Thoughts on Risk

Back in 2015, I read a book called, The Zurich Axioms, by Max Gunther. Since that time, I have spent a lot of time trying to put Max’s ideas into practice. The following are some of my reflections on what I’ve learnt.

If you are not familiar with The Zurich Axioms, it’s a book about investing. Or gambling. Max doesn’t make much of a distinction between the two.

The book does not, however, go into how to pick stocks or push money into mutual funds. Rather, it takes a much broader view of investing/gambling. As a result of that broader view, the book is much more useful than it would first appear.

The first major axiom is on risk:

Worry is not a sickness but a sign of health. If you are not worried, you are not risking enough.
— Max Gunther On Risk, “The Zurich Axioms”

This is so contrary to the way I usually think. If I can’t sleep at night because some problem is troubling me, I immediately feel that there must be a huge problem. I allow my stress to increase, my thoughts to race, and my mind to ponder the same “facts” again and again. Does something like this ever happen to you?

Yet, Max would try to convince us that this worry is good for you! And after living with his ideas for a while, I think I agree. Maybe you have a story like this, too: Because I put myself in a difficult position and worry, I come up with ideas and solutions that would never have occurred to me otherwise.

Or perhaps this is familiar to you: Because I go out of my comfort zone and invest in a new person at work, she develops the confidence to try something new and as a result, the whole team benefits. Each of these little situations is, of course, a kind of risk.

Max has two additional points about risk

1. Always play for meaningful stakes
2. Resist the allure of diversification

To me, the first idea simply means that if I find myself worrying about little things, it’s because I should actually be risking much more than I currently am. The game of life is full of opportunities, some big and some small. Though it is easy to focus on the little ones, the ones I’ve already conquered once before, that is not where the profit is. And I don’t just mean profit in the sense of money. There is neither growth, nor enjoyment, nor even self-esteem to be found in doing the safe things.

The second idea, “resisting the allure of diversification”, to me, is the call to mastery. I am a natural generalist — I’m good at a very large number of things, though not very deeply. Even so, when I focus in on a particular thing for a length of time and really master it, my pleasure grows greater.

Mastery may not sound like very much of a risk, but it certainly is! A generalist always has some response available, even if it’s not very good. A master, on the other hand, may become so focused on a specialty that other things will be done very badly. Reading this you might have in mind the brilliant professor who is socially awkward.

As you invest in yourself, in others, or in the market, make certain that you take on enough risk. You are probably capable of much more than you actually do on a daily basis. I would challenge you to push for meaningful accomplishments in the tasks and activities you take on.

I'd love to hear about some of the places you think you’re taking on too little risk in the comments below.