This is a general observation from reading the Pareto Principle, named after the economist Vilfredo Pareto.

The principle states that 20% of the invested input from the process is responsible for 80% of the outcome.

The thing about process and outcome is it follows the general correspondence trend of causes and effects. You have to first have a process which will results in an outcome. The interesting thing about the two is that they are not necessarily correlative in nature. A good process may not lead to a good outcome and a bad process might not lead to a bad outcome.


I've been relatively successful today because I'm grateful for what I have. But I often wondered had I studied a lot harder in the past would I had become a lot more successful today. Perhaps a doctor or lawyer is in the making. And the fact is I'm not today. Things can also go the other way and perhaps I'd be a lot worse position than what I am today. It's entirely possible. I'm not ruling that out.

In investing, there are 4 possible scenarios that could play out.

1.) You had a good process and a good outcome.


2.) You had a good process but a bad outcome.


3.) You had a bad process but a good outcome.


4.) You had a bad process and a bad outcome.


To begin with, it's difficult to quantify what's "good" and "bad" means.

In mathematics, 1 + 1 is equal to two and it is quantifiable.

In investing, who is there to tell you that your process is a good method. Neither you, me or our friends are able to proof it with certainty. I always like the elephant example because every time there are buys and sells in the market, people on the both side of the trades think that their strategy is superior.

If I'm buying a blue chip and it rises 10% next week, does that mean I am on the right process? The outcome certainly advocates that it seems like it is the right process. What if luck plays a part in this? What if the law of large numbers come into play, i.e you do this for 1000 times and you managed to get it right for the majority part of the time?

There are many paths to Rome and there are many different strategies to investing.

Some may have a heavy flavor to value investing approach and even within that there are many different ways to approach it. Some favors technical approach and it worked perfectly for them. Some are mixed approach which for some reason just work well for them for years.

Regardless, there's no right or wrong process. An outcome can best tell you if you are walking in the right direction but that does not mean that your process is best optimal. Be flexible, learn from mistakes, enhance one's process and note the outcome.

You'll eventually know what you are getting into.