The Zurich Axioms By Max Gunther
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Never hesitate to abandon a venture if something more attractive comes into view
There are many ways in which you can get rooted in a speculative medium to the detriment of your overriding goal of making money. One of the most common – it sneaks up and takes people by surprise – is to get into a situation in which you aren’t sure whether you are conducting a speculation or a hobby.
You have a collection of rare coins or stamps, let’s say. Or you have a living room that has turned into an art museum. You have reached a preset goal of doubling your money, but now you can’t bring yourself to sell the stuff. You’ve become too attached to it – or maybe some artsy-craftsy type has started you thinking it’s wrong to speculate in art for money. So there your collection sits at home, its capital value trapped within it. Meanwhile some other good speculations have come into view – speculations in which you could put the capital to good use. You have a hunch about the price of silver, maybe. Or you have a chance to get in on some local real estate speculation that looks good to you. What are you going to do?
You’ve got to decide whether you are a speculator or not.
Never get attached to things, only to people. Getting attached to things decreases your mobility, the capacity to move fast when the need arises. Once you get yourself rooted, your efficiency as a speculator goes down markedly.
Another common way to get rooted is to get into a situation in which you are waiting for something to pay off. This may happen to even more people than the speculation/hobby dilemma. It is possible to get trapped in a waiting game for years, while dozens of other good speculative opportunities drift tantalizingly within reach of your fingers, which are powerless to grasp them.
You’ve bought $10,000 worth of Hoo Boy Computer, we’ll say. You’re aiming at an ending position of $15,000. But Hoo By turns out to be a dog. It goes neither up nor down. Year after year the mangy old hound just sits there with its long tongue lolling out.
Meanwhile your eye is attracted by Hey Wow Electronics. Some piece of hard news makes you think Hey Wow is more likely to score a big gain in the next year or so than Hoo Boy Computer. You would buy a bundle of Hey Wow if you had any capital, but you don’t have a free nickel. It’s all tied up in Hoo Boy.
What do you do? The common reaction is to go on sitting on that Hoo Boy stock. “I can’t sell now! I’ve got to wait for my payoff!”
But think. If you have a good reason to believe a faster payoff is possible in Hey Wow, why not make the switch? It’s the same money no matter where it’s invested. If it grows to $15,000 in Hey Wow instead of Hoo Boy, you’ll have just as much fun celebrating.
Never get rooted in an investment because of the feeling that it “owes” you something – or, just as bad, the feeling that you “owe” it enough time to show what it can do. If it isn’t going anywhere and you see something better, change trains.
The only thing you lose by changing instead of staying is dealer’s or broker’s commission. If the capital value of the original investment has changed during the time you’ve held it, the act of selling makes you liable for a capital gains tax – or , conversely, wins you the right to declare a capital loss. But since we are talking about selling something that hasn’t gone anywhere in particular, this consideration is likely to be minor.
Of course, there is the possibility of regret, which we’ve studied under other Axioms. If you switch from Hoo Boy into Hey Wow, you are going to experience several different kinds of unpleasant emotions if Hoo Boy, the tired old hound, suddenly perks up and goes bounding uphill. That can happen, of course.
But the possibility of regret will also exist if you don’t switch. While you are still patiently sitting on Hoo Boy, Hey Wow may suddenly come to life, just as you suspected it might. You will then wish to kick yourself for staying with your original investment.
Since the possibility of regret is the same no matter what you do, you might as well leave it out of the calculation. It is self-canceling. The decision to stay or switch should ride solely on the question of which speculation, in your judgment, seems to offer the best promise for a speedy payoff.
This is the question you should ask yourself whenever you are holding one investment but are attracted to another. Don’t get rooted, whether because of a speculation/hobby dilemma, a waiting-for-a-payoff hang-up, or – just as much of a problem for some – fears and worries about abandoning something familiar for something new and unknown. Determine when your best chance seems to lie – and go for it.
Speculative Strategy
The Sixth Axiom urges you to preserve your mobility. It warns against the many things that can get you rooted, to the detriment of your speculative career: sentiments like loyalty, hang-ups like the wish to wait around for a payoff. It says you must stay footloose, ready to jump away from trouble or seize opportunities quickly.
This doesn’t mean you have to bounce from one speculation to another like a ping-pong ball. All your moves should be made only after careful assessment of the odds for and against, and no move should be made for trivial reasons. But when a venture is clearly souring, or when something clearly more promising comes into view, then you must sever those roots and go.
Be careful. Don’t let those roots grow too thick to cut.