The Emperor Has No Clothes and why we still have not addressed the intangible information gap

One of the most graphic depictions of the shift from the industrial to the knowledge economy can be seen in this graph prepared by Ocean Tomo a number of years ago (here’s a larger version). The top line is total corporate value of the companies in the S&P 500. The gray band at the bottom is the tangible book value of those companies. The gold band is the value of booked intangibles (usually from an acquisition). And then there is the red band. You can see that it began to grow when the personal computer was introduced in the early 1980’s and then spiked with the rise of the internet. This graph ends a few years ago but Ocean Tomo recently updated their data to show that the intangible portion of corporate value hit 81% on 2009 (the depths of the Great Recession).

This red band is the reason we focus on “intangibles.” Read more

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: Read more

Reporting in the FTSE 350

I recommend that you read Joining the Dots, a white paper by David Philips of PWC (you can find the paper and an accompanying video here). The paper summarizes a study of the narrative reporting by the largest 350 public companies in the UK. It puts forth the thesis that narrative reporting Read more

The Value of Intellectual Capital

A recent post by Pat Sullivan prompted salutes here by IP Think Tank and here by IP Finance. Basically, Sullivan says that the current financial crisis “busts an intellectual capital myth,” that the value of intangible assets is the difference between the market value of a company and its tangible assets. It is from this approach that many of us often say that 70-80% of the value of a company today is intangible.

Sullivan entreats his readers, “I hope the recent vertiginous slide in stock prices will cause you to reconsider.”

I’m not convinced. The market does not value companies by looking at their balance sheets. In most cases, it never has. But I have always found the comparison between corporate valuations and tangible book value to be a powerful way Read more