The Zurich Axioms by Max Gunther
Introduction
The Swiss, amid their mountains, look around at the world adn find it full of risk. They know it is possible to cut one’s personal risks to a minimum, but they also know that if you do that, you abandon all hope of becoming anything but a face in the crowd.
To make any kind of gain in life - ag gain of wealth, personal stature, whatever you define as “gain” - you must place some of your material and/or emotional capital at risk. You must make a commitment of money, time, love, something. That is the law of the universe. Except by blind change, it cannot be circumvented. No creature on earth is excused from obedience to this pitiless law. To become a butterfly, a caterpillar must grow fat; and to grow fat, it must venture out where birds are. There are no appeals. It is the law.
The Swiss, observing all this, conclude that the sensible way to conduct one’s life is not to shun risk but to expose oneself to it deliberately. To join the game; to bet. But not in the caterpillar’s mindless way. To bet, instead, with care and thought. To bet in such a way that large gains are more likely than large losses. To bet and win.
There’s a formula for doing it. Or perhaps formula is wrong word, since it suggests mechanical actions and a lack of choice. A better word might be ‘philosophy’. This formula or philosophy consists of twelve profound and mysterious rules of risk-taking called the Zurich axioms.
1 : On Risk
Worry is not a sickness but a sign of health. If you are not worried, you are not risking enough.
Frank Henry’s rule of thub was that only half of one’s financial energies should be devoted to job income. The other half ought to go into investment and speculation.
for here is the could truth. Unless you have a wealthy relative, the only way you are ever going to lift yourself above the great unrich- absolutely the only hope you have is to take a risk.
so everything about this axiom is explained in story. it’s story about two friend who started same job with different mindset. one has put everything in safer instrument and another one has put her saving in all speculative entity like stock and commodity.
In end both have saving to get buy around retirement, but one is barely getting by, and another is super rich. In end author compare this mental both girl, first one is always relax, not a care in world and second one is always worried about her investment.
Many of wall street’s most celebrated plungers have said publicly that a state of almost constant worry is a part of their way of life. Few of them say this by way of complaint. they are almost always cheerful about it. They like it.
next phase if about jessie livermore, who flourished on the street during the early days of this century. Livermore drew crows whenever he went people were always asking him for investment advice.
An earnest young newsman went up to him one day and ask if he felt it was worthwhile to become a millionaire, considering all the strife and struggle one had to go through to get there. Livermore responded that he liked money a lot, so it was certainly worthwhile to him. but aren’t there nights when a stock trader can’t sleep? the reporter pursued. Is life worth living when you’re worried all the time? Livermore responed that every occupation has its aches and pains. If you keep bees, you get stung. Me, i get worried. It’s either that or stay poor. If i’ve got a choice between worried and poor, i’ll take worried anytime.
“ All investment is speculation. The only difference is that some people admit it and some don’t.”
All investment is speculation, as Loeb said. You put up your money and you take your changes. You’re a speculator whether you are betting on General Motors or anything else. you might well admit it. There is no sense in trying to hoodwink yourself. you understand the world better when you come to it with your eyes wide open.
The zurish axioms are about speculation and say they are. It doesn’t mean they are about goofy change-taking. It means only that they are frank.
Minor Axiom I : Always play for meaningful stakes
“Only bet what you can afford to lose”. You hear it in las vegas, wall street and whenever people risk money to get more money. you read it in books of investment and money management advise. But you should study it with greatest care before making it a part of your speculative toolkit. As most people interpret it, it is a formula that almost assure poor results.
what is an amount that you can “afford to lose”? Most would define it as “an amount which, if I lose it, won’t hurt”, or “an amount which, if i lose it won’t make any significant difference in my general financial well being”
But consider this. If you bet 100$ and double your money, you’re still poor. They only way to beat the system is to play for meaningful stakes. This doesn’t mean you should bet amounts whose loss would bankrupt you . you’ve got to pay the rent and feed the kids, after all. But it does mean you must get over fear of being hurt.
If an amount is so small that its loss won’t make any significant difference, then it isn’t likely to brin gyou any significant gains either. The only way to win a big payoff from a small wager is to go for a long, long shot. You might buy $1 lottery and win a million, for instance. That is nice to dream about, but the odds against you, of course, are depressingly high.
In the normal course of speculative play, you must start out with a willingness to be hurt, if only slighly. Bet amounts that worry you , if only a little.
Minor Axiom II: Resist the allure of diversification
this one is most obvious to understand. In simpler terms dont’ lower or cancel out your gains by unnecessary diversification. This will also reduce mental strain your mind so you have less things to keep track of. plus you can take actions much faster than anything else.
In stock market there goes saying about this
“Pull all your eggs in one basket, and then watch the basket. It is much easier to watch one or few baskets then dozen.”
2 : On Greed
second axiom was all about what to do when things are doing right.
Always take your profit too soon.
Amateurs on wall street do it. Amateurs in poker games do it. Amateurs everywhere do it. They stay too long and lose. what makes them do it is greed, and that is what the second axiom is about. If you can conquer greed, that one act of self-control will make you a better speculator than 99% of other.
Greed, in the context of the second axiom, means excessive acquisitiveness. wanting more, more, always more. It means wanting more than you came in for or more than you have a right to expect. It means losing control of your desire.
This axiom also illustrates the original meaning of the popular saying “Don’t push your luck”. Most people use it in casual speech without understanding that it has a serious meaning. It deserves more careful study than it usually gets.
In the course of gambling or speculative play, you will from time to time enjoy streaks and runs of luck. you will enjoy them so much that you will want to ride them forever and ever. Undoubtedly you will have the good sense to recognize that they cannot last forever, but if greed has you in its grip, you will talk yourself into hoping or believing that they will at least last a long time and then a bit longer and the little longer. And so you will ride and ride, and in the end you and your money will go over the falls.
The point to be appreciated is that you cannot know in advance how long a given winning streak is going to last. It might last long time. On the other hand, it might end with the next tick of the clock.
So you should assume that any set or series of events producing a gain for you will be of short duration, and that your profit, therefore, won’t be extravagantly big.
Yes, certainly, that lovely set of events might continue until it produces a colossal win. Might. But from where you stand at the beginning of the set, needing to make a sit-or-quit decision without being able to see the future, you are much better off playing the averages. The averages overwhelmingly favour quitting early. Long, high winning streaks make news and get talked about at parties, but they are newsworthy for the very reason that they are rare. Short, modest ones are vastly more common.
Once in a while you will regret having walked away. The winning set will continue without you, and you will be left morosely counting all the money you didn’t make. In hindsight, your decision to quit will look wrong. This depressing experience happens to every speculator once in a while, and I won’t try to minimize it. It can make you want to cry.
But cheer up. To match against the time or two when the decision to quit early turns out wrong, there will be a dozen or two dozen times when it turns out right. In the long run, you make more money when you control your greed.
3 : On Hope
third axiom is about saving yourself when they go wrong
When the ship starts to sink, don’t pray. Jump.
things will go wrong. You can depend on it. You can expect that roughly half your speculative ventures will turn sour before you have reached your preplanned ending positions. Half your guesses about the future will be wrong. Half your judgments of economic forces will be inaccurate. Half the advice you hear will be bad.
An amateur gambler hopes or prays the cards will fall his way, but a professional studies how he will save himself when they fall against him. That is probably the major difference between the two. It helps explain why a pro can expect to earn his living at the poker table, while an amateur can expect to get taken to the cleaner's every time he plays.
“Refusing to be wrong is the wrongest response of them all”
Minor Axiom 4 : Accept small losses cheerfully as a fact of life. Expect to experience several whiles awaiting a large gain.
Ideally we should welcome our small losses, since they protect us from large losses. However, I've never met anybody who could or did. but if we can’t do that, we can at least accept those small losses with good grace.
Get in habit of taking small losses. If a venture doesn’t work out, walk away and try something else. Don’t sit on a sinking ship. Don’t get trapped.
Some speculators prepare for small losses by using stop losses. This saves you from agony of deciding when to sell. But disadvantage is that a stop-loss order robs you of flexibility. There are some situations in which you might think it sensible to hold stock below predefine stoploss. with stoploss order on the books, you tend to stop thinking. Also stop loss service may not available everywhere.
My own opinion is that you are better off operating without any automatic loss-taking mechanism. Depend instead on your own capacity to reach hard decisions and follow them through. You may be amazed at how tough you can become with a little practice. and that will be extra reward of the risk taker’s way of life.
4 : On Forecasts
Human behaviour cannot be predicted. Distrust anyone who claims to know the future, however dimly.
There are things that can be predicted. We know precisely when the sun is gong to come up each morning. Tide tables are prepared months ahead. The free calendar I get each January from the bank says what the moon’s phases will be throughout the twelve months ahead. Weather forecasts are less precise but still are reasonably trustworthy.
The reason why such things can be predicted is that they are physical events. But the Zurich axioms are about the world of money, and that is world of human events. Human events absolutely cannot be predicted, by any method, by anybody.
One of the traps money-world prophets fall into is that they forget they are dealing with human behaviour. The fact is of course, that all money phenomena are manifestations of human behaviour. The stock market, for example, is a colossal engine of human emotion. prices of stocks rise and fall because of what men and women are doing, thinking and feeling. the price of a given company’s shares doesn’t rise because of abstract figures in an accounting ledger, nor even because the company’s future prospects are objectively good, but because people think the prospects are good. The market doesn’t slump because a computer somewhere determines selling pressure is on the rise, but because people are worried, or discouraged or afraid. Or simply because a four-day weekend is coming and all the buyers are off for the seashore.
The stock market is colossal engine of human emotion. Recessions and recoveries and boom, good times and bad. all caused by people. All are entirely unpredictable.
5 : On Patterns
Choas is not dangerous until it begins to look orderly.
this chapter just explain to about illusion of order in market. In stock market sometimes everything makes sense, patterns behave perfectly, things happens just as you’ve predicted. but it’s just illusion, thing will look orderly until crash.
The minute you think that you can see an orderly design in the affairs of men and women, including their financial affairs, you are at risk. don’t believe that you can develop formula’s and strategies for the profitable exploitation of those patterns.
Minor Axiom : Beware the correlation and causality delusions
It is characteristic of the most rational minds to perceive links of cause and effect where none exist. when we have to, we invent them.
The human mind is an order-seeking organ. It is uncomfortable with chaos and will retreat from reality into fantasy if that is the only way it can sort things out to its satisfaction.
Thus two or more events occur in close proximity, we insist on constructing elaborate casual links between them because that makes us comfortable.
Speculative strategy
the axiom warns you not to see order where order does not exist. This doesn't mean you should despair of ever finding an advantageous bet or promising investment. On the contrary you should study the speculative medium in which you are interested - the poker table, the art world, whatever it is and when you see something that looks good, take your best shot just don’t hypnotized by illusion of order.
Your studying may have improved the odds in your favor, but you still cannot ignore the overwhelmingly large role of chance in the venture. It is unlikely that your studying has created a sure thing for you, or even a nearly sure thing. You are still dealing with chaos. as long as you remain alert to that fact, you can keep yourself from getting hurt.
Your internal monologue should be like this : “ Okay, 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 that the chance of my 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.”
6 : On Mobility
Avoid putting down roots. They impede motion.
Minor Axiom : Do not become trapped in souring venture because of sentiments like loyalty and nostalgia
this part mostly talks about buying or not selling things due to sentimental values. like your home when it’s value is degrading day by day.
There are times when you have to choose between roots and money. If you are interested in money which is presumably why you are studying speculation it is a mistake to let yourself get too attached to any physical thing in which your capital is invested. Get attached to people, but not to houses or neighbourhoods.
This can be also applied to your company or business as well. you never know when it may be wise to sell out. be sure to don't’ let roots impede you. may be you can also apply this rule if you’re doing job.
Minor axiom : Never hesitate to abandon a venture if something more attractive comes into view
Never get attached to things, only to people. Getting attached to things decreases your mobility, the capacity to move fast when then need arises. once you get yourself rooted, your efficiency as a speculator goes down markedly.
another common way to get rooted is to get into a situation in which you are waiting for something to pay off something like stocks. this may happen to even more people than the speculation/hobby dilemma. It is possible to get trapped in a waiting game for years, while dozens of other good speculative opportunities drip tantalizingly within reach of your fingers, which are powerless to grasp them.
Speculative strategy
this axim urges you to preserve your mobility. It warns against the many things that can get you rooted, to the detriment of your speculative career. sentiments like loyalty, hang ups like the wish to wait around for your payoff. It says you must stay footloose, ready to jump away form trouble or seize opportunities quicky.
This doesn’t mean you have bounce from one speculation to another like ping pong ball. all your moves should be made only after 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.
7 : On Intuition
A hunch can be trusted if it can be explained
A hunch is a piece of feeling stuff. It is a mysterious little clump of not quite knowledge. a mental event that feels something like knowledge but doesn’t feel trustworthy. As a speculator you are likely to be hit by hunches frequently. some will be strong and insistent. what should you do about them. Learn to use them if you can.
A hunch can be trusted if it can be explained. But don’t confuse hunch with hope
When a hunch hits you, the first thing to do is ask whether a big enough library of data could exist in your mind to have generated that hunch. though you don’t know and can’t know precisely what the relevant data bits might be, is it plausible to think they exist? you need to check if you are genuinely knowledgeable on this particular topic. Have you studied it? have you following ups and downs?
Speculative strategy
this axiom suggests that it is mistake either to laugh at hunches or to trust them indiscriminately. Though intuition is not infallible, it can be useful speculative tool if handled with care and scepticism. there is nothing magical about intuition. it is simply a manifestation of perfectly ordinary mental experience. that of knowing something without knowing how one knows it.
if you are hit by strong hunch telling you to make a certain move with your money, the axiom urges you to put it to a test. Trust it only if you can explain it. But only if you can identify within your mind a stored body of information out of which that hunch might reasonably be supposed to have arisen. If you have no such library of data, disregard the hunch.
8 : On Religion and the Occult
It is unlikely that God’s Plan for the universe includes making you rich.
this part basically deals with getting deals which are too good to be true. Also about deals in which you can make killing overnight. and you just accept it as good’s gift or your good luck which rarely the case.
As far as Axiom concerned, it makes no difference whether you are devoutly religious, or an atheist. No matter what your beliefs might be, thoughts of god or other supernatural help should play no part in your speculative behaviour
Don’t pray yourself rich. Leaning on supernatural help produces the same result as leaning on forecast or illusion of order.
This also applied to people who believe in astrology or superstition. I don’t so i didn’t get much value out of this.
Speculative Strategy
money and the supernatural are an explosive mixture that can blow up in your face. Keep the two worlds apart. There is no evidence that god has the slightest interest in your bank account, nor is there any evidence that any occult belief or practice has ever been able to produce consistently good financial results for its devotees. Isolated bull’s eye hit, which gets a lot of attention but proves nothing except that lucky flukes happen.
To expect help from god or from occult or psychic powers is not just useless but also dangerous. It can lull you into an unworried state, which is not a good state for a speculator to be in. In handling your money assume you are entirely on your own. Lean on nothing but your own good wits.
9 : On Optimism and 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.
A general feeling of hope and good expectations cannot do you any harm. “I’ll learn. I’ll do well. I’ll make it.” Indeed, without that fundamental buoyancy, how could one be a speculator at all? But be extremely wary of optimism as it applies to specific money ventures. It can be dangerous state of mind.
Speculative strategy
the ninth axiom warns that optimism can be speculator’s enemy. It feels good and is dangerous for that very reason. It produces a general clouding of judgment. It can lead you into ventures with no exists. And even when there is an exit, optimism can persuade you not to use it.
The axiom says you should never make a move if you are merely optimistic. Before commiting your money to a venture, ask how you will saev yourself if things go wrong . Once you have that clearly worked out, you’ve got smething better than optimism. You’ve got confidence.
10 : On Consensus
Disregard the majority opinion. It is probably wrong.
This axiom generally advise us to not to explain any major or public opinion blindly.
Whatever you do, whether you bet with the herd or against, think it through independently first.
Speculative Strategy
this axiom teaches that majority, though not always and automatically wrong, is more likely to wrong than right. Guard against betting unthinkingly either with the majority or against, but particularly the former. figure everything out for yourself before putting your money at risk.
11 : On stubbornness
If it doesn’t pay off the first time, forget it.
This axiom mainly explain about not to be obsessed with single investment. If things work out don’t hope and just move on to something else.
This is also very similar to never average your bad stock/loss.
Speculative strategy
this axioms says that perseverance is a good idea for learning and skill improvement but not for attempt to squeeze a gain out of any single speculative entity.
Don’t chase an investment in a spirit of stubbornness. Value the freedom to choose investments on their merits alone. Don’t give that freedom away by getting obsessed with one soured venture.
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, seriously.
this axiom mainly explain about not to get too focused or not to get attached to or get rooted to single investment. Basically don’t get stuck, stay mobile. this can applied to stock, land, home.
Speculative Strategy
This axiom warns about the danger of planning for future one cannot see. do not get rooted in long-range plans or long-term investment. Instead react to events as they unfold in the present. put you rmoney into ventures as they present themselves and withdraw it from hazards as they loom up. Value the freedom of movement that will allow you to do this. Don’t ever sign that freedom away.
There’s only one long-range financial plan you need, and that is the intention to get rich. how is not knowable or plannable. all you need to know is that you will do it somehow