June's research paper: Intangible Value ✨

Can value investing strategies be improved by adding intangible assets?
👾 The Asset-Light Economy
🔮 The Dark Matter of Finance
🏰 Intangible Moats
📉 The Disruption of Value
👨‍🎓 Fixing the "Value Factor"

(Not investment advice)

🧵

(0/10) Full paper here 📘

Blog
https://t.co/omtrn9kfvt

PDF
https://t.co/87qE08qZCJ
(1/10) The Asset-Light Economy 👾

“The four largest companies today by market value do not need any net tangible assets. They are not like AT&T, GM, or Exxon Mobil, requiring lots of capital to produce earnings. We have become an asset-light economy."

- Warren Buffett
(2/10) The End of Accounting 🧮

“The constant rise in the importance of intangibles in companies’ performance and value creation, yet suppressed by accounting and reporting practices, renders financial information increasingly irrelevant.”

- Baruch Lev and Feng Gu
(3/10) The Dark Matter of Finance 🔮

While intangible matter holds the financial universe together, it is not visible to the naked eye. Unstructured data contains info on intangibles but is large, noisy, and resistant to standard statistical analysis.
(4/N) The NLP 🔭

Fortunately, the digital age has also triggered an explosion of new data and tools, enabling us to start exploring this brave new world.
(5/10) Intangible Moats 🏰

Intangible assets are quickly becoming the primary form of economic value. Firms with loyal customers, top talent, innovative products, and network effects are increasingly dominating economic activity.
(6/10) Intangible Balance Sheets 📋

We decompose the balance sheets of four firms to highlight their varying dependence on tangible assets, IP, human capital, brand, and network effects.
(7/10) Industry Balance Sheets 🏭

⚙️Tangible: Real Estate, Utils, Mats, Energy & Fins
🧬IP: Tech & Health
😃Human Capital: Tech, Health, Comm & Fins
🥇Brand: Consumer Staples & Disc
🕸️NFX: Comm & Tech
(8/10) The Disruption of Value 📉

Traditional value investing has continued to work -- but only as long as you avoid running it on high-intangible companies. Unsurprisingly, tangible value metrics have been ineffective in evaluating firms composed mainly of intangible assets.
(9/10) Fixing The "Value Factor" 👨‍🎓

The Fama-French "Value Factor" (i.e., price / book ratio) is a widely used academic benchmark. We find that adding intangibles might help improve it.
(10/10) Expanding Intrinsic Value ➕➕

More from Valuation

You May Also Like

I'm going to do two history threads on Ethiopia, one on its ancient history, one on its modern story (1800 to today). 🇪🇹

I'll begin with the ancient history ... and it goes way back. Because modern humans - and before that, the ancestors of humans - almost certainly originated in Ethiopia. 🇪🇹 (sub-thread):


The first likely historical reference to Ethiopia is ancient Egyptian records of trade expeditions to the "Land of Punt" in search of gold, ebony, ivory, incense, and wild animals, starting in c 2500 BC 🇪🇹


Ethiopians themselves believe that the Queen of Sheba, who visited Israel's King Solomon in the Bible (c 950 BC), came from Ethiopia (not Yemen, as others believe). Here she is meeting Solomon in a stain-glassed window in Addis Ababa's Holy Trinity Church. 🇪🇹


References to the Queen of Sheba are everywhere in Ethiopia. The national airline's frequent flier miles are even called "ShebaMiles". 🇪🇹