Austrian Economics & Investing Austrian Economics

Transcript:Austrian Economics & Investing Austrian Economics:
Austrian Economics & Investing Austrian Economics & the Financial Markets May 22, 2010 Joseph Calandro, Jr. 1 Contents Background Introduction – Austrian Economics & Investing Investing & “Value Investing” Benjamin Graham Bottom-up v. Top-down Principle 1: Knowledge & the Circle of Competence Principle 2: Risk & the Principle of Conservatism Principle 3: Risk & the Margin of Safety Entrepreneurship & Franchise Value Franchise Value: Management Boom-Bust Conclusion Recommended Reading About the Presenter 2 Background I traded currencies & commodities in the 1990s, & did exceptionally well for 4 years; year 5, I was caught in the “Asian Contagion”… Examining the mistakes I made led me to the study of Austrian Economics & value investing, which was fortunate timing-wise (in a sense) In the late 1990s the “new economy” was booming: strong parallels with the “new era” of the 1920s “Austrian Business Cycle Theory” predicted the boom & bust waves of both business cycles, which is useful information for practicing investors Research published academically—including in the QJAE—which was expanded & published in book form: Applied Value Investing (NY: McGraw-Hill, 2009) This presentation is my opinion only. Not to attributed to any organization I am or have been affiliated with 3 Introduction – Austrian Economics & Investing Good economics facilitates good investing “… investment students need only two well taught courses—How to Value a Business, and How to Think About Market Prices.” -- Warren Buffett, 1996 Berkshire Hathaway Annual Report “Where there is no free market, there is no pricing mechanism; without a pricing mechanism, there is no economic calculation.” -- Ludwig von Mises, Economic Calculation in the Socialist Commonwealth (Auburn: LvMI, 1990 [1920]), p. 28 “Economics is the science which studies human behavior as a relationship between ends and scare means which have alternative uses.” -- Lionel Robbins, An Essay on the Nature and Significance of Economic Science (Auburn: LvMI, 2007 [1932]), p. 15 4 Investing & “Value Investing” “The capitalist-entrepreneur buys factors or factor services in the present; his product must be sold in the future. He is always on the alert, then, for discrepancies, for areas where he can earn more than the going rate of interest.” -- Murray Rothbard, Man Economy & State (Auburn: LvMI, 2004 [1962]), p. 510 “The books and the balance sheets are the conscience of business. They are also the businessman’s compass.” -- Ludwig von Mises, Bureaucracy (Spring Mills, PA: Libertarian, 1996 [1944]), p.