ABSTRACT

This chapter provides how Austrian Finance could be used as a method to analyze and explain practical problems in finance. The investors from Graham-and-Doddsville, as Buffett called them, have by and large applied the principles of Austrian Finance. The strategy of "Focus Investing", followed by successful managers in the past, is an example of the practical application of the key ideas of Austrian Finance theory. A key feature of the Austrian Finance theory is the valuation of an asset on the basis of the cash flow expected over the investment horizon and discounted to its present value with an interest rate reflecting the subjective time preference. "Uncertain uncertainty" in the understanding of Austrian Finance cannot exist in their world. In Austrian Finance, however, the investment horizon plays a key role so that these aspects can be considered separately. In Modern Finance a portfolio is optimized with regard to return and volatility with intention to reach all objectives more or less.