The Zurich Axioms
by Max Gunther
Major Axiom 1 :- On Risk
Worry is not a sickness but a sign of health. If you are not worried, you
are not risking enough.
Put your money at risk. Don’t be afraid to get hurt a little. The degree
of risk you will usually be dealing with is not hair-raisingly high. By being
willing to face it, you give yourself the only realistic chance you have
of rising above the great unrich. Worry is the hot and tart sauce of life.
Once you get used to it, you enjoy it.
Minor Axiom I
Always play for meaningful stakes
Minor Axiom II
Resist the allure of diversification
( Because it forces you to violate precept minor axiom I.)
( Because it creates situation where gains and losses cancel each other out.)
( Because you end up with too many balls in the air.)
Major Axiom 2 :- On Greed
Always take your profit too soon.
Sell too soon. Don’t hope for winning streaks to go on and on. Don’t stretch
your luck. Expect winning streaks to be short. When you reach a previously
decided-upon ending position, cash out and walk away. Do this even when everything
looks rosy, when everyone else is saying the boom will keep roaring along.
The ONLY reason for not doing it would be that some new situation has arisen,
and this situation makes you all but certain that you can go on winning for
a while.
Except in such usual circumstances, get in the habit of selling too soon.
And when you’ve sold, don’t torment yourself if the winning continues without
you.
Minor Axiom III
Decide in advance what gain you want from a venture, and when you get it,
get out.
Major Axiom 3 :- On Hope
When the ship starts to sink, don’t pray. Jump.
Learning to take losses is an essential speculative technique. MOST never
learn it. Take losses at once and move on. Take small losses to protect yourself
from the big ones.
Beware the 3 obstacles to jumping ship:
- Fear of regret ( that the loser will turn out to be a winner when you’ve
bailed-out )
- Unwillingness to abandon part of an investment ( become willing to abandon
)
- Difficulty of admitting you made a mistake.
Minor Axiom IV
Accept small losses cheerfully as a fact of life. Expect to experience several
while awaiting a large gain.
Major Axiom 4 :- On Forecasts
Human behavior cannot be predicted. Distrust anyone who claims to know the
future, however dimly.
Nobody has the foggiest notion of what will happen in the future. Nobody.
Never lose sight of the possibility you have made a bad bet.
Major Axiom 5 :- On Patterns
- The Emperor Axiom
Chaos is not dangerous until it begins to look orderly.
Do not look for order where order does not exist. Do not overlook the large
role chance takes in any speculation. Study information in whatever speculative
medium to improve chances and take your best shot. Stay light on your feet
ready to jump this way or that. You are dealing with chaos, as long as you
are alert to that fact you can keep yourself from getting hurt.
Internal Monolog goes:
“OK. I’ve done my homework as well as I know how. I think this bet can pay
off for me. But since I cannot see or control all the random events that
will affect what happens to my money. I know the chance of me being wrong
is large. Therefore I will stay light on my feet, ready to jump this way
or that when whatever is going to happen happens.”
Minor Axiom V
Beware the historians trap.
The Historian’s trap is a particular kind of orderly illusion. It is based
on the age-old but entirely unwarranted belief that history repeats itself.
People who hold this belief - which is to say perhaps ninety-nine out of
every hundred people on earth - believe as a corollary proposition that the
orderly repetition of history allows for accurate forecasting in certain
situations.... Don’t fall into this trap. It is true that history repeats
itself sometimes, but most often it doesn’t, and in any case it never does
so in a reliable enough way that you can prudently bet money on it.
Minor Axiom VI
Beware the Chartist’s illusion.
Minor Axiom VII
Beware the correlation and causality delusions.
Minor Axiom VIII
Beware the Gambler’s Fallacy. ( This is my lucky day.)
Major Axiom 6 :- On Mobility
Avoid putting down roots. They impede motion.
Be ready to jump away from trouble or seize opportunity. You do not have
to bounce from one speculation to another like a ping-pong ball. All your
moves should be made only after a careful assessment of the odds for and
against, and no move should be made for trivial reasons. But when a venture
is clearly souring, or when something clearly more promising comes into view,
then you must sever those roots and go. Don’t let the roots get too thick
to cut.
Minor Axiom IX
Do not become trapped in a souring venture because of sentiments like loyalty
and nostalgia.
Minor Axiom X
Never hesitate to abandon a venture of something more attractive comes into
view.
Major Axiom 7 :- On Intuition
A hunch can be trusted if it can be explained.
Though intuition is not infallible, it can be a useful speculative tool,
if handled with care and skepticism.
If you are hit by strong hunch - put it to the test. Trust it only if you
can explained it. That is only if you can identify within your mind a stored
body of information out of which that hunch must reasonably be supposed to
have arisen.
Be wary of any intuition that seems to promise some outcome you want badly.
Minor Axiom XI
Never confuse a hunch with a hope.
Major Axiom 8 :- On Religion
and the Occult
It is unlikely that god’s plan for the universe includes making you rich.
Assume you are on your own. Rely on nothing but your own wits.
Minor Axiom XII
If astrology worked, all astrologers would be rich.
Minor Axiom XIII
A superstition need not be exorcised. It can be enjoyed, provided it is kept
in its place.
Major Axiom 9 :- On Optimism
& Pessimism
Optimism means expecting the best, but confidence means knowing how you will
handle the worst. Never make a move if you are merely optimistic.
Optimism can be a speculator’s enemy. It feels good and is dangerous for
that reason. It produces a clouding of judgment. It can lead you into a venture
with no exits. Even when there is an exit, optimism can persuade you not
to use it.
You should never make a move if you are merely optimistic. Before committing
your money to a venture, ask how you will save yourself if things go wrong.
Once you have that worked out, you’ve got something better than optimism.
You’ve got confidence.
Major Axiom 10 :- On Consensus
Disregard the majority opinion. It is probably wrong.
Probably wrong. Figure everything out for yourself.
Minor Axiom XIV
Never follow speculative fads. Often, the best time to buy something is when
no-one else wants it.
Major Axiom 11 :- On Stubbornness
If it doesn’t pay off the first time forget it.
Perseverance is a good idea for spiders and kings, but not always for speculators.
Don’t fall into the trap of trying to squeeze a gain out of any single speculative
entity.
Don’t chase any investment in a spirit of stubbornness. Reject any thought
that an investment “owes you” something. And don’t buy the alluring, but
fallacious idea that you can improve a bad situation by averaging down.
Minor Axiom XV
Never try to save a bad investment by averaging down.
Major Axiom 12 :- On Planning
Long-range plans engender the dangerous belief that the future is under control.
It is important never to take your own long-range plans, or other people’s,
too seriously.
React to events as they occur in the present. Put your money into ventures
as they present themselves and withdraw it from hazards as they loom up.
Value the freedom that will allow you to do this. Don’t ever sign that freedom
away.
There is only one long-range financial plan you need: the intention to grow
rich. The how is not knowable or planable. All you need to know is that you
will do it somehow.
Minor Axiom XVI
Shun long-term investments.