Oct

24

The Zurich Axioms by Max Gunther is one of the worst books ever written. There are a dozen axioms about cutting losses and cutting profits. But either there’s momentum or there isn’t, and it has to be tested. He doesn’t know anything about modern portfolio theory and says that you should double down in such things as commodities when you think they’re good, or stocks, but doesn’t tell you how this affects the risk or return. And the problem is when things look good, they’re usually bad, and vice versa. Nothing is tested. Everything is secrets from his father, and he tells you always to take your profit too soon. But an equally anecdotal person, Peter Lynch, has just the opposite view that you should hold every investment till it becomes a 10 bagger. For stocks, especially meme-driven companies such as retailers, that have the ability to replicate, my tests tend to show that Lynch is right. Like most books, since nothing is tested or documented it’s impossible to tease out the good from the bad. So when he tells you such things as disregard the majority opinion, you don’t know when you should do it, if at all. He tells you not to plan, but that’s the only thing an investor should do, as his life cycle, and choices among consumption and saving, is the main thing he should take seriously as he plans how much of his wealth he should have in liquid and risky investments as his needs for current and future satisfactions changes. The book is replete with anecdotes that are available for every point, and he summarized things like the wisdom of Getty, and the difficulties of General Motors, with the focus of a dilettante who has never actually invested or traded. A totally worthless book.

GM Nigel Davies replies:

The book has many flaws, and I got the impression the author is a playboy who had a wealthy and clever father. But I did find a number of things that were useful, namely the insights, probably second-hand, about different psychological states in trading and investing. It’s very dangerous to underestimate the importance of psychology within this or any game, not least because most people’s brains turn to jelly under fire. I posted before about police in shoot-outs being unable to count things like the number of bullets they have fired, and I have no evidence that traders perform better under fire in the markets. Even if they don’t fall apart completely, their thinking can show bias in favor of the hoped-for outcome. Thus, countists can be biased in that they will hone in on patterns that show the positive whilst ignoring the negative, failing to falsify their hypotheses by selectively hypothesizing.

I found the first axiom, “Worry is not a sickness but a sign of health; if you are not worried, you are not risking enough,” useful because of its contradiction of the deeply-held cultural belief that life should somehow be about relaxation. It’s a good point that people will be more worried when they don’t have a clue what they’re doing. But even if they do, and have “everything quantified,” there’s always risk. If anyone was long in May and June and not worried, he either had some screws loose or became punch-drunk.

Many of the other axioms are similarly useful; for example, the one on mobility recalled Lasker. But the examples used to illustrate them and attempts at application are just rubbish because of the total lack of methodology and the author’s apparent inexperience with trading and investing. It seems Gunther is a natural at psychology and got some second-hand wisdom from his father, but neither of these qualifies him to write an investment book. But there are worse trading books. And if any countists believe they are immune from the psychological weaknesses described, they are in serious danger.

Larry Williams adds:

I thought “Axioms” was a very good read from which I took away some good lessons. It is not a book that will give you a key or formula to the treasures but I think there is some wisdom there, or at least it was there for me.


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