Monday, October 24, 2005

The Zurich Axioms (Max Gunther) 0 comments

I had never heard of this book through the popular press until I came across some forummers, in particular the respected Oldman of Shareinvestor, recommending this book as a must-read several weeks back. This book was written quite a long time back, in 1985, and in recent years seemed to have got a second wind as it was reissued and reprinted in 2003, 2004 and 2005.

Frankly, I would not have bought the book on the basis of its cover, which is an amateurish cartoon of a hand fisting a bunch of dollars, and a proclamation that "this book can make you rich". It is a short book, at slightly >150 pages. The author is some unknown guy whose father was a Swiss banker who taught him the meaning of risk taking. But once one starts reading it is impossible to stop. I finished the book over one night and the following morning. It is highly readable and I can understand why it strikes a chord with stock market players.

I might as well list the axioms here, all twelve of them, with a concise description of the author's philosophy on them. They are as follows:
1) On risk - Dare to assume risk in a meaningful way (ie. a meaningful amount of your assets), and worrying is a healthy state of mind.
2) On greed - Always take your profits too soon. Think about every investment as a race with an ending point; when you reach the ending point, bail out.
3) On hope - Learn how to lose; don't pray and hope when the ship starts sinking.
4) On forecasts - In a world shaped by human behaviour, nobody knows what will happen in the future. Never forget the possibility that you have made a bad bet.
5) On patterns - Beware the historian's trap, chartist's illusion, gambler's fallacy, all attempts to decipher order when there is none to begin with.
6) On mobility - Avoid putting down roots in assets. In other words, don't fall in love with your holdings; be ready to move.
7) On intuition - It is sometimes, or even often, accurate. Try to corroborate with other evidence.
8) On religion/occult - It is unlikely that God's plan for the universe includes making you rich.
9) On optimism/pessimism - Optimism is a human tendency, which means it is not justified by facts half of the time.
10) On consensus - Think about things independently, don't drift with the herd. Then again, don't be contrarian for the sake of it.
11) On stubborness - Don't persevere; be flexible. Don't average down and tie down your capital on a stock you wouldn't buy if you didn't already own it.
12) On planning - Forget long-term planning; prepare yourself to react to the future's opportunities and hazards.

That is all there is to the book, with more detailed descriptions of course. If the above intrigues and interests you, you should pick it up at Kinokuniya where I found my copy. A lot of what it preaches is actually common sense, but it is another thing to internalise the whole risk-taking philosophy it advocates in one's approach to the stock market. I can feel myself nodding in agreement with many of the author's views; they are what I have come to accept over years of investing in the stock market.




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