The ‘Zurich axioms’: what you need to know


 

 

 

The title is pompous, but the book is small and easy to read. This is the work The Axioms of Zurich, written by Max Gunther. Criticized by some, admired by others, this little book managed to become a bestseller worldwide.

Like any text, it’s important to read and think critically before going out there applying the principles Gunther wrote about. After all, he himself warns: the advice is “scary” and contradicts some of the “clichés” of the financial market.

The origin of the “Zurich axioms”

According to the author, the expression “Zurich axioms” was coined in New York in a kind of club formed by Swiss bankers and businessmen who would have made a fortune investing in stocks, real estate and other assets. Your father would be one of them.

rules for speculating

Gunther makes it clear that the book’s 12 major principles are for speculation. The work deals with risks and how to manage them when investing money in currencies, company shares, real estate and other investments.

When talking about risk, he says: “worry is not a disease. If you’re not worried, you’re not risking enough.”

On intuition argues that “one can only trust a hunch that can be backed up by facts”.

To those who make a mistake in some application, the author is adamant: “when the boat starts to sink, the order is to abandon it and not waste time with prayers”, in a clear reference to selling, even at a loss, a bad investment done.

Criticism of the axioms

There are dozens of rules for investors to take risks and, if all goes well, make money. That’s exactly the problem: taking too much risk is for professionals. Speculating in real estate, the Stock Exchange, the exchange rate and in other areas requires training, in-depth knowledge of the sector in which it operates and good risk management, in addition to risk capital.

The criticism that many people make of the book is that, if the small investor takes as much risk as the author proposes, he may end up seriously compromising his capital in highly speculative businesses. In other words, he could quickly lose his hard-earned money.

Experts say it’s important not to take everything the book says literally.

Gunther writes, for example, that getting rich depends more on luck, which leads to the deduction that many investments are a kind of gambling and not a matter of study and planning.

In another part of the book, when the author says to abandon ship when an operation goes wrong, this is an incentive to turn over assets, which brings costs. Furthermore, it does not take into account long-term investment, which will always be subject to market fluctuations. These oscillations can be diluted over time, depending on the quality of the asset.

Is it worth reading?

For those who have experience, mainly, with short-term speculative operations on the Stock Exchange, for example, the book brings some statements proven to be correct in certain contexts, such as “escape from the majority opinion” or “one can only rely on a hunch that can be explained”.

But for novice long-term investors (five, ten years) Gunther’s work can create confusion, as it discourages investing in assets whose financial return will come over five years, ten years or more.

The book shocks investors who follow strategies such as those formulated by Benjamin Graham, who in the book The Intelligent Investor gives the recipe for being successful in long-term operations in the stock market.

Yes, it is worth reading the book The Zurich Axioms, as long as it is taken from a critical point of view, and extracting what is useful in it, even if the reader believes that the financial market is not dominated by “axioms”.

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