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How do Austrian Economists pick stocks?

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GreenBulldog posted on Wed, Jul 20 2011 11:27 PM

How does Austrian Economists pick stocks?

I can see from reading some Austrian Economy books and listening to people like Gary North, Richard Maybury, Peter Schiff, Tom Woods, James Grant, Doug Casey, Gearld Celente and others; and reading stuff on mises.org, that they can predict where the economy is going in the big picture.

But how do they figure out the nitty gritty? For example, how do they pick specific stocks? What "methods" do they use? Also, what books should I read to educate myself so I can pick specific stocks like an Austrian Economist?

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Peter Schiff always talks about fundamental growth.

He looks at stocks in terms of dividend payments, stability and physcal (useful) production.  Dividends are only paid by companies that are structured well and have developed well (and are very profitable).

Read Peter Schiff's "Crash Proof 2.0" and anything from Marc Faber.

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Not sure about Austrians in general, but I've read that having a Monkey throw a wet towel at a stock listing is the best way. That is, diversify a lot and have an elemtn of randomness in it. The economy and stocks generally go up, and accoring to Charles Wheelan (Democrat nonetheless), such diversified portfolios beat even well-managed ones.

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I've read...Monkey...wet towel...is the best way

Have you read about the Flying Spaghetti Monster?

The economy and stocks generally go up

Two independent mistakes in seven words.

such diversified portfolios beat even well-managed ones

That is not meant to praise the monkey, but to insult the managers.

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I would think that they pick stocks using the same tools that all other investor/traders do: fundamental analysis, technical analysis, and sentimental (psychological) analysis.  (I'll use as evidence my own trading activities and those of my friends who trade, as anecdotal as that may be.)

There is no single rigid form of stock selection based upon being an adherent of Austrian Economics.  It does, however, allow for one to use a different lens, or point of view, when making choices on what to invest in or not.

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Answered (Not Verified) jay replied on Thu, Jul 21 2011 7:44 AM
Suggested by Clayton

I know next to zero about investing but I will stab.

Unless you have definitive, inside info, investing is as random and unpredictable as human preference. Politics definitely affects things but politicians are humans with preferences and goals, too. Legislation and regulations that affect stocks are like the wind blows.

Good luck.

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In our economy, the best way to pick stocks is to understand the relationship between the value of a stock and Washington's protectionism/interventionism.

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In our economy, the best way to pick stocks is to understand the relationship between the value of a stock and Washington's protectionism/interventionism.

A sad truth.  Yet, there are other opportunities.  I wish I had flipped burgers and saved the stash at my parents house for trading in previous years instead of wasting time and money seeking "hot" careers.  I would probably be rich by now with some of the picks I've had (with something in the bank to take advantage).  Getting some financial education earlier also would have set me up.  Overall I think it's still about being attuned to the world, having a broad knowledge of how things work rather than being a narrow specialist.  (Social pressure is a big hitch.)  Basically, I would not look to AS economists...  only well attuned financial people that are aware of it and even then you still have to bring something of your own or you are just herding.

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What jay said.

"Ever wonder why fund managers can't beat the S&P 500? 'Cause they're sheep, and sheep get slaughtered."

- Gordon Gekko

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"you still have to bring something of your own or you are just herding"

This.

Trade what you know and remember that arrogance is your greatest enemy... everyone - yes, that includes you - tends to overestimate what they know. It appers to me that most of the actually productive methods of stock trading are simply illegal. The whole point of having a market exchange is to disseminate the price implications of insider information as quickly as possible. Basically, pumping people for information is the actually valuable work that stock trading would be about in a free market. Market-wide investing is nonsense. You can't "invest in the market" it just doens't make sense. Almost all of the businesses in the market today will be bankrupt in a 10 years' time. How the hell is it "conservative" to put your money into all those businesses? It makes no sense at all. 

I'm also skeptical of broad-based investment vehicles such as sector-investment funds. I believe there is a bright future for biotech in the long run. It is the future, in my view. But I'm not going to go out and by a biotech fund for the same reason I won't buy a market-wide fund... most of those businesses will be bankrupt in 10 years. So, the value isn't really in the whole market, the value is in those few businesses that are going to get it right and I have no idea who those businesse are. Without that knowledge, the very generic information that "biotech is the future" is actually not very valuable or useful in picking stocks.

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It appers to me that most of the actually productive methods of stock trading are simply illegal.

What I identified as the easiest and most widely accessible method is using your knowledge of the company that you work in and your expertise in your field to judge where at least your company is heading (up or down) and perhaps where firms based on your field are heading.  I don't know where the line is drawn or whether there is a line at insider trading.  (There are stock options with some jobs.)   But, if I was a professional in the depths of a company it's almost inconceivable that I would not have either long or short position in it.

One thing that I learned from my investment fund course is that people have various risk tolerance.  Very few are like me: "get rich or die trying".  Many are scared to death of loss and just want "stability".  (Truth told, the only thing near complete stability is in a pine box.)  You have to decide where you are: how much do you want out of it and how much are you willing to put into it?  What one person does might not be right for someone else.

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I'm also skeptical of broad-based investment vehicles such as sector-investment funds. I believe there is a bright future for biotech in the long run. It is the future, in my view. But I'm not going to go out and by a biotech fund for the same reason I won't buy a market-wide fund... most of those businesses will be bankrupt in 10 years. So, the value isn't really in the whole market, the value is in those few businesses that are going to get it right and I have no idea who those businesse are. Without that knowledge, the very generic information that "biotech is the future" is actually not very valuable or useful in picking stocks.

Same goes for the commodites ETFs and ETNs. I'd rather own RJA, RJN, and RJZ than simply RJI. Even better would be to own the commodities individually. A perfect case was in April when Silver shot up to $50. If you owned the RJI, then you wouldn't have been able to sell silver without selling everything else.

To paraphrase Marc Faber: We're all doomed, but that doesn't mean that we can't make money in the process.
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I believe there is a bright future for biotech in the long run.

Did you see my thread on biotech?

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