Austrian School Value Investing
Ludwig von Mises, Meet Benjamin Graham:
Value Investing from an Austrian Point of View
Chris Leithner
Leithner & Co. Pty Ltd
Leithner Investments Pty Ltd
Level 3, Benson House
2 Benson Street
Toowong, Queensland, Australia chris@leithner.com.au www.leithner.com.au
Paper Prepared for “Austrian Economics and Financial Markets”
The Venetian Hotel Resort Casino
Las Vegas, 18-19 February 2005
I acknowledge the helpful comments of Robert Blumen and Prof Roger Garrison.
DRAFT – FURTHER COMMENTS WELCOME
2
Chairman: … One other question and I will desist. When you find a special situation and you decide, just for illustration, that you can buy for 10 and it is worth 30, and you take a position, and then you cannot realise it until a lot of other people decide it is worth 30, how is that process brought about – by advertising, or what happens? (Rephrasing) What causes a cheap stock to find its value?
Graham:
That is one of the mysteries of our business, and it is a mystery to me as well as to everybody else. [But] we know from experience that eventually the market catches up with value. Benjamin Graham
Testimony to the Committee on Banking and Commerce
Sen. William Fulbright, Chairman
(11 March 1955)
What we do is look for extremes in markets: very undervalued or very overvalued. Austrian theory has certainly given us an edge. When you have a theory to work from, you avoid the problem that comes with stumbling around in the dark over chairs and nightstands. At least you can begin to visualise in the dark, which is where we all work. The future is always unlit. But with a body of theory, you can anticipate where the structures might lie. It allows you to step out of the way every once in a while.
James Grant
The Austrian Economics Newsletter (1996)
3
ABSTRACT
This paper shows that value investors and Austrian School economists hold compatible views about a range of fundamental economic and financial phenomena. These include price and value; risk and arbitrage;
Value Investing from an Austrian Point of View
Chris Leithner
Leithner & Co. Pty Ltd
Leithner Investments Pty Ltd
Level 3, Benson House
2 Benson Street
Toowong, Queensland, Australia chris@leithner.com.au www.leithner.com.au
Paper Prepared for “Austrian Economics and Financial Markets”
The Venetian Hotel Resort Casino
Las Vegas, 18-19 February 2005
I acknowledge the helpful comments of Robert Blumen and Prof Roger Garrison.
DRAFT – FURTHER COMMENTS WELCOME
2
Chairman: … One other question and I will desist. When you find a special situation and you decide, just for illustration, that you can buy for 10 and it is worth 30, and you take a position, and then you cannot realise it until a lot of other people decide it is worth 30, how is that process brought about – by advertising, or what happens? (Rephrasing) What causes a cheap stock to find its value?
Graham:
That is one of the mysteries of our business, and it is a mystery to me as well as to everybody else. [But] we know from experience that eventually the market catches up with value. Benjamin Graham
Testimony to the Committee on Banking and Commerce
Sen. William Fulbright, Chairman
(11 March 1955)
What we do is look for extremes in markets: very undervalued or very overvalued. Austrian theory has certainly given us an edge. When you have a theory to work from, you avoid the problem that comes with stumbling around in the dark over chairs and nightstands. At least you can begin to visualise in the dark, which is where we all work. The future is always unlit. But with a body of theory, you can anticipate where the structures might lie. It allows you to step out of the way every once in a while.
James Grant
The Austrian Economics Newsletter (1996)
3
ABSTRACT
This paper shows that value investors and Austrian School economists hold compatible views about a range of fundamental economic and financial phenomena. These include price and value; risk and arbitrage;