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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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Sam replied on Sat, Jul 23 2011 4:23 AM

Jonathan M. F. Catalán wrote: "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."

 

Could you give some examples? You may be right, but a lot of recent cases of corporations which have received favours from government have prevented them from going under, rather than making them successful. So a stock which should go to zero (100% loss), ends up instead with a small loss (correct me if Im wrong but I think this has been the case with a lot of banks and General Motors).

There are a lot of corporations which do benefit a lot from protectionism. There are industries which get continuous help, like arms manufacturers and banks (in the good years) where the benefits of intervention are already priced into their stocks. You won't do well investing in these stocks unless the intervention intensifies (most of the excess benefits go to employees in pay and bonuses). And there are the corporations which get a sudden boost from a contract, or when a drug is approved, or when it gets a subsidy or favourable regulation. if you could predict these things, you'd make big returns, but this is basically inside information. Once you know what's going on, these stocks will probably already incorporate the benefits of intervention.

I'm reminded of Chomsky's who referred to a study (sorry I don't have a reference, but should not be a controversial claim for anyone who has read Mises) claiming that most large American corporations had been saved by the government. So then perhaps Jonathan's suggestion means you should buy stocks of most large corporations. Interestingly this doesn't differ much from what smiling dave categorically rejects.

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Interestingly this doesn't differ much from what smiling dave categorically rejects.

I was rejecting the notion of randomly choosing any ole stock.

As for buying stocks in a corporation just because it is large, yes that seems not very far removed from picking at random. Plenty of large corporations have lost a lot of money for their stockholders. Enron. GM. Many others.

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I believe you're right. It's very important to know where the government is injecting money in the economy.

 

The question is, how do you figure that out?

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