The Austrian School of Economics (ASE) is a body of knowledge in economic thought that initially developed in 1870 in Vienna Austria. Other than the fact that it originated there, it has nothing to do with the country of Austria. The ASE maintains that policy changes, which allow markets to operate freely, result in economic growth and wealth creation, whereas interventionist policies are not friendly to the markets and result in economic stagnation and wealth destruction. Some of the great thinkers with the ASE include Carl Menger, Ludwig von Mises, Murray Rothbard and Friedrich August von Hayek.
Carl Menger (1840 – 1921),
Founder of the Austrian School of Economics
Ludwig von Mises (1881-1973)
Murray Rothbard (1926-1995)
Friedrich von Hayek (1889-1992)
“Austrian economists, unlike the mainstream Keynesian economists, understand what truly causes inflation and recessions – the artificial expansion of the money supply by central banks. Since these are the two greatest threats to anyone’s investment portfolio, this understanding is critical.”
– Chris Casey, Managing Director of WindRock Wealth Management
One excellent reading which explains this value proposition of using the principles of the ASE towards investing and trading is called Austrian School for Investors by Incrementum Fund Managers Ronald-Peter Stoeferle and Mark Valek and Incrementum Advisory Board Members Heinz Blasnik and Rahim Taghizadegan:
Another excellent reading is called The Dao of Capital by Mark Spitznagel, Founder and Chief Investment Officer of Universa Investments. A quote from the author: “What I have dubbed Austrian Investing contrasts starkly to the far more typical investing approach that only weighs current contemporaneous opportunities, one against the other, hungry for yield, blind to the changing opportunities likely to materialize around the next bend.”
Followers of the ASE have been fairly successful at anticipating major economic events like the Great Depression, the stagflationary environment of the 1970s, the Dotcom Bubble and the Housing Bubble.
The Principles of the ASE Applicable to Investing and Trading
The Austrian School of Economics (ASE) emphasizes savings and investment, with minimal debt and leverage, and maintains that policy changes which allow markets to operate freely result in economic growth and wealth creation, whereas interventionist policies are not friendly to the markets and result in economic stagnation and wealth destruction. Profit opportunities exist when these changes are anticipated and interpreted properly, and when identifying cash-flowing businesses characterized by scarcity, innovation, longevity and growth in value.
Download our Paper here to see what we identify as the principles of the ASE applicable to investing and trading, and how we then take these principles to identify smart beta factors used in our investing and trading approach.
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