In the book ‘The Zurich Axioms‘, Max Gunther examines the investment philosophy of Swiss bankers. The book is organized as a series of major and minor axioms that present the investment philosophy. The objective of the book is to assist the common investor in making investment decisions.
Gunther discusses issues such as long-term investment, diversification, taking excessive risks when investing, and the importance of maintaining a balanced and rational mindset. Additionally, he discusses how Swiss bankers manage their investment portfolios to maximize profits, while dealing with uncertainty and risk in their investment decisions.
The book is intended for all investors who seek an understanding of the investment philosophy of Swiss bankers and how to apply it to their own investments.
In this article, we will provide you with a comprehensive summary of the book, covering all the axioms discussed in the book. Let’s get started!
First and foremost, what are axioms?
An axiom is a statement or assertion that does not require verification to be considered true. In mathematics, axioms are the fundamental principles upon which other proofs and theorems are based. Axioms in philosophy are accepted as true and form the basis for all subsequent understanding and learning. In general, axioms are taken as self-evident truths or obvious facts by definition.
First major axiom: On Risk
“Worry is not a sickness but a sign of health. If you are not worried, you are not risking enough.”
The idea behind this axiom is that anxiety or worry is expected when making investments, and if you’re not feeling that way, it may mean you’re not taking enough risks. However, it’s important to be prudent when making choices.
1st Minor Axiom: “Always play for meaningful stakes”
According to this axiom, it’s essential to fully consider the likely returns of an investment before deciding whether it’s suitable or not. This involves carefully assessing the risks and potential returns, striving to put your money into assets that promise good rewards.
2nd Minor Axiom: “Resist the allure of diversification”
Gunther argues that investors are often tempted to over-diversify their portfolio, but for him, this is not the best decision for successful investing. According to him, it’s important to focus on certain investments that are profitable and have a good rate of return, rather than spreading your investment over too many options.
2nd Major Axiom: On Greed
“Always take your profit too soon”
This axiom highlights the importance of taking profits early, before circumstances change and potential profits disappear. It emphasizes the importance of not being too greedy to wait for the peak and get the highest return, but to sell the position as soon as it reaches an interesting profit.
3rd Minor Axiom: “Decide in advance what gain you want from a venture, and when you get it, get out”
This axiom highlights the importance of having a well-defined financial goal when investing and exiting the investment once that objective is achieved.
3rd Major Axiom: On Hope
“When the ship starts to sink, don’t pray. Jump”
This axiom highlights the importance of not relying on hopes and illusions when it comes to investments. Instead, it is important to be prepared to quickly exit a risky situation, if necessary, in order to protect your investments.
The 3rd Grand Axiom emphasizes the meaning of not relying on assumptions and fantasies when it comes to investments. Instead, it is essential to be ready to quickly exit a potentially dangerous situation, if needed, to protect your wealth.
4th Minor Axiom: “Accept small losses cheerfully as a fact of life. Expect to experience several while awaiting a large gain”
According to Gunther, the 4th minor axiom involves recognizing small losses as part of the investment process and tolerating some losses in anticipation of a greater reward.
4th Grand Axiom: On Forecasts
“Human behavior cannot be predicted. Distrust anyone who claims to know the future, however dimly”
This axiom reflects the notion that human behavior is inconsistent and, therefore, you need to be skeptical of anyone who claims to have knowledge of what will happen in the future. No one can accurately predict what will happen even tomorrow.
5th Grand Axiom: On Patterns
“Chaos is not dangerous until it begins to look orderly”
According to Gunther, uncertainty is inherent in financial markets and it is important to exercise caution when interpreting apparent patterns or trends. He suggests waiting until the situation stabilizes before making investment decisions based on analyses or predictions.
Gunther argues that uncertainty is inevitable in financial markets and that it is necessary to be prudent when trying to decipher patterns of behavior or trends. He advises waiting until circumstances stabilize before making investment choices based on analyses or predictions that may not materialize.
5th Minor Axiom: “Beware of the Historian’s Trap”
This axiom conveys the idea that when reviewing past events, it is common for the interpretation of events to be influenced by familiarity with their outcomes. Therefore, it is essential to be cautious when using history to make financial decisions and not rely excessively on previous patterns or trends.
6th Minor Axiom: “Beware the Chartist’s Illusion”
Gunther emphasizes the importance of considering other components beyond historical data when evaluating investments and not just charts, as what happened before is not a guarantee of what will happen in the future.
7th Minor Axiom: “Beware the Correlation and Causality Delusions”
It is common to believe that there is a causal relationship between two events just because they seem related, but in reality, there are numerous other explanations for the correlation that are not causal. It is crucial to be careful with this misconception and evaluate other plausible explanations before determining a cause-and-effect relationship.
8th minor axiom: “Beware the Gambler’s Fallacy”
This axiom warns against the gambler’s fallacy, where people tend to believe that their own talent or luck has more impact on investment decisions than external and unpredictable factors. It is important to note that uncertainty and randomness are present in the financial market and there is no guarantee of success.
6th major axiom: On mobility
“Avoid putting down roots. They impede motion”
9th minor axiom: “Do not become trapped in a souring venture because of sentiments like loyalty and nostalgia”
It’s crucial for investors to remain impartial and not let their emotions influence their investment decisions. If an investment isn’t yielding the desired results, it’s essential to evaluate it and make a decision based on an objective analysis, rather than allowing emotions to take over
10th minor axiom: “Never hesitate to abandon a venture if something more attractive comes into view”
It suggests that when a more attractive opportunity arises, it is important not to hesitate to exit a previous business and move on to the new opportunity. This is seen as a way to maximize profits and take advantage of the best opportunities.
This implies that when a more advantageous opportunity arises, it is prudent not to hesitate to exit a previous investment.
7th grand axiom: On intuition
“A hunch can be trusted if it can be explained”
This axiom suggests that before making an investment decision, it is important to understand the logic behind the hunch and evaluate its consistency and validity. It is important to have a clear understanding of the reasons that support a decision, rather than basing choices solely on unfounded guesses or intuitions.
According to Gunther, this principle highlights the importance of understanding the justification behind an investment and analyzing it before making an investment decision. It is essential to have a clear understanding of the fundamentals behind a decision, rather than relying solely on assumptions or intuitions.
11th minor axiom: “Never confuse a hunch with a hope”
The axiom emphasizes the importance of distinguishing between a hunch and a hope in making financial decisions. While a hunch is a supposition based on information and analysis, hope is an irrational belief without a solid basis. It is important not to make trading decisions based solely on hope, as this can lead to poor results.
The 11th minor axiom emphasizes the significance of distinguishing between a hunch and a hope in making financial decisions. While a hunch is a supposition based on little or no evidence, hope is an illogical trust without a real basis. It is essential not to make decisions based solely on hope, as this can lead to unwanted outcomes.
8th grand axiom: On religion and the occult
“It is unlikely that God’s plan for the universe includes making you rich”
12th minor axiom: “If astrology worked, all astrologers would be rich”
13th minor axiom: “A superstition need not be exorcised. It can be enjoyed, provided it is kept in its place”
Gunther asserts that it is tolerable to respect superstitions or individual beliefs, as long as they are accepted as such and do not interfere with the impartial evaluation of investments. The author emphasizes the need to maintain objectivity and logic in investments, avoiding being influenced by beliefs or superstitions.
9th Grand Axiom: On Optimism and Pessimism
“Optimism means expecting the best, but confidence means knowing how to handle the worst. Never make a move if you are merely optimistic”
10th Grand Axiom: On Consensus
“Disregard the majority opinion as it is probably wrong”
Gunther asserts that following the collective viewpoint can be a wrong decision, as the majority is often wrong and adhering to the “herd” can lead to financial losses.
14th Minor Axiom: “Never follow speculative fads. Often, the best time to buy something is when nobody else wants it”
It is important not to follow the crowd and be critical when evaluating market trends.
11th Major Axiom: Of Stubbornness
“If it doesn’t pay off the first time, forget it”
15th Minor Axiom: “Never try to save a bad investment by “averaging down””
This axiom goes against the attempt to save a failed investment by averaging down, that is, increasing your position in it. Instead, it is essential to recognize losses and seek better investments.
12th Major Axiom: Of Planning
“Long-range plans engender the dangerous belief that the future is under control. It is important never to take your own or other people’s long-range plans seriously”
16th Minor Axiom: “Shun long-term investments”
This minor axiom suggests that it is better to avoid long-term investments, as the future is uncertain and unpredictable, and it is safer to focus on short-term investments that can be easily adapted to market changes. However, it is important to remember that this may vary according to each investor’s financial situation and objectives. It is always important to consider one’s own needs and conduct a careful evaluation before making any investment decisions.
Finally, the last minor axiom suggests that it is preferable to avoid long-term investments, as the future is uncertain and it is wiser to focus on short-term investments that can be adjusted according to the current market scenario. However, it is essential to keep in mind that this view may be distinct for different investors, as each has their individual objectives.
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Conclusion
“The Zurich Axioms” is a book that discusses investment philosophy based on solid and logical principles. It emphasizes the importance of following a rigorous approach and avoiding emotions and unfounded beliefs in financial decision-making.
The book presents 16 minor axioms that summarize the investment philosophy, including the need to be mindful of emotions, the importance of clarity in decision-making, and the need to be objective in evaluating risks and opportunities.
Overall, “The Zurich Axioms” is an enjoyable read, but many of the concepts presented are not absolute truths and should be carefully evaluated before investing.
