A Staggering 84% Of All S&P500 Assets Are Now Intangible

Featured Story

Last week, we brought you some of the latest musing from Bank of America’s Jared Woodard, who in the latest Research Investment Committee report discussed the reason why value investing is dead…

… attributing it to a recent transformation in the market where it is “all one trade” now:

However, besides the merely reflexive, where central bank liquidity, relentless momentum chasing, frenzied retail investing in out of the money calls and 3x levered ETFs coupled with the occasional institution forcing a marketwide gamma squeeze, combine into one explosive force propelling the “one trade” ever higher in the process leaving value in the dust, there is a far more tangible – or rather intangible – reason why “value” is no longer value in the conventional sense.

As BofA writes, investors should simply reconsider the definition and meaning of “value.” Take the price-to-book ratio, a favorite metric from the days of Graham & Dodd, and which to this day remains a key input to all major value indexes and factors. As BofA notes, investors should be aware that traditional book value (assets minus liabilities) ignores many of the resources that are most important to companies today.

This means that market leaders – such as enterprise software firms – generate cash flows in ways not easily recognized by conventional valuation metrics. At the same time, research & development performed by a company is recognized only as an expense, and investments in the skills of employees have conventionally only been recognized as administrative expenses.

But, BofA asks, what’s more intuitively valuable to a company like Google: the physical buildings and the network servers inside them, or the intangible algorithms running on those servers? In other words, whereas traditional book value makes sense in an economy composed of factories, farms, and shopping malls, it is increasingly irrelevant in an economy driven by intangibles like patents, licensing agreements, proprietary data, brand value, and network effects.

And the punchline: from just 17% in 1975, the total value of corporate intangibles has risen to over $20 trilion, representing a record 84% of all S&P assets! A breakdown of this divergence is shown below:

What does this mean for investors? As BofA’s Woodard concludes, “recent academic literature shows that an adjusted book value measure accounting for intangible assets can produce significantly better returns.” An adjusted valuation ratio would add the following to tangible book value:

  1. Reported intangible assets ex-goodwill;
  2. Research & development: expenses depreciated at sector-average rates; and
  3. Organizational capital: 30% of SG&A expenses depreciated at 20%/year

Receive a daily recap featuring a curated list of must-read stories.

There is already scientific backing for such a portfolio shift: Park (2019) found that an intangible-adjusted value strategy improved average annual returns by 260bps per year versus a benchmark. So for all those wondering why their value strategy isn’t working, don’t forget to account for the intangibles. Source: ZeroHedge

StevieRay Hansen
Editor, BankstersCrime

God often uses men who are not of the best moral character. Pharaoh, Nebuchadnezzar, Cyrus, Herod, and Trump (amongst others), to accomplish His will in events He orchestrates during human history. We either trust the sovereignty of God or we don’t. Nothing happens apart from Him…

The best index to a person’s character is how he treats people who can’t do him any good, and how he treats people who can’t fight back…

The Birth Pains Are Growing Stronger….

One of the signs of ruling class collapse is when they can no longer enforce the rules that maintain them as a ruling class. When the Romans started making exceptions to republican governance, it was a matter of time before someone simply decided the rules no longer applied to them. Perhaps the robot historians will consider Obama our Marius or Sulla. Maybe that person is in the near future. Either way, the rule of law is over and what comes next is the rule of men.

“Don’t piss down my back and tell me it’s raining.” Outlaw Josey Wales

WE NOW LIVE IN A WORLD THAT IS PURE FABRICATION

BanksterCrime

Don't Miss

Former Deutsche Bank Traders Convicted Of Fraud For Spoofing Precious Metals Between 2008 And 2013

By StevieRay Hansen

Former Deutsche Bank AG traders Cedric Chanu and James Vorley were convicted for manipulating gold and silver prices on Friday after three days of deliberation…

Read More

“An Extremely Dangerous Game” – Central Bankers ‘Extend & Pretend’ Has Increased Risk Of “Catastrophic Collapse”

By StevieRay Hansen

In recent weeks, there has been a lot of talk about the role of the world’s central bankers going forward. With that in mind, now seems like…

Read More

‘There Is No Monopoly Here:’ Tim Cook Welcomes Antitrust Investigation of Apple

By StevieRay Hansen

Speaking at the Atlantic Festival recently, Apple CEO Tim Cook discussed the antitrust issues that the tech giant is facing amongst a number of other…

Read More

Traders On Edge As Futures Fail To Rebound After Wednesday Rout

By StevieRay Hansen

US equity futures were subdued and European stocks rebounded from an early selloff as markets tried to stem the Wednesday rout sparked after a range…

Read More

WIrecard’s Business ‘Almost Entirely Fraudulent’, Auditors Uncover $1BN Loss, Report Finds

By StevieRay Hansen

Carmine Di Sibio, the international chairman of EY, said in a letter to clients published earlier thsi month that  while he “regrets” the firm’s staggering lapse…

Read More

How Big Banks Have for Years Engaged With Dirty Money, While the Working Class Struggle

By StevieRay Hansen

It Is the Elitist Way of Doing Things and the New World Order Will Even Be More Corrupt… The agency, which operates under the Treasury…

Read More

Deutsche Bank Trader Prosecuted By DOJ Was A London Gold And Silver Fixer

By StevieRay Hansen

This is just the beginning of corruption that will be exposed in the months ahead, more bankers will be headed to prison soon… ‘Beginning in at…

Read More

Stocks Suffer Longest-Losing Streak In Over A Year As Dollar Dump Continues

By StevieRay Hansen

Stocks are down for the 3rd week in a row – yeah we know!!! – leaving levered-call-buying RH’ers facing something they likely haven’t seen in their…

Read More

Ex-JPMorgan Trader Sentenced To 8 Months In Prison For FX Bid-Rigging

By StevieRay Hansen

Two years after former HSBC head of currency trading, Mark Johnson, became the first person to be convicted in a global crackdown of currency rigging…

Read More

Markets Will Crash within Days, Pull Out!

By StevieRay Hansen

But, but, but… The ‘very successful’ IPO of Snowflake now has everyone who bought after its release yesterday now underwater… The Nasdaq is leading the…

Read More
Posted in

StevieRay Hansen

Leave a Comment