Opportunity discovery or judgment? Value investing’s incompatibility with Austrian economics revisited

The persistent myth of the value investing paradigm’s compatibility with Austrian economics has already been debunked due to its fundamental contradictions with the Austrian theory of value and price. Yet, the conceptual foundations of value investing contradict contemporary Austrian theory on still another level, namely by embracing the opportunity-discovery view of entrepreneurship, rather than the judgment-based approach to entrepreneurship. The value investing paradigm posits an approach of systematically discovering and exploiting objectively existent profit opportunities, while the mainline Austrian view holds that such objective profit opportunities do not exist, and that the very essence of entrepreneurship lies in the act of judgmental decision-making under conditions of uncertainty instead. This paper seeks both to explain how the value investing paradigm misrepresents investors as methodical, systematic discoverers and exploiters of objective profit opportunities and, consequently, how this is in contravention of the judgment-based approach to entrepreneurship. Further, recognizing recent developments in the Austrian entrepreneurship literature, we suggest that the Beliefs-Actions-Results framework should replace the value investing framework as the operational investment process in the future development of Austrian investment theory.