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Every one likes to read a success story –especially if it is by the richie richs of the financial world. –Normally after one goes through what the gurus of Gyan have to say, it all seems like common sense doesn’t it? So who needs books are they worth spending money on?

Well if you go through some of them you will realize that even though what they talk about is really common sense, it seems like sequential common sense, which has to be applied altogether to produce the desired results. After common sense to an uncommon degree is what the world calls wisdom.

For example in his the best-selling book - Max Gunther wrote down principles which governed speculation strategies, particularly in stocks, adopted by his father and his father's other Swiss friends to make large fortunes on the Wall Street in USA. Principles perfected by these Swiss gentlemen have been called "Zurich Axioms" . These are considered to be "THE BIBLE" by short-term traders and relevant even today.

Axiom One: On Risk
"Worry is not a sickness but sign of health. If you are not worried, you are not risking enough."
It is better to be wealthy and worried than to be worry-free and poor. Also "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. "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

Axiom Two: 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. One way of doing this is to
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.

Axiom Three: 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! Expect to experience several smaller losses while awaiting a large gain.

Axiom Four: 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 contest 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.

Axiom Five: 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. "Beware the Historian's Trap" which is based on the age old but entirely unwarranted belief that history repeats itself. Also "Beware the Gambler's Fallacy." 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.

Axiom Six: On Mobility
"Avoid 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. "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. "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

Axiom Seven: On Intuition
"A hunch can be trusted if it can be explained."
A good hunch is something that you know but you don't know how to recognize it. When a hunch hits you, try to locate some data in your mind for any familiarity. Then only should you act on it. "Never confuse a hunch with a hope". Be highly skeptical. Examine every hunch with extra care.

Axiom Eight: On Religion and The Occult
"It is unlikely that god's plan for the universe includes making you rich". You can't only pray that you should be made rich. You will have to work at becoming rich. Mere prayers will not suffice.
"If Astrology worked, all astrologers would be rich."

Axiom Nine: On Optimism and Pessimism
"Optimism means expecting the best, but confidence means knowing how you will handle the worst. Never make a move if you are merely optimistic." In poker and a lot of other speculative worlds, things are never as bad as they seem - most of the times they are WORSE. Confidence comes not from expecting the best but from knowing how you will handle the worst. Optimism can be treacherous because it makes you feel good.

Axiom Ten: On Consensus
"Disregard the majority opinion. It is probably wrong". It is likely that the Truth has been found out by a few rather than by many. "Never follow speculative fads. Often, the best time to buy something is when nobody else wants it." This is the best way to get a good stock cheaply

Axiom Eleven : On Stubbornness
"If it doesn't pay off the first time, forget it".
If at first you don't succeed, try and try again and you will succeed in the end. This is good advice for spiders and kings but not for ordinary persons with regard to financial matters. Every trial is a costly error. "Never try to save a bad investment by averaging down." If the price of the stock goes down after your purchase don't buy more to bring down" the average cost of your total holding. Investigate why the price went down rather than put good money in a bad bargain.

Axiom Twelve: On Planning
"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." "Shun long-term investments."
If possible try to avoid long-term investments. The author noticed that the Swiss group never took a long-term view of their stock purchases. They always sold out as soon as their targeted profit was achieved.

In his book : The Tough-Minded Investor: How to Master Your Panic and Greed to Beat the Stock Market Clifford Pistolese, a successful U.S. investor with a track record spanning three decades, has spoken about the pitfalls of getting emotionally involved with your investments. He charts out the typical emotional gamut which an investor goes through when he buys a scrip. According to him it starts with Greed: The Motivation which is the motivation to buy a stock. Next comes Pride at having made a good selection. At this stage, somewhere the ego starts getting involved in the scrip. As the scrip does better there develops a Kind of Love, where you become emotionally attached to the stock and refuse to entertain any opinions that the stock may be overpriced. This is followed by Euphoric Joy, where the scrip performs beyond your expectations and you are convinced that it will rise further. With the rise plateauing out you refuse to recognize the first signs of Trouble- Well, you can afford to be patient. You’re in for the long haul. Then the first element of doubt surfaces. For a brief while you think of selling, but decide not to unless you can receive the highest price. When the prices continue to slide you experience Disbelief and Denial-Could it be a temporary aberration? You wait for the price to resume its climb. But it doesn’t. Instead it starts to slide further It just doesn’t make sense. Fear Rears Its Head During the next few months the price drifts slides further. You become fearful and call your broker every day. Should you sell? You will still get a good profit. You struggle to control your growing fear by assuming that the next earnings report will be better. You would feel foolish if you sell and the price starts moving up again. After a couple of days agonizing uncertainty, the stock begins trading in the low teens, a near about the price of your entry level. How could this happen? The price slides below your purchase price. Panic Takes Over
You are overwhelmed by a wave of despair. You sell at the market price which is below the value you purchased at.
So the crux of the problem lies in the fact that Can You Maintain Control? Since no two individuals are identical, and emotional reactions vary from person to person. For some people, greed and hope are more pervasive and can coexist with pride, love, euphoria, or disbelief until fear or panic take over. Some people may be too sensible to fall in love with a stock or to become euphoric. Some stay in a declining stock because of a combination of stubborn pride and disbelief. Others may experience fear, but may not surrender to panic. The fears of some will be so disturbing that they won’t sleep well at night. Some may never become fearful or panicky, but just decide to salvage something and sell sometime during the long decline. It is important to analyze your emotional reactions and susceptibilities in the market and adopt measures for establishing control over your emotions, instead of letting them control you. Every investor needs long term strategies for dealing with the short and intermediate term market fluctuations which can confuse and mislead him.

Aru Srivastava

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