BusinessNews Publishing - Summary: The Zurich Axioms: Review and Analysis of Gunthers Book

Book Abstract

The Zurich axioms apply to any situation where you have put your money at risk in order to make more money. They are based on an approach of managing the risk effectively rather than trying to shun risk, because your potential return is directly proportional to the risks involved.

These axioms form the basis of a philosophy around which you can make investment decisions. They also represent

Important Note About This Ebook

This is a summary and not a critique or a review of the book. It does not offer judgment or opinion on the content of the book. This summary may not be organized chapter-wise but is an overview of the main ideas, viewpoints and arguments from the book as a whole. This means that the organization of this summary is not a representation of the book.

An Introduction To The Axioms

These principles are about betting to win. Everyone wants to win, but not everyone wants to bet. Therein is the very key to success. Everyone wants to win without betting. The axioms discussed here apply in any situation where you put your money at risk to make more money.

To make any kind of gain in life, you have to put something at risk. You must make a commitment of time, money, love or something of value. The sensible approach is to not shun risk but to learn to manage risk to your own advantage with care and thought.

The Zurich Axioms were developed by those with the most experience of any in managing risk and winning - the Swiss financial community. They contradict some of the most cherished investment advice. And best of all, they work.

Main Idea

Worry is not a sickness but a sign of health. If you are not worried, you are not risking enough.

Supporting Ideas

If your main goal in life is to escape worry, you are going to stay poor and be bored silly in the process. Life ought to be an adventure, not a yawn. An adventure requires some risk.

Worry is an integral part of lifes grandest enjoyments, and not just the financial challenges. If you are afraid of risk, you will never fall in love. Youll never participate in a sports event because you might lose. In these things, its the defeat of imminent failure that gives a spirit of adventure. Its the same for a financial strategy. Adventure is what makes life worth living, and that means taking risk.

You cant get rich working for someone else. The economic structure of the world is rigged against you.

Try this for a rule of thumb - devote one half of your energies to job income. The other half ought to go into investment and speculation. The only way you can ever lift yourself above the masses is to take a risk with your money. Theres farther to go upward than you can go down with this strategy, and youll have an adventure to boot.

All investment is speculation. The only difference is that some people admit it and some dont.

- Gerald Loeb.

Theres no such thing as a risk free speculation. Calling it an investment doesnt change the facts - a gamble is still a gamble. Put your money at risk. Dont be afraid of getting hurt a little.

Minor Axiom 1.

Always play for meaningful stakes.

If you only bet what you can afford to lose, you can only win what wont help very much. The only way to beat the system is to play for meaningful stakes. You need to bet amounts that worry you a little and that hurt if you lost. Choose your own level according to the degree of worry you can tolerate - 25%, 50% or 100% of your wealth.

Minor Axiom 2.

Resist the allure of diversification.

The investment community preaches the wisdom of having a number of investments, in the hope that one good one will make up for numerous failures or mediocre investments. The actual fact is that diversification, by reducing your risks, reduces by the same degree any hope you may have of getting rich.

This philosophy has three major flaws;

• It reduces your chances of playing for meaningful stakes.
• You are creating a situation where your gains and losses stand to balance themselves out leaving you where you started.
• You become like a juggler, trying to keep four balls in the air at once. You wont be watching your investment with the proper degree of care.

In speculation, only put your money into those investments that really interest you. Never buy simply to have a diversified portfolio. Put all your eggs into one basket, and watch that basket.

Main Idea

Always take your profit too soon.

Supporting Ideas

If you can conquer greed, youll be a better speculator than 99% of the population. Greed, in the context of this axiom, means wanting more and more. The paradox is that if you reduce your greed, you actually improve your chances of getting rich.

Every creature on earth has a natural instinct to try and gather those things needed for survival, but only man can go completely overboard about it.

From time to time you might enjoy a stretch of good luck that youll want to last forever. You cant tell when it will end - next year or the next tick of the clock. Overwhelmingly, there are many more short, modest winning streaks than there will ever be long, high streaks of good luck. If you play it that way, the averages are on your side.

Once in a while, youll regret walking away. However, to match that will be the 10 or 20 times getting out early will turn out to have been the right decision after all. In the long run, youll make more money if you can control your greed.

Sell too soon. Dont wait for booms to reach their peaks, as that is a hard time to find a new buyer. Much easier to find a buyer during a firm upwards trend. Dont stretch your luck. Expect winning streaks to be short.

Minor Axiom 3

Decide in advance what gain you want from a venture, and when you get it, get out.

This will overcome the feeling that as your wealth grows, every position feels like a starting position. Every time you get a gain, it feels like you were due that one anyway, and the game starts again from where you are now. You can find it harder to extricate yourself from an adventure than it was to get started on it in the first place.

The trick is to realize that the race ends when you say it ends. Decide where the finishing line will be before you start any speculation. You can do this by planning some sort of emotional reward for yourself when you reach the end point. When it arrives, sell out and give yourself that reward. This breeds a feeling of achievement.

Main Idea

When the ship starts to sink, dont pray. Jump.

Supporting Ideas

You can depend on at least half of your speculative ventures turning out to be wrong. About half the time, you will never reach your planned ending position. Knowing how to get out of a bad situation may be the rarest of all speculative gifts. It takes courage and a cutting kind of honesty.

An amateur gambler hopes or prays the cards will fall in his favor, but a professional studies how to save himself when they fall against him. Thats probably the major difference between the two. The inability to jump off a sinking ship has cost speculators more money than any other failing. Jump when the ship starts to sink - not when its half-submerged. Take small losses to protect yourself from the big ones.