Guo Jingpuwen.
Oppai's investment philosophy and practice
Investment must first clarify the goal, and must first clarify the meaning of wealth accumulation and use. "Investment is a reflection on one's own economic lifestyle", and value-oriented investment must be based on value storage, value-oriented consumption and donation.
The investment philosophy of the Austrian school is that investment is a process of making one's income higher than one's expenditure in a reasonable way, and the process of income being higher than expenditure must first and foremost be savings. The original meaning of saving (s**ing) is "to save". "Thrift, work, and earning a decent living are true civic morals" (Menger).
The happiness of our time, in fact, is constantly depreciating. In today's "debt-backed consumerist world," saving is no longer wise, at least not in the bank. When personal savings become insecure, social stability disappears as people lose their expectation of stability from each other.
The people with the highest time preference are found in Decameron because no one knows if they will survive tomorrow, and of course the people in Drexler's Frost and Fire who only live for 4 days. On the contrary, if the time preference is too low, you will fall into what Jung called "life without traces of life", where time passes in vain, and people are forever planning for an uncertain tomorrow and doing nothing in the irreproducible today.
Bombavik says that roundabouts lead to higher productivity. We need to balance immediate and long-term consumption, and human civilization, based on agriculture and settlement, is inherently a product of the distribution of resources across time.
1.Promises of Tomorrow – Money Markets and Progressivism.
Innovation always has a price, and people will always make mistakes when innovating. The market is where the costs of innovation are discovered and evaluated, and there are always innovations that far outweigh the benefits, which is the inevitable consequence of human freedom.
Investors must evaluate two extreme ideologies: one is rigid conservatism that glorifies the old days with an idyllic atmosphere, hopes that the existing order will perpetuate forever, and fears that all change will stifle innovation;The second is the belief that technology and progress can solve all problems, and that the impact of mistakes will always be compensated for in progress, which is blind progressivism. When progressivist views dominate the market, it will rise to create a huge bubble to exploit.
In the final analysis, the best of corporate profits is that entrepreneurs have discovered that the factors have not been fully evaluated by the market. Profits incentivize entrepreneurs to correct the mistakes of the market, but when interest rates are distorted or other means of intervening in the market are used, companies can rely on politicized means to make a profit—as long as they are close enough to the market, they can be the first to get currency and drive growth.
Interest rates are the result of human preferences, and interest rates show differences in valuations.
Political and economic change often begins with a number of personal, micro-strategic changes and first evolves into cultural changes. The monetary revolution has created both the fear of devaluation and the illusion of nominal assets, leading to the dependence of society and the population on debt and the expansion of credit driven by **.
The economic policies of Western countries after the Second World War can be summed up as a new bubble and inflation to cover up the depression that should have corrected the structure of production, leading today's young people to realize that their parents' so-called opposition to the system and rebellious ideals are nothing more than pretense, and that the value of labor has long been plundered.
The dilemma for today's young people is that they either have to wait until retirement to do what they want to do, or they can do it today but have to go into debt – their assets** are too high to be able to afford the work of their youth. The same is true for enterprises, no company can achieve income without relying on excessive financing, and external financing is also taking money that entrepreneurs should not take at low cost.
Eventually, in artificial economic cycles, young debtors and firms become incomparably vulnerable, accumulation cannot be realized effectively, long-term returns are reduced, and economic growth is commensurately lost.
2.Portfolio: hoarding, investing, spending, donating, speculating.
The Austrian school divides the use of funds into five categories: hoarding, investment, consumption, donation, and speculation. The author of this book gives a proposal for the allocation of funds in it, i.e. the portfolio: 30% is used to hoard liquidity, including ** and cash;30% for capital investment, including machinery, plant, business shares and leased real estate;30% is used for consumer durables, including owned property, art and household goods10% is used for donations**, charity, scientific donations, and the promotion of peace, environmental protection, and cultural causes.
The reason for giving a particular ratio is not to expect people to mechanically follow it, but to remind us of the importance of rebalancing. The author of this book explains the meaning of 5 types of behaviors and human preferences.
a.By securing liquidity and liquidity, hoarding enables individuals to remain mobile and stay active in the face of uncertainty.
When analyzing the marketability of goods, Fickert defined large-scale and small-scale marketability, which he called marketability and hoardability, and large-scale marketability is the goods that change slowly when the bid-ask spread increases slowly, such as cattle, which is generally liquidSmall-scale marketability is the slow change of the bid-ask spread when the quantity decreases, such as salt, and the general inventory turnover rate is low.
But hoarding is not simply hoarding metallic money. Gold and silver are both marketable and hoardable, making them good money. In addition, there is autonomy, intellectual assets are the assets with the highest autonomy, followed by physical **, and then cash that may be limited by ** and banks in times of crisis.
b.Investment is the process of building the structure of capital, which is "a complex web of goods, knowledge, decisions, labor, and human expectations."
It is not capital in the economic sense that does not bring productive returns, because capital will bring about a detour in the structure of production and create an increase in long-term consumption power, while ** and so on will not, and the same is true for self-owned housing. The purchase of ** and owner-occupied housing is not intended to be a hoarding rather than an investment in this sense. Investments put liquidity at risk in order to identify detours and lengthening of production structures that can improve productivity.
Improving products and services requires identifying unmet needs, improving existing solutions, disseminating knowledge of existing solutions, and making them available to more people.
The only way to realize the return on investment in a growing company is to sell a portion of it**, because the best way for a high-growth company to treat free cash flow is not to pay dividends but to invest in expanded reproduction, provided that actual growth is achieved rather than a monetary illusion.
c.Consumption is "the main area in which people express their purpose through priority", and consumption represents where in the world our time, attention, and appreciation are invested.
The purpose of accumulating wealth through consumption, accumulation of wealth and investment are only means, and people's behavior cannot be reversed. ESG opposes people's excessive consumption of nature, but encourages consumerism and restricts consumption in the name of environmental protection, and both final consumption and ESG have become a means to drive people to obey, and people's lives and survival are determined by **.
Why do we still struggle to increase our income when the tax rate on additional income is so high?Because conspicuous consumption is at the heart of consumerism, we can only resort to the symbols imposed on us by consumerism to maintain our image in the minds of others, and can only rely on additional income.
Genuine consumer durables can be a way to invest. The Austrian School emphasizes the responsibility of the individual, and the consumption choices of the individual can also affect enterprises, industries, classes, politicians, as well as human thoughts, behaviors, and ways of life and organization.
In his book Socialism - An Economic and Sociological Analysis (1951), Mises argues, "If people need spiritual products rather than those that narcotic the spirit, the capitalists who take a stake in the breweries will prefer to take a stake in a company that publishes books of faith." It is not the military-industrial complex that makes the war, but the war that makes the military-industrial complex. Forty years ago, in Frank Fetter: The Principles of Economics (1913), Fetter said, "Every penny is a vote."
Because every penny is a vote, currency devaluations and illusions actually weaken our influence on the world around us. Man's actions are characterized by his throwing scarce goods at **.
d.Donations are investments and expenditures that extend beyond one's lifespan. Giving has the longest impact on the production structure and the greatest circuitousness, so giving can play a huge role in the long-term development of productivity.
The ancient Greeks believed that a citizen was someone who was willing to pay for something that would not bring a return in the short term. This is directly related to the tension between what Campbell called "human life is limited" and "human society is almost permanent in relation to the limited life of individuals".
The concept of "sustainable development" originally came from the aristocratic family forestry management. An endowment is a capital that is managed for a long time or even in perpetuity with a sustainable framework and in accordance with the founder's values, which is a truly sustainable capital accumulation. Giving paves the way for capital accumulation and use in areas other than well-functioning businesses that generate income through value creation, such as areas where beneficiaries lack the ability to pay (e.g., philanthropy, micro-microloans, financial good), areas where they are too far ahead to pay (e.g., scientific research), areas where beneficiaries cannot be identified (e.g., libraries, sports competitions, festivals), and so on.
e.The purpose of speculation is to find and exploit market errors, so Austria recognises and defends speculation.
In the current era, people are particularly fond of behavior based on "grand narratives", which combine expectations for the future with fears of currency depreciation, and under the cognitive dissonance caused by massive information shocks, grand narratives that claim to solve problems are particularly suitable for communication, and therefore have the value and path of hype that goes viral, such as Bitcoin.
Investors must beware: don't underestimate the importance of the grand narrative. If foam can be found, then it should be utilized. A sensible investor should cherish every bubble.
3.Investment Practices.
In the analysis of the Austrian school's prediction of catastrophic events, we can see that the weakness of the Austrian investment theory is that it misses the artificial bubble, and they always warn of the risk prematurely halfway up the mountainThey can also endure huge fluctuations because they are convinced of their immunity to illusions.
To better guide investment from the perspective of the Austrian School, first of all, it is necessary to return to classifying the investment targets according to the definition of capital. Traditional investment targets, including money market, bonds, and assets, are highly liquid, cash flow, and risk of counterparty entrepreneurs, as well as high tax and property forfeiture risks, while various alternative investment targets differ in these four aspects.
The credit bubble of the boom did not simply create the illusion of profit and growth, which did not simply disappear when the bubble burst, but in fact obscured the fact that capital had been consumed because the structure of production was distorted in the long run.
a.Permanent Portfolio: Presented by Harry Brown in the 70s of the 20th century. 25% each for cash and 25% for bonds. Rebalancing occurs when a certain type of asset accounts for more than 15%-35% of the range.
Harry Brown proposed three principles: a good rate of return will increase the value of the investment in the form of compound interest, slowly become rich, and avoid taking unnecessary risks;Avoid major losses;The focus must be on the actual returns.
For the allocation of large types of assets, the four quadrants of economic development and inflation correspond to different assets: inflation-induced economic growth is conducive to ** and **;;Deflation-induced economic growth is good for ** and bonds;The economic stagnation caused by deflation is good for cash and bonds;Inflation-induced economic stagnation is good for cash and **.
From 1972 to 2010, there were only 6 years of negative real returns for permanent portfolios. The compound return for the period was 92% (nominal value) is almost combined with pure **9The return of 8% was flat.
In investment practice, different investment institutions have made some revisions to the permanent portfolio: appropriate diversification** investment, including investment in overseas markets, separate real estate commodity-related**, high growth**, etc. Maturity adjustment of long-term Treasury bonds. Entities are not suitable for large-scale ETFs and therefore invest in ETFs and related mining companies. The proportion of the cash component has been reduced, with preference given to Swiss francs and government bonds with nearer maturities.
b.*Called by Antony Sutton as a "last resort to be relied on", *at its core, there is no marginal diminishing effect, so that when a crisis comes, it can always be liquidated without discount, which is the fundamental reason for ** as a reserve.
The extremely high stock-to-flow ratio (more than 60 times compared to 20 times and copper with only a few dozen days of inventory) ensures that the stability of the gold price will not be affected by fluctuations in mining volume and technological progress.
There is no correlation with the inflation rate, but with the change in the inflation rate. When deflation and inflation are rising, **Ge benefits the most;The most unfavorable environment is when the inflation rate is positive but contracting, which is the deflation (deflationary) phase. That is, ** benefit from both ends of the crisis, hyperdeflation and hyperinflation.
The end of a bull market often means a rise in real interest rates, and the changes in the capital market that investors should watch out for are: What will happen to valuation models?What are the implications of rising interest rates on the economy and financial system?How will junk bonds and emerging market bonds perform?
Exeter Inverted Pyramid: In a liquidity crisis, risk is gradually transmitted and liquidity declines along the inverted pyramid (by John Exeter, former vice chairman of the Federal Reserve Bank of New York). We will see that the ladder of liquidity transmission is roughly as follows: small business - real estate - diamonds - gemstones - over-the-counter equity - commodities - municipal bonds - corporate bonds - listed companies ** - bonds - medium-term treasury bonds - paper money - ** This is also a form of liquidity oscillation.
Correlation between negative real interest rates and ***: The opportunity cost of holding ** is the abandonment of interest income. From the perspective of 5-year correlation, the correlation with ** is more than 05 of only **, copper, **05) and the U.S. Dollar Index (
* is a means of hoarding, while ** shares are a tool for investment or speculation. The ratio of the Barron** Mining Index BGMI to the gold price (average from 1939 to the present is about 1.).57) Worth referencing.
* **The ratio represents disinflation, and the best period of this ratio in the last 50 years was -2014. Historically, there has been a downward trend since 1990, with earlier increases dating back to 1870-1900 and 1920-1940. The years 1940 and 1990 were the highest points of the price comparison, both close to 100 (1 ounce to 100 ounces) for gold and silver, and the data source for the company's stock price analysis was the Federal Reserve Bank of St. Louis (Federal Reserve St.). louis）、*measuringworth.com, and the asset management company Incrementum AG.
c.* Ownership of equity capital.
In ** investment, there is a lot of overlap between the views of the Austrian school and value investing. The author begins by reviewing Graham's 10 principles. But value investors tend to emphasize that their investment strategies are not influenced by macroeconomic and monetary policies, which distinguishes the Austrian school from value investing. In the view of the Austrian School, only the additional creation of money enables the simultaneous emergence of assets in the consumer and production sectors, i.e., the destruction of the Hayek triangle.
Among the indicators of monetary expansion, the indicators of interest for specific companies include: EPS growth rate, William J o'neil) is 25%;EBIT and ROE also saw significant growth. The increase in sales is accompanied by the expansion of ** volume;roic。
Warning signs of the end of monetary expansion: CDS risk premium rising;Increases in defaults and private sector bankruptcies have led to higher interest rates on loans;The central bank raised its policy rate.
At the end of the monetary cycle, capital should be reallocated back to companies closer to the consumer side, while reducing the proportion of allocation**.
Companies need to have two characteristics to navigate the monetary cycle: robust debt metrics and a strong value orientation.
Family businesses (businesses in which insiders have control) take a longer-term view of decision-making and have more freedom and flexibility to start their business. Family businesses have happier employees and are more streamlined and efficient.
d.Bonds: Ownership of external capital.
Bond investors must be aware of the factors that trigger changes in bonds** during the monetary cycle, especially the ride-on effect. The rolling down the yield curve effect is when a bond** reverts to face value as the maturity date approaches, which is independent of the interest rate structure. The credit-regulatory cycle, when ridden, can cause unexpected losses to bond investors.
In addition to the more common types of bonds, the author of this book specifically analyzes several types of bonds.
*The use of bonds is not for production but consumption, and it is not possible to create added value in a roundabout way. The average yield on the 10-year U.S. Treasury bond since 1870 has been 465%。Some corporate bonds may be safer than **bonds, such as the Greek telecommunications company OTE during the Greek government bond crisis.
*Gold-backed bonds are more transparent, fairer and more attractive. The issuance of support bonds with the support of reserves can also revitalize reserves, encourage circulation and increase public confidence.
The issuer of a catastrophe bond (cat bond) mortgages a reinsurance policy, and the investor receives a separate income from other financial products.
1842 was the first year of the reinsurance business (the Great Fire of Hamburg), and Cologne Re was the oldest reinsurance company and the predecessor of Warren Buffett's Gen Re. Hurricane Andrew in 1992 led to the breakdown of the two-tier system of property insurance-reinsurance, and the underwriting risk of reinsurance needed to be diversified and transferred again, and catastrophe bonds came into being.
Catastrophe bonds are geared towards natural disasters such as **, hurricanes, fires, and some provide protection against terrorism and pandemics. The general maturity is 3 years, the yield is based on 3 months LIBOR + written premium (2-15% higher than LIBOR), and the expected loss ratio is 2% (one claim in 50 years).
e.Alternative Investments.
The most common form of alternative investment is derivatives. Small investors in the U.S. capital markets often use options, while Europeans can buy derivatives in the form of unsecured bonds issued by banks, as well as various structured certificate products. Metrics used to evaluate options include delta, gamma, vega, theta, rho, omega, and more.
Alternatives to options also include index certificates and contracts for difference (CFDs). The underlying asset of the index certificate is an unsecured bond. The purchaser of the gap contract is only obligated to pay the difference and is not required to buy any**.
After the emergence of a large number of derivatives, hedging** came into being and became an important choice for non-professional investors to make alternative investments.
The illusion in the digital currency space is particularly acute, because what can go viral determines the success of speculation. Digital currencies could also become something that truly creates value, or even denationalized money.
Bitcoin's ability to track payment flows means that it is an accepted digital currency, so it cannot be forcibly confiscated. Bitcoin can be seen as the original fiat currency proto-fiat money, which is currently only speculatively demanded. If Bitcoin can find real industrial demand, it can become a real currency: it is easier to transact, especially for cross-border transfers;High marketability due to anonymity;Easier access to new markets.
Regional investments, naturalized investments, and profit-sharing subprime loans can all be seen as some kind of DAO. Both regional and naturalization investments overlap with donation** in part in terms of concept and practice. Regionalwert AG is a limited partnership that buys shares in small companies in the region, and there are also regional investment companies that buy land and farms and choose tenants. Participants can choose between a general partner or a silent partnership.
ESG plays a big role in regional investment. The Austrian school criticizes this kind of idealistic approach to investing, arguing that "value-creation activities that are driven solely by idealism and without risk-taking cannot survive forever".
Naturalized investments can be participatory notes, and "sheep shares" where dividends are paid in kind are a successful example. This model is similar to a consumption subscription.
In the context of sustainable development or financial inclusion, Muhammad Yunus's microcredit is often mentioned, but in fact it is a re-education program created by means of loans, trying to create dependency and responsibility through loans.
The practice of microfinance is to borrow between $40-1,200, the loan term is 6-36 months, the average repayment rate is 98%, the loan interest rate is around 20%, and the lender yield is 3%-15%. The biggest advantage of microfinance as an asset allocation is its low correlation.
Resisting spiraling debt pressures boils down to microcredit to direct savings in the direction most likely to boost productivity, and the success of savings associations is to pool the savings of farmers, artisans, and small business owners and invest them in the best of them. Success stories in Germany include both rural (raiffeisen) and urban (schulze-delitzsch). The latter evolved into the "Volksbanks".
Microcredit embodies the ideals of the Austrian school – real savings are used for real entrepreneurial projects, entrepreneurs bear full responsibility for losses, and entrepreneurship is the driving force of business. But we must be clear that every attempt to build a larger market could become a trigger for a financial bubble or demand speculation. If investors fail to distinguish between investment behavior for the purpose of value creation and donation behavior for the purpose of improving important matters and pursuing fairness, they may fall into feeling good about themselves and lose rational judgment about the future.
Analytical tools and directions for future research
The most important findings of the Austrian School are the entrepreneurship-driven business cycle and the bank credit cycle supported by **. The re-understanding of the amount of money and the analysis of the capital structure can help investors recognize the position of the cycle and clearly understand the essence of investment in the monetary illusion, that is, the act of establishing the capital structure. In order to characterize capital markets, money markets, and the real economy, investors in the Austrian School will pay more attention to indicators that reflect the cost of capital.
1.Tobin Q (James Tobin, 1969).
The Tobin q-score was one of the most admired metrics by the late David Svensson. Tobin Q depicts the relationship between a firm's market capitalization and the replacement value of its major assets.
Hedging manager Mark Spitznagel developed the economic model of uniform rotation (ERE) proposed by Mises and Rothbard, called the "aggregate ERE", in which the total profit and loss of the entrepreneurial actions is 0. If the rate of return on total investment capital is permanently higher or lower than the cost of capital replacement, the net effect must come from the impact of monetary policy.
Spitznagel noted: "When the Q value is high, the large loss is no longer a tail event, but a predictable event. ”
Since 1950, the average Q value of the U.S. economy has been 07. The highest value is more than 16 (1999), the lowest value was 1974-1984, at 04. Fluctuations around.
2.Yield curve (term structure of interest rates).
The yield curve is the yield to maturity of bonds arranged according to the maturity date from near to far, and there are four forms of yield curve:
The normal pattern (convex, monotonous) corresponds to the expectation of economic growth and the possibility of a rate hike in the event of overheating at the far end;The horizontal pattern reflects the expectation of a rate cut, and investors will not be compensated for on the long end and will tend to hold the short end;The hump pattern is similar to the horizontal pattern.
An inverse pattern means that the market is consensus expecting the end of excess money**. Economist Paul Francis Cwik believes that the return curve will be reversed one year before the collapse, while Gary North believes that it will be six months ahead.
From the beginning of the reversal operation, the FED has been constantly intervening in the yield curve to maintain a normal pattern.
3.Technical Analysis – The primary purpose is to choose the right time to buy or sell.
The Austrian School's criticism of technical analysis is mainly based on the overemphasis on mathematical and statistical results, without the support of economic theory, and the marginalization of the influence of human action (i.e., the fundamental starting point of economic theory).
The most useful tools in technical analysis are sentiment indicators and traders' position reports, which are tools that truly reflect people's psychology and behavior.
4.Wicksell difference (Aubrey Thomas Aubrey, 2012).
Aubrey defines the "Wicksell Spread" as "the difference between the natural rate of interest and the rate of money rate," which is measured by a series of indicators, primarily the rate of return on equity and the rate of return on external capital;Monetary interest rates use a 5-year moving average of bond yields.
The natural interest rate represents the time preference of the whole society, that is, the discounted value of commodities relative to spot in the future, the expansion of the interest rate spread between the natural interest rate and the money interest rate, which should be invested in ** bonds, and the narrowing of the interest rate spread should be invested in commodities.
The difficulty with the Wicksell differential is how to construct the natural rate of interest to get close to the real value, which can only be observed in an equilibrium and unchanged economy, i.e., the interest rate differential between the various stages of production.
5.Interesting indicators worth looking into.
Perhaps the most important takeaway for investors from the Austrian School is to quantify the impact of monetary policy as much as possible. Some interesting indicators are given in the book around this issue: the ratio of total credit market debt to US GDP;The velocity of money is similar to the amount of money;Ratio of production expenditures for capital goods to consumer goods.
Research is for understanding, but also for action. The Austrian School was activist. In the writings and practices of the Austrian School, we can see the impact of investment, saving, and consumption on people, and that money, in their view, cannot be the pursuit of life, and that money is always a means, not an end.
ENDS).