lou
11-01-2012, 04:10 PM
A book quoted by Hoop in the Trade Me Tread. I thought it looked interesting so I gave it a read. I found it a very good investing book and it had a number of useful rules or Axioms. Alot of this fits into other investing stragegies but I thought I would post a summary for you guys;
There are 12 major Axioms and 15 sub minor axioms.
On Risk:
Major Axiom 1 - If there is no element of risk there will not be a significant return – if you are not worried, you are not risking enough. (smart risks)
Minor Axiom 1 - Always play for meaningful stakes – if an amount is so small that its loss won’t make any significant difference, then it isn’t likely to bring any significant gains either.
Minor Axiom 2 - Resist the allure of diversification.
On Greed:
Major Axiom 2 - Always take your profit too soon.
Minor Axiom 3 - Decide in advance what gain you want from a venture, and when you get it, get out.
On Hope:
Major Axiom 3 - When the ship starts sinking, don’t pray. Jump. Stick to your stop losses 10%-15% of the peak.
Minor Axiom 4- Accept small losses cheerfully as a fact of life. Expect to experience several while awaiting a large gain.
On Forecasts:
Major Axiom 4 - Human behaviour cannot be predicted. Distrust anyone who claims to know the future, however dimly. Forecasts change so don't cling to them. You need to be adaptive.
On Patterns:
Major Axiom 5 - Chaos is not dangerous until it starts to look orderly.
Minor Axiom 5 - Beware the historian’s trap – it is based on the age-old but entirely unwarranted belief that the orderly repetition of history allows for accurate forecasting in certain situations.
Minor Axiom 6 - Beware the chartist’s illusion – it is characteristic of human minds to perceive links of cause and effect where none exist. That head shoulders pattern or elliott wave is nothing more than squiggly lines on a piece of paper.
Minor Axiom 7 - Beware of correlation and causality delusions
Minor Axiom 8 - Beware the gambler’s fallacy – there’s no such thing as “Today’s my lucky day” or “I’m hot tonight”.
On Mobility:
Major Axiom 6 - Avoid putting down roots. They impede motion. An investment you can't sell out of can be costly.
Minor Axiom 9 - Do not become trapped in a souring venture because of sentiments like loyalty and nostalgia.
Minor Axiom 10 - Never hesitate to abandon a venture if something more attractive comes into view.
On Intuition:
Major Axiom 7 - A hunch can be trusted if it can be explained.
Minor Axiom 11 - Never confuse a hunch with a hope.
On the Occult:
Major Axiom 8 - It is unlikely that God's plan for the universe includes making you rich
Minor Axiom 12 - If astrology worked, all astrologers would be rich.
Minor Axiom 13 - A superstition need not be exorcised. It can be enjoyed, provided it is kept in its place.
Be an Atheist when you are investing.
On Optimism & Pessimism:
Major Axiom 9 - Optimism means expecting the best, but confidence mean knowing how you will handle the worst. Never make a move if you are merely optimistic.
On Consensus:
Major Axiom 10 - Disregard the majority opinion. It is probably wrong.
Minor Axiom 14 - Never follow speculative fads. Often, the best time to buy something is when nobody else wants it.
On Stubbornness:
Major Axiom 11 - If it doesn’t pay off the first time, forget it. An investment does not owe you anything.
Minor Axiom 15 - Never try to save a bad investment by “averaging down”.
On Planning:
Major Axiom 12 - 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.
There are 12 major Axioms and 15 sub minor axioms.
On Risk:
Major Axiom 1 - If there is no element of risk there will not be a significant return – if you are not worried, you are not risking enough. (smart risks)
Minor Axiom 1 - Always play for meaningful stakes – if an amount is so small that its loss won’t make any significant difference, then it isn’t likely to bring any significant gains either.
Minor Axiom 2 - Resist the allure of diversification.
On Greed:
Major Axiom 2 - Always take your profit too soon.
Minor Axiom 3 - Decide in advance what gain you want from a venture, and when you get it, get out.
On Hope:
Major Axiom 3 - When the ship starts sinking, don’t pray. Jump. Stick to your stop losses 10%-15% of the peak.
Minor Axiom 4- Accept small losses cheerfully as a fact of life. Expect to experience several while awaiting a large gain.
On Forecasts:
Major Axiom 4 - Human behaviour cannot be predicted. Distrust anyone who claims to know the future, however dimly. Forecasts change so don't cling to them. You need to be adaptive.
On Patterns:
Major Axiom 5 - Chaos is not dangerous until it starts to look orderly.
Minor Axiom 5 - Beware the historian’s trap – it is based on the age-old but entirely unwarranted belief that the orderly repetition of history allows for accurate forecasting in certain situations.
Minor Axiom 6 - Beware the chartist’s illusion – it is characteristic of human minds to perceive links of cause and effect where none exist. That head shoulders pattern or elliott wave is nothing more than squiggly lines on a piece of paper.
Minor Axiom 7 - Beware of correlation and causality delusions
Minor Axiom 8 - Beware the gambler’s fallacy – there’s no such thing as “Today’s my lucky day” or “I’m hot tonight”.
On Mobility:
Major Axiom 6 - Avoid putting down roots. They impede motion. An investment you can't sell out of can be costly.
Minor Axiom 9 - Do not become trapped in a souring venture because of sentiments like loyalty and nostalgia.
Minor Axiom 10 - Never hesitate to abandon a venture if something more attractive comes into view.
On Intuition:
Major Axiom 7 - A hunch can be trusted if it can be explained.
Minor Axiom 11 - Never confuse a hunch with a hope.
On the Occult:
Major Axiom 8 - It is unlikely that God's plan for the universe includes making you rich
Minor Axiom 12 - If astrology worked, all astrologers would be rich.
Minor Axiom 13 - A superstition need not be exorcised. It can be enjoyed, provided it is kept in its place.
Be an Atheist when you are investing.
On Optimism & Pessimism:
Major Axiom 9 - Optimism means expecting the best, but confidence mean knowing how you will handle the worst. Never make a move if you are merely optimistic.
On Consensus:
Major Axiom 10 - Disregard the majority opinion. It is probably wrong.
Minor Axiom 14 - Never follow speculative fads. Often, the best time to buy something is when nobody else wants it.
On Stubbornness:
Major Axiom 11 - If it doesn’t pay off the first time, forget it. An investment does not owe you anything.
Minor Axiom 15 - Never try to save a bad investment by “averaging down”.
On Planning:
Major Axiom 12 - 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.