Let’s stop guessing and start counting intangible investments

I just posted a comment on an IAM blog post about Intangible Value and the Herd Instinct. It cited Nir Kossovsky, my colleague from IAFS, as saying that the S&P 500 has a larger intangible premium than the average of all western stock markets due to a market perception of better value from that market.

Here’s my comment:

Nir’s hypothesis is possible. But the truth is that we really don’t know.

Both (IAFS and OT) assume that the market is always right on the intangible asset premium, which is really just a plug number between market cap and book value.

Until companies start tracking their investments in intangible capital expenditure the same way that they track tangible capital expenditure, we will never know for sure. (This can be done through a management report even if the intangibles are not put on the balance sheet)

Investors, boards and managers should all be demanding this information. The intangible premium does not emerge from the ether. It is the consequence of continual investment in building the intangible production capacity (we call it the knowledge factory) upon which our economies are now built.

Let’s stop guessing and start calculating.

By the way, this topic is the subject of Chapter 7 of Intangible Capital.