The Marcus Today Axioms: Your Guide to Smarter Investing

Axiom Spelt With Blocks And Magnifying Glass

Marcus Padley’s Take on the Zürich Axioms

Your Guide to Smarter Investing

Marcus Padley | July 16th 2024 | Education Corner

There are 12 major and 16 minor “Zurich Axioms”, guidelines that were developed by Swiss bankers setting out some ground rules for trading any market. Max Gunther was the author of the book "Zurich Axoims" - his Dad was a Swiss Banker. One of the basic principles is that you have to take risks to make money. The conclusion being that making money is about who can best manage risk. Another axiom is that not everyone can make money at the same time, so making money is a battle with everyone else.

The Zürich Axioms are your guide to winning this battle, and here are a few of them, the potted version:

If you are not worried you are not taking enough risk.
Worry is a sign of health.
Always play for meaningful stakes.
Resist diversification.
When the ship starts to sink, jump.
Distrust anyone who purports to know the future.
Familiar things are usually unsafe.
It is highly unlikely that God’s plan for the Universe includes a sub-plan to make you rich (beware your own faith and superstition).
Optimism is to be avoided.
Make constructive use of pessimism.
The truth will be discovered by the few rather than the many.
If at first you don’t succeed, quit.
The only long term plan an investor should have is a plan to get rich.

Swiss Bankers are not the first people you'd call upon for entertainment, but when it comes to trusting someone with your fortune, you don’t exactly call on the Chippendales. Clearly when it comes to money, traits like cynicism, suspicion and mistrust have their place. Where faith, hope and trust, perhaps, do not. And it clearly works. The ability of the Swiss Bankers to adopt their own approach rather than accept a conventional banking role has propelled a global reputation for conservative, reputable, customer-focused discretion. For people you can rely on for long-term fiscal guardianship. I'm not sure I’d want cynicism permeating my approach to anything but we should be grateful, perhaps that we can call on the services of institutions that do.

Let's address a few of the principles:

When the ship starts to sink, jump. Another way of expressing this is that you will lose the battle if you don’t ever act, if you don’t do anything when things go wrong, if you don’t cut losses, don’t have discipline and don’t have any mechanism to minimise the risk. If you put your faith in the ship, in the market, in the research, in your own feeble opinions and don’t do anything about it when it is clear you have got it wrong, you are on the wrong side of the ledger. Learn to sell, expect to sell, and be decisive when it is time to sell.

Distrust anyone who claims to know the future. There is a lovely little story about orangutans that explains all you need to know about stock-market gurus. It goes something like this. Give everyone in Australia a dollar coin and ask them to flip it once a day. Anyone who flips heads stays in, and anyone who flips tails goes out. The people who flip tails put their coins in the kitty to be shared by those who continue to flip heads. After one day and one flip there are 11 million people who can boast they doubled their money in a day. After ten flips, there are 22,000 people who have made one thousand times their money in ten days. Another ten flips later and there are 22 people who have each flipped twenty heads on the trot and have each made a million dollars out of one dollar in twenty days. Stop the clock, and we have miraculously created twenty successful flippers, and we swarm over them in our quest to succeed as they have. We want to know what they know, how to flip and how to flip heads. We attend their free seminars on flipping, and they up-sell us to a $5,000 course on how we, too, can become successful flippers in just three days. Of course, the fact that twenty-two million Orangutans would have delivered exactly the same result is not the point. The bottom line is that predictions get clicks, and the more confidently someone predicts something, the more eyeballs they get. It doesn't make it more likely. Predictions are dangerous when delivered by talking heads for clicks.

Your Boat will not come in on its own. It is highly unlikely that God’s plan for the Universe includes a sub-plan to make you rich. I have always thought that Australians have this misplaced optimism that one day their boat will come in. Even my wife thinks she will one day win the Lotto. She has more chance of being hit by lightning 16 times. In the stock market, the truth will be discovered by the few rather than the many, and those very few will not have it land in their laps or be told it by someone on commission but will gain their advantage by applying themselves laboriously for years. Warren Buffett is not a genius, he wasn’t born with anything you don’t have, he’s simply done more work in the field than anybody else. Don’t expect it, go and get it. Getting good at investing means doing work.

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Optimism is a sales tool. It's everywhere. But it's of little use to an investor. Being a successful investor is about making money out of price movements. Being successful in the finance industry is about selling products, and because of that, the industry, the research, the books, the commentators and the majority of investors are all naturally awash with optimism. Everyone knows the market goes down as well as up, everyone knows it’s not possible to call the market consistently, and everyone knows that the most anyone can ever do is best endeavours, but even knowing that no one wants to hear a salesman say that. No one wants the truth. They want to hear optimism, they want to buy optimism, believe optimism and roll in optimism. But in the investment battle, it is a delusion that is best understood and admired but for your own purposes, avoided. Be realistic, not optimistic.

If at first you don’t succeed, quit. I know people, including friends, advisers and clients, that do nothing but consistently destroy value either for themselves or others. People who are wired to failure. It is almost always because they are impatient, unrealistic and short-term focused. Most of them are wonderful characters. Failures but characters. Characters that wake up each day wondering what they can get now rather than what they can build in the end. Characters who are constantly looking for the big win rather than a string of wins. Characters that will get to the end of their investment careers look back and shake their heads. For their own sakes, it would be better if they quit now. But they never will, they can’t, they love it too much even though they’re hopeless at it. You just have to have the courage to recognise it if you are one of them. If you are pretending to invest to cover your constant gambling. If you are continuously short term, you will go nowhere in the long term.

Finally - The Zurich Axioms are not your Axioms.

You have to develop your own, on your own. What you learn about trading success becomes your Axioms. What you discover is what will work for you. Everyone is selling their own theory, including Swiss Bankers, but investing is a personal experience developed over the years through experience. No one has the formula for you, and there is no Golden Bullet you can buy despite what many product sellers tell you in their advertisements. Your Axioms come from your experience. It takes time, and the sooner you start, the better.

THE MARCUS TODAY AXIOMS

Marcus Today has a few Axioms that we hope will help you frame yours. Most Marcus Today Members already know them. They include, amongst many others:

You can time the market.
Watch the herd don't join the herd.
Exploit the herd.
React don't predict.
The best you can do is wake up every day and make decisions based on the facts, not guesswork.
There is no certainty.
You have to take risks to make money.
"When" you enter or exit is based on how much risk you are comfortable taking.
Don't care about making mistakes.
The best you can do is assess the probabilities.
Value is a tiny part of the equation.
Australian banks are the best income stocks on the ASX, if not the world.
Your job is to make money in any price over any period of time.
Every share price is part value and part sentiment. You have to consider both.
Use any approach that helps. It's not a war.
Technical analysis narrows the probabilities and provides discipline.
Fundamental analysis is good for assessing quality, but not price.
You will never time stocks using fundamentals.
Emotion, pride and prejudice breed bad decisions.
Be Spock. Cold Calculating, logical.
Learn to sell.
Don't mistake people with a media gig for people who will make you money.
Everybody in the industry is selling you something.
The more confidently someone predicts something, the more eyeballs they get. It doesn't make it more likely.
Research is not written to make you money.
The trend is your friend until it ends.
The share price trend is talking to you. Listen.
The timeframe for every investment is forever, but only if it goes up forever.
Choosing what to buy is far less important than what you do after you've bought it.
These days you do not need to pay for average performance.

I know you won't because you can be bothered, but it would be interesting (for you) to list your own trading Axioms and, in so doing, reinforce them, sieve them, dismiss and develop them. What do you know about successful trading?

If you wrote a book for traders and investors, what advice would you pass on? What would be included in a book called "My Axioms"?

More about the author – Marcus Padley

Marcus Padley is a highly-recognised stockbroker and business media personality. He founded the Marcus Today Stock Market Newsletter in 1998. Over the years, the business has built a community of like-minded investors who want to survive and thrive in the stock market. This is achieved through a combination of daily stock market education, ideas and activities.

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