Play for Meaningful Stakes

First Major Axiom: On Risk - If you are not worried, you are not risking enough.

• Minor Axiom I - Always Play for Meaningful Stakes

• Minor Axiom II - Resist the Allure of Diversification

• Diversifying usually means any individual investment is insignificant.

• Diversifying results in gains and losses canceling each other out, so no overall win.

• By diversifying , you become a juggler trying to keep too many balls in the air all at once (can’t pay enough attention).  My rule of thumb is to have no more than four at any one time, and usually I have three or less.

Second Major Axiom:  On Greed: Always take your profit too soon

• Minor Axiom III - Decide in advance what gain you want and when you get it, get out (create a personal pre-set reward to mark crossing the finish line, so the end  point is more real). 

Third Major Axiom: On Hope - When the ship starts to sink, don’t pray… Jump!

(Winners aren’t good choosers. Winners are good quitters).

Obstacles:

• Fear of regret (FOMA: fear of missing out)

• Reluctance to accept a loss (throwing good money after bad in hopes of recouping)

• Refusal to admit you made a mistake (denial)

• Minor Axiom IV - expect there will be losses before a big gain (concept of business expenses). Avoid automatic “stop-loss orders”.  Instead, stay aware and make hard decisions in real time.

Fourth Major Axiom: On Forecasts - while physical events can be predicted (the sun will rise), human behavior cannot be predicted. Distrust anyone who claims to know the future, however dimly.

Fifth Major Axiom: On Patterns - Chaos is not dangerous until it begins to look orderly (the illusion of understanding)

• Minor Axiom V: Beware the Historian’s Trap

• Minor Axiom VI: Beware the Chartist’s Illusion

• Minor Axiom VII. Beware the Correlation and  Causality Delusions

• Minor Axiom VIII. Beware the Gambler’s Fallacy - hot streaks are imaginary  

Sixth Major Axiom: On Mobility - Avoid putting down roots, they impede motion. 

• Minor Axiom IX:  Do not get trapped in a souring venture because of sentiments like loyalty and nostalgia

• Minor Axiom X: Never hesitate to abandon a venture if something more attractive comes into view.

Seventh Major Axiom: On Intuition - A hunch can be trusted if it can be explained

• Minor Axiom XI: Never confuse a hunch with a hope. When you want something very much, you can trick yourself into believing it’s true.

Eighth Major Axiom: On Religion and the Occult - It is unlikely that God’s plan for the universe includes making you rich

• Minor Axiom XII. If astrology worked, all astrologers would be rich

• Minor Axiom XIII. A superstition need not be exorcised. It can be enjoyed as fun, provided you hold it lightly.

Ninth Major Axiom: On Optimism and Pessimism - it’s okay to hope for the best, but be prepared with a plan for the worst.

Tenth Major Axiom: On Consensus - disregard the majority opinion, it is probably wrong 

• Minor Axiom XIV: Never follow fads. Often the best time to buy something is when no one else wants it.

Eleventh Axiom: On Stubbornness - If it doesn’t pay off the first time, forget it.

• Minor Axiom XV: never try to save a bad investment by “averaging down” - only buy in at the new low price if it’s an investment you’d think was a good one even if you hadn’t lost on shares bought previously at a higher price (which subsequently dropped to the current low).

Twelfth Major Axiom: On Planning - Long range plans create the dangerous belief that the future is under control (don’t take long range plans, yours or others’, seriously)

• Minor Axiom XVI: Shun long term investments - no investment should be ignored on the assumption that because you don’t need it to pay off until sometime in the future, intervening dips don’t matter

-- The Zurich Axioms: Investment Secrets of the Swiss Bankers (1985) - Max Gunther