Not so long ago, I wrote a post on risk. Admittedly, I actually spoke about it in the context of Unit Trusts – but sometimes, you need a springboard topic. Here’s the post:
Unit Trusts: Match-making for Difficult Personalities
FYI: there are some links in that post to free online risk assessment tests. You should take them. Everyone should have an idea of what kind of risk-taker they are.
And then they should read “The Zurich Axioms” by Max Gunther. I’m going to list the axioms for you here – but the book is basically a Philosophy on Risk-taking, as learned by a group of Swiss Bankers that had moved to Wall Street in the aftermath of World War II (Max’s dad was one of them).
I don’t necessarily agree with all of them (it’s because my favourite is the Tenth). I also think that the Third and the Eighth are hilarious.
- The First Major Axiom: Worry is not a sickness, but a sign of health. If you are not worried, you are not yet risking enough.
- Minor Axiom I: Always play for meaningful stakes.
- Minor Axiom II: Resist the allure of diversification.
- The Second Major Axiom: Always take your profit too soon.
- Minor Axiom III: Decide in advance what gain you want from a venture, and when you get it, get out.
- The Third Major Axiom: When the ship starts to sink, don’t pray. Jump.
- Minor Axiom IV: Accept small losses cheerfully as a fact of life. Expect to experience several while awaiting a large gain.
- The Fourth Major Axiom: Human behaviour cannot be predicted. Distrust anyone who claims to know the future, however dimly.
- The Fifth Major Axiom: Chaos is not dangerous until it begins to look orderly.
- Minor Axiom V: Beware the Historian’s Trap (ie. “the unwarranted belief that history repeats itself”)
- 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.
- The Sixth Major Axiom: Avoid putting down roots. They impede motion.
- Minor Axiom IX: Do not become 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.
- The Seventh Major Axiom: A hunch can be trusted if it can be explained.
- Minor Axiom XI: Never confuse a hunch with a hope.
ON RELIGION AND THE OCCULT
- The Eighth Major Axiom: 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, provided that it is kept in its place.
ON OPTIMISM & PESSIMISM
- The Ninth Major Axiom: Optimism means expecting the best, but confidence means knowing how to handle the worst. Never make a move if you are merely optimistic.
- The Tenth Major Axiom: Disregard the majority opinion as it is probably wrong.
- Minor Axiom XIV: Never follow speculative fads. Often, the best time to buy something is when nobody else wants it.
- The Eleventh Major Axiom: If it doesn’t pay off the first time, forget it.
- Minor Axiom XV: Never try to save a bad investment by “averaging down”.
- The Twelfth Major Axiom: 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.
- Minor Axiom XVI: Shun long-term investments.