THE ZURICH AXIOMS

An Effective Set Of Principles About Handling

Investment & Risk
MAX GUNTHER
Main Theme
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

Major Axiom 1 - Risk Major Axiom 7 - Intuition

Worry is not a sickness but a sign of health. If you’re A hunch can be trusted if it can be explained.
not worried, you are not risking enough. Minor Axiom 11 - Never confuse a hunch with hope.
Minor Axiom 1 - Always play for meaningful stakes.
Major Axiom 8 - Religion And The Occult

Major Axiom 2 - Greed
Always take your profit too soon.
Minor Axiom 3 - Decide in advance what you want from
an investment, and when you get it, get out.
God’s plan for the universe won’t be to make you rich.
Minor Axiom 12 - If astrology worked, all astrologers
would be rich.
Minor Axiom 13 - A superstition can be enjoyed,

Major Axiom 3 - Hope Major Axiom 9 - Optimism And Pessimism

When the ship starts to sink, don’t pray. Jump! Optimism means expecting the best, but confidence
means knowing how you will handle the worst.
Minor Axiom 4 - Accept small losses cheerfully as a fact
of life. Expect to experience several while working Never make a move if you are merely optimistic.

Major Axiom 4 - Forecasts Major Axiom 10 - Consensus

Human behavior cannot be predicted. Disregard the majority opinion. It is probably wrong.
Distrust anyone who claims to know the future, Minor Axiom 14 - Never follow fads. Usually, the best
however dimly. time to buy anything is when nobody else wants it.

Major Axiom 5 - Patterns

Chaos is not dangerous until it begins to look orderly.
Minor Axiom 5 - Beware the historians trap.
Minor Axiom 6 - Beware the chartists illusion.
Minor Axiom 7 - Beware correlation delusions.
Major Axiom 11 - Stubbornness
If it doesn’t pay off the first time, forget it.
Minor Axiom 15 - Never try to save a bad investment by
"averaging down".

Major Axiom 6 - Mobility Major Axiom 12 - Planning

Avoid putting down roots. They impede motion. Long range plans create the illusion of order amidst the
chaos. They should never be taken seriously.
Minor Axiom 9 - Don’t become trapped in a souring
venture because of feelings like loyalty or nostalgia. Minor Axiom 16 - Shun long-term investments.
Minor Axiom 10 - Never hesitate to abandon a venture
if something more attractive comes into view.
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An Introduction To The Axioms Minor Axiom 1.

These principles are about betting to win. Everyone wants Always play for meaningful stakes.
to win, but not everyone wants to bet. Therein is the very If you only bet what you can afford to lose, you can only win
key to success. Everyone wants to win without betting. The what won’t help very much. The only way to beat the
axioms discussed here apply in any situation where you put system is to play for meaningful stakes. You need to bet
your money at risk to make more money. amounts that worry you a little and that hurt if you lost.
To make any kind of gain in life, you have to put something Choose your own level according to the degree of worry
at risk. You must make a commitment of time, money, love you can tolerate - 25%, 50% or 100% of your wealth.
or something of value. The sensible approach is to not
shun risk but to learn to manage risk to your own advantage Minor Axiom 2.
with care and thought. Resist the allure of diversification.
The Zurich Axioms were developed by those with the most The investment community preaches the wisdom of having
experience of any in managing risk and winning - the Swiss a number of investments, in the hope that one good one
financial community. They contradict some of the most will make up for numerous failures or mediocre
cherished investment advice. And best of all, they work. investments. The actual fact is that diversification, by
reducing your risks, reduces by the same degree any hope
you may have of getting rich.
Major Axiom 1 - Risk
This philosophy has three major flaws;
Main Idea
1. It reduces your chances of playing for meaningful
Worry is not a sickness but a sign of health. If you are not
stakes.
worried, you are not risking enough.
2. You are creating a situation where your gains and
Supporting Ideas
losses stand to balance themselves out leaving you
If your main goal in life is to escape worry, you are going to where you started.
stay poor and be bored silly in the process. Life ought to be
3. You become like a juggler, trying to keep four balls in
an adventure, not a yawn. An adventure requires some
the air at once. You won’t be watching your investment
risk.
with the proper degree of care.
Worry is an integral part of life’s grandest enjoyments, and
In speculation, only put your money into those investments
not just the financial challenges. If you are afraid of risk, you
that really interest you. Never buy simply to have a
will never fall in love. You’ll never participate in a sports
diversified portfolio. Put all your eggs into one basket, and
event because you might lose. In these things, it’s the
watch that basket.
defeat of imminent failure that gives a spirit of adventure.
It’s the same for a financial strategy. Adventure is what
makes life worth living, and that means taking risk.
You can’t 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. There’s farther to go upward than you can go down
with this strategy, and you’ll have an adventure to boot.
"All investment is speculation. The only difference is that
some people admit it and some don’t."
- Gerald Loeb.
There’s no such thing as a risk free speculation. Calling it
an investment doesn’t change the facts - a gamble is still a
gamble. Put your money at risk. Don’t be afraid of getting
hurt a little.
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Major Axiom 2 - Greed
Main Idea
Always take your profit too soon.
Supporting Ideas
If you can conquer greed, you’ll 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 you’ll want to last forever. You can’t 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, you’ll 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, you’ll make more money if you can control your greed.
Sell too soon. Don’t 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. Don’t 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.
Major Axiom 3 - Hope
Main Idea
When the ship starts to sink, don’t 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. That’s 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 it’s half-submerged.
Take small losses to protect yourself from the big ones.
Most seasoned speculators sell whenever a stock has
retreated 10-15% from its highest price. There are three
obstacles that will stand in your way;
1. Fear of regret - that the short-term loser will turn out to
be a long term winner. You might miss out on a few
good ones, but it will save you long-term hassles.
2. The need to abandon part of an investment - if you
aren’t willing to abandon part of your original
investment, you are actually risking your entire
investment.
3. The difficulty to admit you were wrong - often the
hardest step of all. It’s a simple case of ego versus
bankbook.
Minor Axiom 4
Accept small losses cheerfully as a fact of life. Expect
several while awaiting large gains.
Ideally, you should welcome small losses as they protect
you from large losses. If you habitually cut your losses, you
aren’t likely ever to be really badly hurt. Get in the habit of
taking a small loss whenever a venture doesn’t pan out.
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Major Axiom 4 - Forecasts
Main Idea
Human behavior cannot be predicted. Distrust anyone who
claims to know the future, however dimly.
Supporting Ideas
The fact is that nobody has even the slightest idea of what’s
going to happen next year, next week or even tomorrow.
You have to get out of the habit of listening to forecasts.
Never take economists, market advisers or any other
financial adviser seriously.
They can be right occasionally and that’s what makes them
dangerous.
"It’s easy to be a prophet. You make twenty-five predictions
and the ones that come true are the only ones you talk
about."
- Dr. Theodore Levitt, Economist
In other words, if you can’t forecast right, forecast often and
hope nobody is scrutinizing the results too carefully. Every
prophet is going to be right sometimes and wrong more
times. To be able to profit from the advice, you’d have to be
in a position to make predictions about the prophet’s
predictions. But if you can do that, why do you need the
prophet in the first place?
All money phenomena are manifestations of human
behavior. For example, the stock market rises and falls
simply because of what men and women are thinking,
feeling and doing. Design your speculative program on the
basis of quick reaction to events that you can actually see
developing in the present. Never lose sight of the
probability that you may have made a bad prediction.
Major Axiom 5 - Patterns
Main Idea
Chaos is not dangerous until it begins to look orderly.
Supporting Ideas
Never try to see order where order does not exist. Don’t be
hypnotized by an illusion of order. Stay light on your feet,
ready to jump off a speculation whenever your end position
is reached or your loss level has been passed.
Do your own homework. Regard all investment advice with
the degree of skepticism it deserves. The more any other
person claims to be able to see a pattern amongst the
chaos, the more they should be distrusted.
For example, many get rich quick books claim to have
developed a formula for success that you too can follow,
when in reality, the author just got lucky. The author’s
illusion of order is self-generated by a happy streak and he
didn’t even know it. Any formula which ignores luck’s
dominant role can’t be trusted.
Minor Axiom 5
Beware the historians trap.
This is based on the adage that history repeats itself, with
the corollary that the orderly repetition of history allows for
accurate forecasting of the future in some circumstances.
It’s true sometimes, other times it isn’t. How can you tell in
advance?
Minor Axiom 6
Beware the chartists illusion.
Numbers on charts or lines on graphs are dangerous when
they make something look more solid than it is in reality.
This is similar to the historian’s trap. In reality, life never
happens in a straight line. Things happen in wild gyrations
way beyond the predictive ability of every person on the
planet. Don’t get sucked in by an illusion of order created
by a line on a piece of paper.
Minor Axiom 7
Beware the correlation and casualty delusions.
Humans are always trying to figure out cause and effect
relationships where none exist. Once again, we’re trying to
bring order to the chaos.
Minor Axiom 8
Beware the gambler’s fallacy.
The gambler thinks the perceived order in the chaos is in
himself, that his lucky streak has arrived and is here to stay.
This is just as dangerous as believing that you can predict
the future.
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Major Axiom 6 - Mobility
Main Idea
Avoid putting down roots. They impede motion.
Supporting Ideas
Preserve your mobility against anything that hampers your
speculative career; sentiments like loyalty or the wish to
wait around for a big payoff for example. Stay footloose and
ready to jump away from trouble or towards opportunity at
the earliest possible time. When a venture begins to sour
or something better beckons, don’t have any emotional ties
that impede you from moving.
In fact, the more earnestly you seek to be surrounded by
the familiar, the less successful you are likely to be as a
speculator.
Minor Axiom 9
Never become trapped in a souring venture because
of sentiments like loyalty and nostalgia.
When you have to choose between roots and money, show
where your speculative heart really lies. This applies to
companies or any other type of speculative venture.
Minor Axiom 10
Never hesitate to abandon a venture if something
more attractive comes into view.
Never get attached to things, only to people. Getting
attached decreases mobility and impedes your efficiency
as a speculator. You can be so tied up with a particular
speculation that a number of other good speculations pass
by in the meantime.
Major Axiom 7 - Intuition
Main Idea
A hunch can be trusted if it can be explained.
Supporting Ideas
There are three distinct approaches to hunches:
1. Scorn. Some people studiously ignore intuition, and
insist on fact like material, even if that material is goofy.
2. Indiscriminate Trust. This means leaning on hunches
too hard too often, and without enough skepticism. Can
led to some speculative calamities.
3. Discriminating Use. This is the Zurich approach. It
means discerning which of hunches are worth acting
on, and which aren’t.
This makes sense if you consider what a hunch is. It can
be thought of as something that you know, but don’t know
how you know it. Often it comes as the result of something
your subconscious has stored away somewhere you didn’t
even realize existed. It’s the result of information stored on
a not quite conscious level of your mind.
Therefore, when trying to gauge whether or not to trust a
hunch, ask these questions;
1. Are you sufficiently knowledgeable to have generated
that hunch? For example, have you been doing your
homework in that particular area?
2. If your hunch is about people, ask yourself what
information base you’re working from.
3. Don’t ignore other investment axioms just for the sake
of following a hunch. If it makes sense from the
perspective of your total business operation, then great.
If not, are you willing to risk everything on the basis of a
feeling you can’t quite explain?
Minor Axiom 11
Never confuse a hunch with hope.
When you have a hunch that something particularly good
will happen, stop and examine the background data with
extra care and double your guard. As a rule of thumb,
distrust any hunch that says the breaks you desperately
want are about to happen.
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Major Axiom 8 - Religion and the Occult
Main Idea
It’s unlikely that God’s plan for the universe includes
making you rich.
Supporting Ideas
You can’t pray yourself rich. In fact, if money is on your
mind while praying, you are more likely to pray yourself
poor in possessions and soul. You drop your guard and can
really get taken when you depend on the financial
protection of a supernatural power.
The Bible and virtually every religious creed teaches that
you are better off poor than rich. Leaning on supernatural
power is the same as lulling yourself into a dangerous,
unworried state with an illusion of order. Similarly, don’t
think you’ll be protected from financial disaster because
you trust in God.
Money and the supernatural are an explosive mix. Keep
the two worlds apart. Expecting help from God or any other
supernatural power lulls you into a false sense of security.
Lean on nothing but your good wits.
Minor Axiom 12.
If astrology worked, all astrologers would be rich.
Before you try to use astrology or any other mystical
doctrine to make money decisions, do yourself a favor.
Look at all those who profess to be its teachers, priests and
gurus. Are they rich?
If they are no richer than any other random group, you’ve
learned something very useful. You’ll find without
exception some are rich, some are poor and all would like
to be richer. In other words, they are no different to any
other random group.
They may have some astonishing stories to tell of lucky
predictions. They won’t be so forthcoming about their
failures. All these stories actually prove is that anyone who
speculates long enough will sooner or later score a
bulls-eye under seemingly weird circumstances.
If any form of occult worked flawlessly in financial
decisions, all it’s devotees would be rich.
Major Axiom 9 - Optimism and Pessimism
Main Idea
Optimism means expecting the best, but confidence
means knowing how you’ll handle the worst. Never make a
move if you are merely optimistic.
Supporting Ideas
Optimism can be a speculator’s enemy. It feels good and
for that reason clouds good judgment. It can also lead to
ventures with no exits, or persuade you to postpone using
the exit. Before committing money to a venture, ask how
you’ll save yourself if things go wrong. Then, you’ve got
confidence.
Optimism is the professional gamblers most effective tool
in emptying the pockets of amateurs. Confidence springs
from the constructive use of optimism.
Optimists think things are never as bad as they seem. In
matters of finance, things are nearly always as bad as they
seem, and most of the time a lot worse. The safest course
is to assume that if a situation looks bad, it is.
Optimism is altogether human and probably incurable. We
are drawn to optimists, and prefer their cheery news to that
of the pessimists. Watch out for them. They can befuddle
your judgment to an alarming degree. All you can do is try
to be aware of the optimistic bias in your own internal
compass and stay alert to its dangers from the point of view
of your financial health. Whenever you feel optimistic, try to
judge whether that good feeling is justified by the facts.

Minor Axiom 13
A superstition need not be exorcised. It can be
enjoyed, provided it is kept in its place.
The only way to let a harmless superstition into your life is
to do so with humor. Enjoy it when a situation will not lend
itself to rational analysis. Relax, have some fun, ride your
superstition as far as possible - just don’t take the approach
seriously.
 The Zurich Axioms - Page 7 -
Major Axiom 10 - Consensus
Main Idea
Disregard the majority opinion. It’s probably wrong.
Supporting Ideas
A majority, though not always automatically wrong, is more
likely to be wrong than right. Guard against betting
unthinkingly either with the majority or against, and
particularly when betting with it. Figure everything out for
yourself before putting any money at risk.
The trick is to disregard everything anyone tells you until
you have thought it through for yourself. You can disregard
the opinion of experts.
"Scarcely anything that has been pronounced by one
learned person the contrary of which has not been asserted
by another"
- Rene Descartes, philosopher.
You should also refuse to accept the majority opinion.
"..in the matter of difficult questions, it is more likely that the
truth should have been discovered by few than by many."
- Rene Descartes
The rightness of majorities is ingrained in our way of
thinking in a democratic society.
Minor Axiom 14
Never follow speculative fads. Usually, the best time
to buy something is when nobody else wants it.
Making a profit means to buy low and sell high. In other
words, by definition, you must be out of step to make a
profit. It’s extremely hard to think "yes" when everyone
around you is shouting "no" at the top of their voices.
Probably the best defense lies simply in being aware of the
nature of the pressure you are facing. Don’t allow yourself
to be bulldozed or swept along with public opinion, without
thinking things through for yourself.
This doesn’t mean you should automatically do what the
majority isn’t doing. It means only that you should
stubbornly insist on thinking things through for yourself,
and not being swept along in the crowd. This is simply
another illusion of order amongst the chaos. Besides, the
herd isn’t always wrong.
Major Axiom 11 - Stubbornness
Main Idea
If it doesn’t pay off the first time, forget it.
Supporting Ideas
Perseverance is like optimism - it has always made for
good press. You can persevere in your general effort to
learn, improve and grow rich. But don’t fall into the trap of
persevering in any attempt to squeeze a gain out of any
single speculative venture. Reject all thoughts that any
single investment owes you something. Value your
freedom to choose investments on their merits alone.
Perseverance, like any trait, can be useful sometimes but
detrimental at other times.
Minor Axiom 15
Never try to save a bad investment
by "averaging down".
This means if an investment goes down, you buy more so
your average purchase price has been lowered. However,
all you are actually doing is fooling yourself with a
misguided operation.
The better approach is to figure out why the price has
dropped in the first place. What are the reasons? Why do
you want to buy more of something the market has just
written down in value? Is it an investment you would
choose on its own merits if you didn’t already own any
shares?
Cost averaging clouds your judgment, and causes you to
miss other more beneficial opportunities that are available.
It also encourages you to disregard the Third Axiom
regarding when to jump ship.
 The Zurich Axioms - Page 8 -

Major Axiom 12 - Planning

Main Idea
Long-range plans engender the dangerous belief that the
future is under control. Never take your own long-range
plans (or other people’s) seriously.
Supporting Ideas
Keep the flexibility to be able to react to events as they
unfold in the present. Put your money into ventures as they
present themselves and withdraw it from hazards as they
loom up. Value the freedom of movement that allows you
to do this, and don’t ever throw that flexibility away.
A life long plan is an illusion of order where it can’t really
exist. People often talk as if the world is an orderly place in
which things can’t go wrong. It is clearly ridiculous to think
you can see the world’s future simply by looking at trends
in evidence today. Unknowable and unthinkable events
have a way of occurring all the time.
A smarter strategy is to stay light on your feet, ready to
respond to the trends of the future as they take shape.
When you see opportunities, go for them. When you see
danger, jump out of the way. The only long range plan you
need, as far as money goes, is an intention to get rich.
Exactly how you will accomplish that purpose is something
you cannot know except in a most general way. The only
way to prepare for the future is to continue studying,
learning and improving.

Minor Axiom 16
Shun long-term investments.
Long-term investors are the biggest gamblers of all. They
are betting their cash on the financial health of a company
way into the future, much further than they can possibly
project.
At the every least, every investment should be
re-evaluated every three months or so. Make it stand on its
own merits. Ask if you were going to make an investment
decision today, would you still invest in that company. If
circumstances have changed or are changing, or if you can
see another opportunity developing, make a move.
Brokerage commission really is fairly insignificant in the
context of the overall financial success of your long-term
aim.