The Zurich Axioms By Max Gunther

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, seriously.

Minor Axiom XVI

Speculative Strategy

Other titles by Max Gunther

Introduction

What the Axioms are and how they came to be

Consider the puzzle of Switzerland. This ancestral home of mine is a rocky little place about half the size of Maine. It has not one inch of seacoast. It is one of the most mineral-poor lands on earth. It possesses not a drop of oil to call its own, barely a bucket of coal. As for farming, its climate and topography are inhospitable to just about everything.

It has stayed out of European wars for 300 years; chiefly because, in all that time, there has never been an invader who really wanted it.

Yet the Swiss are among the most affluent people in the world. In per capita income they rank with the Americans; West Germans; and Japanese. Their currency is among the world’s soundest.

How do the Swiss do it?

They do it by being the world’s cleverest investors, speculators and gamblers.

This book is about betting to win.

Perhaps that makes it sound like a book for everybody. It is not. Everybody wants to win, of course. But not everybody wants to bet, and therein lies a difference of the greatest magnitude.

Many people, probably most, want to win without betting. That is an entirely understandable wish. There is nothing reprehensible about it. Indeed, many of our hoariest old Work Ethic teachings urge it upon us. We are told that risk-taking is foolish. A prudent man or woman places no bets beyond those that are required by the unalterable basic terms of human existence. The well-lived life is a nose-to-the-grindstone life, perhaps somewhat dull but safe. A bird in the hand…….

Well, everybody understands the trade-offs. If you have a philosophical bias against betting, you will find little that is useful to you in this book – unless, of course, it changes your mind.

But if you do not mind taking reasonable risks – or better, if you enjoy risk, as the Swiss do – then this book is for you. The Zurich Axioms are all about risk and its management. If you study the Axioms with the diligence they deserve, they can enable you to win more of your bets than you ever thought possible.

Let’s not mince words. They can make you rich.

The books is about betting in its broadest sense. You will find the stock market mentioned frequently because that is where most of my experience has been, but the book is not limited to that great supermarket of dreams. The Axioms apply as well to speculation in commodities, precious metals, art of antiques; to gambles in real estate; to the thrust and parry of daily business; to casino and table gambling. The Axioms apply, in short to any situation in which you put money at risk in order to get more money.

All of life is a gamble, as every adult knows. Many people, probably most, are unhappy with this fact and spend their lives figuring out how to place as few bets as possible. Others, however, take the opposite route, and among these are the Swiss.

Not all Swiss men and women display this trait, of course, but large numbers do – enough, certainly, to allow for generalisations about the Swiss national character. The Swiss did not become the world’s bankers by sitting in dark rooms chewing their fingernails. They did it by facing risk head-on and figuring out how to manage it.

The Swiss, amid the mountains, look around at the world and find it full of risk. They know it is possible to cut one’s personal risks to a minimum – but they also know that if you do that, you abandon all hope of becoming anything but a face in the crowd.

To make any kind of gain in life – a gain of wealth, personal stature, whatever you define as “gain” – you must place some of your material and/or emotional capital at risk. You must make a commitment of money, time, love, something. That is the law of the universe. Expect by blind chance, it cannot be circumvented. No creature on earth is excused from obedience to this pitiless law. To become a butterfly, a caterpillar must grow fat; and to grow fat, it must venture out where birds are. There are no appeals. It is the law.

The Swiss, observing all this, conclude that the sensible way to conduct one’s life is not to shun risk but to expose oneself to it deliberately. To join the game; to bet. But not in the caterpillar’s mindless way. To bet, instead, with care and thought. To bet in such a way that large gains are more likely than large losses. To bet and win.

Can this be done? Indeed. There is a formula for doing it. Or perhaps ‘formula’ is wrong word, since it suggests mechanical actions and a lack of choice. A better word might be ‘philosophy’. This formula or philosophy consists of twelve profound and mysterious rules of risk-taking called the Zurich Axioms.

Be warned: the Axioms are somewhat startling when you first encounter them. They are not the kind of investment advice most counselors hand out. Indeed, they contradict some of the most cherished clichés of the investment-advice business.

The most successful Swiss speculators pay scant attention to conventional investment advice. They have a better way.

The term ‘Zurich Axioms’ was coined by a club of Swiss stock and commodity plungers who collected around Wall Street after the Second World War. My father was one of the founding members. It wasn’t a formal club. There were no by-laws, dues, or membership lists. It was simply a group of men and women who liked each other, wanted to get rich and shared the belief that nobody ever got rich on a salary. They met irregularly at Oscar’s Delmonico and other Wall Street watering places. The meetings continued all through the 1950s, 1960s, and 1970s.

They talked about many things, but mainly about risk. The work of codifying the Zurich Axioms got started when I asked my father a question he couldn’t answer.

My father was a Swiss banker, Zurich-born and bred. The given names on his birth certificate were Franz Heinrich, but in America everybody called him Frank Henry. When he died a few years ago his obituaries made much of the fact that he had headed the New York branch of the Schweizerbankverein – Zurich’s financial colossus, the Swiss Bank Corporation. That job was important to him, but he once told me that what he really wanted engraved on his tombstone was this sentence: “He gambled and won.”

Frank Henry and I started to talk about speculation while I was in high school. He would look at my report card and grumble that the curriculum was incomplete. “They don’t teach you the thing you need most of all”, he would say. “Speculation. How to take risks and win. A boy growing up in America without knowing how to speculate – why, that’s like being in a gold mine without a shovel!”

And when I was in college and the army, trying to make choices about future careers, Frank Henry would say, “Don’t just think in terms of a salary. People never get rich on salaries, and a lot of people get poor on them. You’ve got to have something else going for you. A couple of good speculations, that what you need”.

Typical Swiss talk. I absorbed it as part of my education. When I got out of the army with a few hundred dollars in back pay and poker winnings, I took Frank Henry’s advice and shunned savings institutions, which he regarded with the greatest scorn. I put the money into the stock market. I won some, lost some, and ended with about the same amount I’d started with.

Meanwhile, Frank Henry was having a ball in the same market. Among other ventures, he made a bundle on some wildly speculative Canadian uranium-mining stocks.

“What is this?” I asked gloomily. “I invest prudently and go nowhere. You buy moose pasture and get rich. Is there something I don’t understand?”

“You have to know how to do it”, he said.

“Well, okay. Teach me.”

He stared at me silently, stumped.

What he had in his head, it turned out, were rules of speculative play that he had absorbed over a lifetime. These rules are in the air – understood but seldom articulated – in Swiss banking and speculative circles. Having lived in these circles since he got his first clerk-apprentice job at age seventeen, Frank Henry had assimilated the rules into his very bones. But he could not specifically identify them or explain them to me.

He asked hi Swiss Wall Street friend about them. The friends didn’t know exactly what the rules were either.

But from that moment on they made it their business to get the rules separated and clarified in their minds. It started as a game with them, but it grew more serious as the years went by. They formed the habit of questioning themselves and one another about important speculative moves: “Why are you buying gold now? …. What made you sell this stock when everybody else was buying? … Why are you doing this instead of that?” They forced each other to articulate the thinking that guided them.

The list of rules evolved gradually. It grew shorter, sharper, tidier, and more useful as time went on. Nobody remembers who coined the term ‘Zurich Axioms’, but that is the name by which the rules came to be known and are still known.

The Axioms have not changed very much in the last several years. They have stopped evolving. As far as anybody knows, they are now in their final form: twelve Major Axioms and sixteen Minor Axioms.

Their value seems to me incalculable. They grow bigger each time I study them – a sure sign of fundamental verity. They are rich in secondary and tertiary layers of meaning, some coldly pragmatic, some verging on the mystical. They are not just a philosophy of speculation; they are guideposts for successful living.

They have made a lot of people rich.