The Principles of the ASE Applicable to Investing and Trading
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. Followers of the ASE have been successful at anticipating major economic events like the Great Depression, the stagflationary environment of the 1970s, the Dotcom Bubble and the Housing Bubble.
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.”
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.
The Cedar Portfolio holds stable, profitable, cash-flowing global businesses with manageable debt and leverage, and with an integrated view of ESG, Socially Responsible and Impact Investing. We categorize this overall approach as Responsible Investment (RI).
We incorporate RI into the investment decision-making process because it is a key part of our investment strategy, it enhances all stakeholders – investors, communities, employees, customers, suppliers and governments.
The guiding principles for our investment process on our equity model portfolio are as follows:
- We have a dual focus on businesses with both great financial and socially responsible performance;
- We see this dual focus as providing mutual synergy:
- Increasing profitability grows the stakeholder pie, enhancing socially responsible performance to all stakeholders
- Implementing responsible corporate actions and activities has a positive influence on financial performance;
- We incorporate RI assessment into our investment analysis and decision-making processes;
- We seek disclosure relating to RI by the businesses we have in our model portfolio;
- We strive to add value and enhance the businesses in our portfolio through active management.
Alex Edmans on The Business Case for Purposeful Business:
Our Investment Approach incorporates the objectives of the UN Principles for Responsible Investment, but uniquely we target these objectives based on the natural market principles of the Austrian School of Economics and Market Environmentalism – not Agenda Environmentalism – from the Austrian Economics Center.
We emphasize successful businesses in the economy with great ESG metrics that foster the 17 United Nations Sustainable Development Goals (SDGs). This approach is unique as other investment portfolios seek businesses meeting pre-defined ESG and SDG objectives, which may not necessarily result in identifying successful, outperforming businesses in the economy and financial markets.