From Menger's work we can derive 4 pillars of Austrian Investing.
The insights of the Austrian School of Economics will prove invaluable to investors navigating the distorted global economy of 2021.
This 18-tweet thread walks you through the definitive guide "Austrian School for Investors" by @scholarium_at, @RonStoeferle and @MarkValek.👇
From Menger's work we can derive 4 pillars of Austrian Investing.
This wide-ranging insight helps explain important economic phenomena such as the historical emergence of money.
Collective magnitudes like “the people” cannot act, & therefore cannot be treated as ultimate causes.
Austrians are cautious in their use of economic aggregates.
Austrians reject posited functional relationships between abstract statistical constructions such as CPI, GDP or unemployment.
@saifedean explains👇
Underpinning each is an acknowledgement of a fundamental fact about economic life: that humans act under conditions of scarcity.
When we employ resources there is always the need to make trade-offs.
Given that resources are finite at any given time, if we want to increase investment and thereby increase the rate of growth, we need first to reduce present consumption.
Unlike Keynesians, Austrians recognise that a nation's capital is a structure made up of distinct goods tailored to specific production stages.
Capital isn't amorphous, nor is it the same as "money".
They help society find the right balance between consumption and investment.
But investors today live in a world where rates are heavily distorted by central bank intervention.
For investors looking to make sense of this phenomenon, Austrian Business Cycle Theory (ABCT) provides an explanation.
@BobMurphyEcon explains👇
For entrepreneurs, low interest rates are a signal that sufficient resources have been made available to undertake projects profitably.
Authorities typically intervene to lower interest rates below their natural level by lending new money into existence.
This sends conflicting signals to the market.
>overinvestment in unprofitable projects as entrepreneurs are misled about the state of the economy. (We call these projects "malinvestments")
>overconsumption of consumer goods (and stimulation of late-stage production) due to decreased incentives to save.
It reveals itself in a recession: a “cluster of errors" where investors discover the resources needed to complete projects are insufficient.
@CaitlinLong_ explains👇
Metrics such as the Misesian Stationarity Index (Tobin's Q) and Rothbard-Salerno True Money Supply can help us gauge where we are in the cycle.
They include Harry Brown’s “Permanent Portfolio” which balances gold, cash, stocks and bonds to manage risks of the four scenarios for inflation and growth that are brought about by business cycles.
There are risks around its development, but Austrian theory suggests that bitcoin's attributes make it well suited to grow in use as a store of value.
@MarkValek explains👇
It equips us with the tools we need for navigating the uncertainty of a distorted world.
Its insights help us recognize patterns so we can invest wisely and act ethically.
This thread was produced by @TheAustrian3 as a partnership with "Austrian" investment firm Incrementum.
If you enjoyed, please retweet to help its message reach a wider audience.
You can find out more about Incrementum here: https://t.co/9ybj09IgMq
Austrian School of Investors by @scholarium_at, @RonStoeferle and @MarkValek, on which this thread was based, is available on Amazon here: https://t.co/4Q8HRCSZob
Resources by tweet number:
5: Principles of Economics by @saifedean: https://t.co/fmBcyu08Dm
7-14: Roger Garrison ABCT presentations: https://t.co/TP5YM94UjQ
11: Bob Murphy explains ABCT: https://t.co/A554TKiOmL
15: @RaoulGMI & @CaitlinLong_ interview: https://t.co/v9tPsqQ1g5
18: @RealVision: @AshBennington & @MarkValek: https://t.co/lb0dcqMzhv
His slides, which were the inspiration for my business cycle graphics above, can be viewed here: https://t.co/TP5YM94UjQ
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