With the markets sliding leaps and bounds, you need to keep your calm and find ways to cushion the free fall. In a book review of Zurich Axioms, our expert Kanu Doshi, talks about 12 strategies that can help you reduce your loss.

Reviewer's Note:
The author (Max) son of a very wealthy Swiss citizen by name, Franz Heinrich, (whom Americans preferred to call Frank Henry), jotted down all the principles of speculation strategies, particularly in stocks, adopted by his father and his father's several other Swiss friends to make large fortunes on the Wall Street in USA in roaring Eighties. Principles perfected by these Swiss gentlemen have therefore been called "Zurich Axioms" by Max.

Enumerated below are twelve major principles and sixteen minor ones with brief comments by Kanu Doshi on each of them:

First Major Axiom: On Risk
“Worry is not a sickness but sign of health. If you are not worried, you are not risking enough.”
Adventure is what makes life worth living. Every occupation has its aches and pains. The rich have to worry about their wealth. But, if there is a choice between remaining poor and worry-free, the selection is obvious. It is better to be wealthy and worried than to be worry-free and poor.

Minor Axiom I:
“Always play for Meaningful Stakes.”
If you invest Rs. 1000 and your investment doubles, you have only Rs. 2000 and are still poor! So if you want to be rich, you must increase your stakes.

Minor Axiom II: 
“Resist the allure of diversification”.
Firstly, diversification negates the earlier principle of playing for meaningful stakes. Secondly, it may keep you where you began so that your gains on few will cancel out the losses on the other few. Thirdly, it entails keeping track of many more items leading to confusion and occasional panic. 

Second Major Axiom: On Greed 
“Always take your profit too soon.”
Lay investors having made the investment tend to stay too long on it out of greed for higher profits. But, one must conquer this weakness and book profits soon. If one is less greedy for more profits one will take in more. Don't stretch your luck. In effect, it suggests, SELL sooner than later.

Minor Axiom III:
"Decide in advance what gain you want from the venture, and when you get it, get out. Decide where the finish line is before you start the race".

This is self explanatory and hence needs no comment.

Third Major Axiom: On Hope
“When the ship starts to sink, don't pray, jump”
This axiom is about what to do when things go wrong. Learn how to accept a loss. One should accept small losses to protect oneself from big ones. When the market starts falling, sell, take your money and run!

Minor Axiom IV:
"Accept small losses cheerfully as a fact of life."
Expect to experience several smaller losses while awaiting a large gain.

Fourth Major Axiom: On Forecasts
"Human behavior cannot be predicted. Distrust anyone who claims to know the future, however dimly."
The story of a monkey throwing darts on the stock exchange page of a newspaper, to select the companies to buy, and coming out a winner is too well known to be recited. Recent news from London, further proves the truth, when an untrained chemist's stock selections, in a widely publicised contest open to all and sundry, registered higher appreciation over several full time highly qualified fund managers' well researched selections. Human events cannot be predicted by any method by anyone and, hence, don't trust anybody's predictions.

Fifth Major Axiom: On Patterns
"Chaos is not dangerous until it begins to look orderly."
The truth is that the world of money is a world of patternless disorder and utter chaos. This axiom is a commentary on Technical Analysis - a branch of investment strategies based on charts and patterns. The fact is, no formula that ignores own intuition's dominant role can ever be trusted.

Minor Axiom V:
"Beware the Historian's Trap".
This is based on the age old but entirely unwarranted belief that history repeats itself.

Minor Axiom VI:
"Beware the Chartist's Illusion".
Life is never a straight line. Let us not be hypnotised by a line on a chart.

Minor Axiom VII:
"Beware the Co-relation and Causality Delusions."
Don't be taken in by coincidences in the market.

Minor Axiom VIII:
"Beware the Gambler's Fallacy."
There is a gambling theory which suggests that one should put small stakes initially and test their luck, and if these turn out well one should go for big stakes on the dice table. But this is not correct. It only shows that winning streaks happen. But nothing is orderly about it. You can't know how long it will last or when it will strike.

Sixth Major Axiom: On Mobility 
"Stay away from putting down roots. They impede motion".
You may feel socially comforting to have roots. But in financial life, roots can cost a lot of money. Have a flexible approach while investing. This axiom implies a state of mind.

Minor Axiom IX:
"Do not become trapped in a souring venture because of sentiments like loyalty and nostalgia."
Do not develop emotional attachment to your investment. You should feel free to sell when desired.

Minor Axiom X:
"Never hesitate to abandon a venture if something more attractive comes into view."
Never get attached to things, but only to people. Otherwise it hits your mobility. Never get rooted in an investment. You should remain footloose, ready to jump away from trouble or into a profitable opportunity as and when circumstances demand.

Read the next 6 principles on page 2...