Value Investing from an Austrian Point of View

Chris Leithner:
This paper shows that value investors and Austrian School economists hold compatible
views about a range of fundamental economic and financial phenomena. These include
price and value; risk and arbitrage; capital and entrepreneurship; and time-preference and
interest. Indeed, with respect to these matters each group may have more in common
with the other than each has with the mainstream of its respective field. As background,
the paper uses the investment results of Leithner & Co. Pty Ltd, and a few of the
principles it has used to generate these results, to highlight and elaborate these
compatibilities.
To value investors, Austrian economics is (or should be) compelling because it subsumes
real economic and financial events within justifiable laws of human action. Unlike
mainstream economic and finance, Austrians not only acknowledge but also emphasise
the importance of entrepreneurship; indeed, Austrians acknowledge that sustained
entrepreneurial acumen, whilst hardly widespread, is nonetheless likely to exist. In turn,
value investing and the results achieved by prominent value investors may interest
Austrians because Grahamites hold quasi-Austrian views – or, at any rate, views that are
compatible to Austrian views – with respect to important economic and financial
principles. Value investors also illustrate the positive results that entrepreneurial action
can achieve. Despite the many follies of governments and mainstream economists and
investors, which often prompt value investors and Austrians alike to adopt rather dour
short-term outlooks, both Grahamites and Misesians are long-term optimists. To adopt
their approaches to economics and investment is ultimately to affirm a basic faith in
human nature, capitalism, one’s country and a future that will be at least as prosperous as
the present. The future envisaged by these economists and generated partly by these
investors helps to vindicate this faith.

Full paper.

Lecture.