I have just finished reading Max Gunther’s The Zurich Axioms (Harriman House). (Axioms are described as maxims, adages, sayings, saws, truisms). He sets out twelve major axioms and sixteen minor ones which he believes accounts for “the Swiss being the world’s cleverest investors, speculators and gamblers” and explains why they are among the most affluent people in the world.
It is a good read and although I do not agree with a lot of what he says I think he makes some interesting points that could help make me a better investor/speculator! (The author does not like the word investor because at the end of the day he believes whenever we buy a risky asset, however much we kid ourselves, we do so for one reason and one reason only, to make money; therefore speculation is a better description).
The first six major axioms, (including the minor ones) with my thoughts in italics:
1). Risk: Worry is not a sickness but a sign of health. If you are not worried, you are not risking enough. In other words if you want to make money you have to take risk and occasionally that will be painful. Play for meaningful stakes and resist the allure to diversify too much.
Clearly by investing in stocks I understand there is a risk involved, that my wealth could take a painful hit, especially in the short term. I think the point about diversifying too much is good but what is too much? The author suggests 5 holdings; I would be uncomfortable with that and aim to hold between 20 and 30 stocks in my portfolio with 50% by value in the largest 10. Is 30 stocks too many? Quite possibly. Needs some more thought!
2). Greed: Do not stay too long in an investment; when you have a good profit, cash out and walk away. Decide in advance what gain you want from a venture, and when you get it, get out.
I can see where he is coming from and again it makes sense. However, I think that as long as the price action is good one should strive to run one’s winner. It can make sense to take some profits on a spike but calling the top is very difficult. If you are prepared to use a trailing stop loss it means you will never get out at the top but hopefully should still book a nice profit.
3). Hope;…
