Thread: Applied Value Investing by Joseph Calandro

What makes this book interesting is that it is the first popular explicit attempt to abolish the artificial micro/macro division in economics. By unifying the most consistently successful application of micro-economics, Graham and Dodd Security Analysis, to most consistently successful application of macro-economics, the portfolios of Soros and Buffet, artificial barriers between branches of economics are abolished.



This attempt does have its problems:



Too much reliance on the Austrian School of Economics without demonstrating how it is consistent with Graham and Dodd analysis or vice versa. From 1926-56 Graham-Newman returned 17.6% compounded returns vs. 4.4% for the DJIA over the same period. That at the very least is the biggest rebuttal of the Keynesian/post-Keynesian postulate of the animal spirits basis of that's school's theory of markets. The track record of Graham's protege, Warren Buffet, both a student and intern of Graham's is also very convincing but if the dots are connected to the Austrian school I didn't see it or least did not understand it when I saw it.



Other schools of value investing and risk management by Talib and "Panic" by Redleaf and Vigilante are not explored sufficiently much less their implicit take on macro-economics.



Hayek, Huerta and other more modern Austrians are either not cited or more rarely cited.



Still this is a start on getting rid of the thoroughly debunked normal distribution of results that is the basis of the Fisher/Keynes synthesis. (Mandlebrot, Thom and Lorenz disproved this postulate in the 60s using respectively Fractal analysis, Catastrophe theory, and Chaos theory.) comments?

[quote name='william the wierd' date='24 April 2010 - 05:54 PM' timestamp='1272146070' post='143254']

What makes this book interesting is that it is the first popular explicit attempt to abolish the artificial micro/macro division in economics. By unifying the most consistently successful application of micro-economics, Graham and Dodd Security Analysis, to most consistently successful application of macro-economics, the portfolios of Soros and Buffet, artificial barriers between branches of economics are abolished.



This attempt does have its problems:



Too much reliance on the Austrian School of Economics without demonstrating how it is consistent with Graham and Dodd analysis or vice versa. From 1926-56 Graham-Newman returned 17.6% compounded returns vs. 4.4% for the DJIA over the same period. That at the very least is the biggest rebuttal of the Keynesian/post-Keynesian postulate of the animal spirits basis of that's school's theory of markets. The track record of Graham's protege, Warren Buffet, both a student and intern of Graham's is also very convincing but if the dots are connected to the Austrian school I didn't see it or least did not understand it when I saw it.



Other schools of value investing and risk management by Talib and "Panic" by Redleaf and Vigilante are not explored sufficiently much less their implicit take on macro-economics.



Hayek, Huerta and other more modern Austrians are either not cited or more rarely cited.



Still this is a start on getting rid of the thoroughly debunked normal distribution of results that is the basis of the Fisher/Keynes synthesis. (Mandlebrot, Thom and Lorenz disproved this postulate in the 60s using respectively Fractal analysis, Catastrophe theory, and Chaos theory.) comments?

[/quote]

I'll check out the book.



Question: Since you imply that the book relies heavily on Austrian approaches, is its attempt at a unified theoretical paradigm to support its understanding of value investing devoid (or an implied rejection) of econometric analysis, the application of quantitative principles and mathematics, utility functions, indifference analysis, Pareto efficiency etc?

[quote name='Colin' date='25 April 2010 - 04:31 PM' timestamp='1272227464' post='143811']

I'll check out the book.



Question: Since you imply that the book relies heavily on Austrian approaches, is its attempt at a unified theoretical paradigm to support its understanding of value investing devoid (or an implied rejection) of econometric analysis, the application of quantitative principles and mathematics, utility functions, indifference analysis, Pareto efficiency etc?

[/quote]

More like different versions of most of them based on bottom-up rather than top down analysis. Also I wouldn't say relies on, more like asserts in a way I find unproven that bottom-up analysis results in a macro-economics that is Austrian.



This by the way is an assertion that is consistent with both behavioral and evolutionary economics. The biggest change is that the picture of economic man that is emerging is as a cooperative pack predator with a hierarchy of cooperation based on maximizing genetic income over at least four generations. The Bio-Rational Institute is one of the sources I use to keep track of these studies. So old style Austrian economics does have problems even if it is the least stupid of economic schools. Those problems include:



Pointing out that economic man is an extension of the specialty roles of the hunting pack and the cooperative exchanges needed to get the best weapons. A stone age spear requires a properly knapped point made from high-quality stone sometimes imported from 100s of miles away, the shaft too is made from worked wood that may not be available locally and bindings that may also have to be imported because the best hunting grounds are hardly ever the best places to make the best hunting tools. So extra meat has to be preserved to feed the quarrymen, woodsmen and so on to get the weapons to get the meat.



As production becomes more complex with spear throwers, pikes, portable racks for drying/smoking the meat and so forth customer feedback, multiple iterations of the implied matrix of goods, services and customer wants and needs drive innovation and greater specialization. Utility and indifference curves are at first easy to compute what causes the families of customers to grow is of higher utility. This kind of analysis can be extended indefinitely but the big question is it better to look at the market from the top down or bottom up?



The assertion that Austrian economics is the best approximation of bottom up analysis of current economic schools I find believable. That top down analysis often ignores important and often vital details is also true. Worse yet errors of top down analysis compound over time causing larger than necessary corrections. So I am very sympathetic to this assertion but I still don't think it proven.