12 Old Money Secrets to Successful Investing

From the Zurich Axioms, which is based on investment advice handed down to the author from his father, a successful Swiss banker.

1.) On Risk

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

Adventure is what makes life worth living. Every occupation has its aches and pains. The rich have to worry about their wealth. But if there is a choice between wealth and remaining poor and worry-free, the choice is obvious. It is better to be wealthy and worried than to be worry-free and poor.

“Always play for meaningful stakes.”

If you invest $1,000 and your investment doubles, you have only $2,000 and are still poor! So if you want to be rich, you must increase your stakes.

“Resist the allure of diversification.”

Firstly, diversification negates the earlier principle of playing for meaningful stakes. Secondly, it may keep you where you began so that your gains on few will cancel out the losses on the other few. Thirdly, it entails keeping track of many more items leading to confusion and occasional panic.

2.) On Greed

“Always take your profit too soon.”

Lay investors having made the investment tend to hold it too long out of greed for higher profits. But one must conquer this weakness and book profits sooner. If one is less greedy for more profits, one will take in more. Don’t stretch your luck. In effect, SELL sooner than later.

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

Decide where the finish line is before you start the race so as not to fall victim to greed or become sidetracked en route to your goal.

3.) On Hope

“When the ship starts to sink, don’t pray, jump.”

If you’re sitting on a small loss but the fundamentals of an investment have now turned sour, sell, take your money and run! Don’t double down or wait it out. Accept a small loss to save yourself from a much larger loss.

“Accept small losses cheerfully as a fact of life.”

If you’re sitting on a small loss, but the fundamentals still appear strong or improving, be prepared to ride it out. Expect to experience several smaller losses while awaiting a larger gain.

4.) On Forecasts

“Human behavior cannot be predicted. Distrust anyone who claims to know the future, however dimly.”

The story of a monkey throwing darts on the stock exchange page of a newspaper, to select the companies to buy, and coming out a winner is too well known to be recited. Markets are driven largely by investor psychology and human events, both of which cannot be predicted by any method or by anyone. Hence, place little trust in anybody’s predictions.

5.) On Patterns

“Beware the Chartist’s Illusion.”

Life is never a straight line. No mathematical formula can forecast a stock price, which itself is based largely on investor sentiment and psychology.

“Beware the Historian’s Trap.”

The saying that ‘history repeats itself’ is ages old but entirely unwarranted. History never repeats itself, though sometimes it does rhyme. Don’t expect anything to happen again just because it has happened previously. The set of forces at play are always unique.

“Beware of Delusions of Correlation and Causation.”

Don’t be fooled by coincidences in the market. Unless you have data to support a correlation, assume it is merely coincidental.

“Beware the Gambler’s Fallacy.”

There is a gambling theory that suggests that one should put small stakes initially and test their luck, and if these turn out well one should go for big stakes on the dice table. But this is not correct. It only shows that winning streaks happen. But nothing is orderly about it. You can’t know how long it will last or when it will strike.

6.) On Mobility

“Stay away from putting down roots. They impede motion.”

It may feel socially comforting to have roots. But in financial life, roots can cost a lot of money. Have a flexible approach while investing. Retain an open mind to different types of investments.

“Do not become trapped in a souring venture because of sentiments like loyalty and nostalgia.”

Do not develop emotional attachment to your investments. You should feel free to sell when desired.

“Never hesitate to abandon a venture if something more attractive comes into view.”

Never get attached to things, but only to people. Otherwise it hurts your mobility. Never get rooted in an investment. You should remain footloose, ready to jump away from trouble or into a more profitable opportunity when circumstances warrant.

7.) On Intuition

“A hunch can be trusted if it can be explained.”

A good hunch is something that you know, but you don’t know how to explain. When a hunch hits you, try to locate reasons in your mind that explain the hunch. Only then should you act on it.

“Never confuse a hunch with a hope.”

Be highly skeptical. Examine every hunch with extra care.

8.) On Religion and Superstition

“It is unlikely that God’s plan for the universe includes making you rich.”

You can’t only pray that you should be made rich. You will have to work at becoming rich.

“If Astrology worked, all astrologers would be rich.”

This is self-explanatory. Don’t trust predictions.

“As superstition need not be exorcised, it can be enjoyed provided it is kept in its place.”

In your day-to-day financial matters, act rationally. But, when buying a lottery ticket, give it a full play to amuse yourself.

9.) On Optimism and Pessimism

“Optimism means expecting the best, but confidence means knowing how you will handle the worst. Never make a move if you are merely optimistic.”

In poker, and in many of other speculative worlds, things are never as bad as they seem – most of the time they are WORSE. Confidence comes not from expecting the best but from knowing how you will handle the worst. Optimism can be treacherous because it makes you feel good.

10.) On Consensus

“Disregard the majority opinion. It is probably wrong.”

It is likely that the truth has been found out by a few rather than by many.

“Never follow speculative fads. Often, the best time to buy something is when nobody else wants it.”

This is the best way to buy good stocks cheaply.

11.) On Stubbornness

“If it doesn’t pay off the first time, forget it.”

If at first you don’t succeed, try and try again and you will succeed in the end. This is good advice for spiders and kings but not for ordinary persons with regard to financial matters. Every trial is a costly error.

“Never try to save a bad investment by averaging down.”

If the price of the stock goes down after your purchase don’t buy more to bring down the average cost of your total holding. Investigate why the price went down rather than put good money in a bad bargain.

12.) On Planning

“Long-range plans engender the dangerous belief that the future is under control. It is important never to take your own long-range plans, or other people’s, too seriously.

This is self-explanatory and hence needs no comment.

“Shun long-term investments.”

If possible try to stay away from long-term investments. The author noticed that the Swiss group never took a long-term view of their stock purchases. They always sold out as soon as their targeted profit was achieved.

You can read how all these axioms fit together in The Zurich Axioms. Although, for whatever reason, this book is unavailable to those of you living in the UK or British Commonwealth countries. I have no idea why. But that’s what Amazon says.