of human freedoms – the ability to chose one’s attitude in a given set of circumstances.

What does this 90/10 means? We really have NO control over 10% of what happens to us; The other 90% is different as it is determined by your reactions.

There is an example shared by Steven-

You are having breakfast with your family, Your daughter knocks over a cup of coffee Onto your business shirt, You have no control over what has just happened; What happens next, You curse, You harshly scold your daughter for knocking the cup over, She breaks down in tears, After scolding her, you turn to your wife, and you criticize her for placing the cup too close to the edge of the table, A short verbal battle follows, You storm upstairs and change your shirt; Back downstairs, you find your daughter has been too busy crying, to finish her breakfast and getting ready to go to school, She misses the bus; Your spouse must leave immediately for work; You rush to the car and drive your daughter to school; Because you are late; you drive 40 miles per hour in a 30 mph speed limit zone; After a 15-minute delay and throwing $60.00 traffic fine away, you arrive at school; Your daughter runs into the building without saying goodbye; After arriving at the office 20 minute late; You realize you forgot your briefcase; Your day has started terrible. As it continues, it seems to get worse and worse; You look forward to coming home;When you arrive home, you find a small wedge in your relationship with your wife and daughter.

Why?

Because of how you reacted in the morning. Why did you have a bad day? You caused it. You had no control over what happened with the coffee. How you reacted in those 5 seconds is what caused your bad day.

Here is what could have and should have happened

Coffe splashes over you; Your daughter is about to cry; You gently say: “It’s okay, honey, you just need to be More careful next time.’; Grabbing a towel you go upstairs and change your shirt; You grab your briefcase, and you come back down in time to look through the window and see your child getting on the bus; She turns and waves. You arrive 5 minutes early a cheerfully greet the staff.

Two different scenarios. Both started the same. Both ended different. Why? Because of how you reacted. You really have no control over 10% of what happens in your life. The other 90% was determined by your reaction. If you would like to know more, I shall encourage you to sign-up for one of the workshops conducted by Franklin Covey. I am personally fascinated with the 7 habits which did make an impact on how I think about things.

Why am I sharing this? I think there is relevance of 90/10 principle even in trading. I don’t have statistical data to prove this, I think 90% of the success is determined by our preparation aka risk management for the 10% things that we have no control. We don’t know when will bull market start or bear market rally end? what matters is how well are we prepared to respond to certain developments. Another example- I realized a sudden loss a in one of the assets in my basket of assets, my success will be determined how I react to rest of the investments upon recognition of loss. Do I try to get back all the losses by being emotional or do I put a plan in place that helps me recovers by working in realistic way, hoping for better results but being prepared for worst.

Easier said than done. But again, you never know until you try. How about giving a check to your trading. Here is what contributed to record 2007,  or 7-ideas from great minds, how about making money consistently or a thorough plan. You can make a change. Review your past trades, past decisions and see what do you need to do going forward.

I shall continue to bring this topic up time to time. Meanwhile pls do share your thoughts or experiences.

Enjoy and Profitable Trading, OP

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