What is the Pareto Principle? The Pareto principle, also known as the 80/20 rule, was one of Vilfredo Pareto’s most noteworthy theories, which found that 80% of outcomes often come from 20% of the related inputs. Pareto was an Italian economist in the 19th and 20th centuries who helped develop modern economics as we know…
What is a Pareto Improvement? A Pareto improvement is a theory in neoclassical economics. It occurs in a situation where it is possible to make one party better off without negatively affecting another party, given the original allocation of goods. Pareto improvements can keep occurring until the Pareto optimum is reached, at which time no…
What is the Harami Cross? The harami cross is a candlestick pattern used in security trading. It is a large candlestick that follows or moves in the direction of the current trend associated with the stock, followed by a small Doji candlestick that is fully within the previous candlestick’s body length. The color (red, green,…
What is a Parent Company? A parent company is a company that owns more than 50% of the outstanding voting shares of another company. Therefore, it controls the other company or companies and can directly influence the business’ operations or take a more hands-off approach on ownership. A parent company typically actively manages its own…
What is Pareto Analysis? Pareto analysis is a decision-making tool used to compare and fix problems strategically. It uses the Pareto principle, which is also known as the 80/20 rule – named after Italian economist Vilfredo Pareto. He found that many phenomena or trends follow the 80/20 rule. For example, in Pareto’s first works, he…
What is Chebyshev’s Inequality? Chebyshev’s inequality is a probability theory that guarantees that within a specified range or distance from the mean, for a large range of probability distributions, no more than a specific fraction of values will be present. In other words, only a definite fraction of values will be found within a specific…
What is Participating Preferred Stock? Participating preferred stock gives the holder the right to a specific dividend which is separate from the dividends common stockholders receive and is also received before common stockholders. It is a clause that also gives preferred stock holders priority of accumulated dividends over common stockholders in the event that the…
What is the Molodovsky Effect? The Molodovsky Effect is the imperial observation by Nicholas Molodovsky that at the bottom of an economic cycle, P/E ratios are high, and earnings are low. However, at the top of an economic cycle where there is an economic boom, the P/E ratios are low, and earnings are high. The…
What is Liquidation Preference? Liquidation preference determines the order in which a bankrupt firm’s liquidated assets are paid out to claimants of the firm. It is determined based on the clauses in outstanding agreements and contracts by a liquidator. Further, the liquidation preference can also influence the value of financial securities as it can alter…
