Austrian Economics Aids the High Dividend Stock Investor Through the Market Minefield.

Investors accept the past record of companies as a basis for judging the future.  The stock analyst must be on the lookout for indicators to the contrary.  Most economists, stock analysts, mutual fund managers, hedge fund managers, and pension chief investment officers are schooled in Keynesian economics.  They can’t see the stock and bond market troubles ahead.  This is why they didn’t forecast the housing bubble and the subsequent stock market crash of late 2008.

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The ability to see what is coming is of inestimable value, but it cannot be expected to be part of the analyst’s innate abilities.  You should expect him to show a moderate degree of foresight which springs from logic and experience intelligently pondered.  Do not expect this from a Keynesian or Chicago school (supply-side) trained analyst.  Those economic theories are full of contradictions and will lead investors astray in the central bank induced boom-bust cycles.

Analysis of the future should be penetrating rather than prophetic.  Austrian economics is penetrating; Keynesian and Chicago school economics are prophetic.

There are many high dividend stocks that speculators overlook due to irregular or a downward earnings trend.  A penetrating analyst can pick out a company that will remain in business and can be counted on to earn about as much as before in good times (boom) and bad (bust).  A company in a prominent position in its industry with a strong balance sheet and selling at a deep discount can be bought with a very small chance of ultimate loss.  And it might very likely double during the next central bank engineered boom.

This type of reasoning does not lay emphasis on accurately predicting the industry’s future trends, but rather on reaching general conclusions that the company will continue to do business pretty much as before.

This is how private business purchases and investments are made.  This is also a conservative approach that allows for a liberal margin of safety in case of error or disappointment.  It runs considerably less risk of confusion between “confidence in the future” and mere speculative enthusiasm exhibited by most investors.

There were immense buying opportunities for high dividend stocks with earning power and strong balance sheets during late 2008 and the first quarter of 2009.  Don’t worry.  You haven’t missed your opportunity to scoop up great high dividend stocks at bargain prices.

There will be new buying opportunities in the next few years due to the insanity of nation, state, and local government deficit spending along with unprecedented counterfeiting by the central bankers worldwide.  All governments and central bankers are following the delusions of John Maynard Keynes.  Some are more delusional than others (e.g. the Federal Reserve and the US government).  Keynesian actions are characterized by massive money printing, to fund government deficit spending, on any so-called shovel ready projects, to build out the crumbling infrastructure, and to put people back to work digging holes while others fill them in, along with artificially lower interest rates that discourage savings.

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Published in: on January 13, 2011 at 5:35 pm  Leave a Comment  

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