Intangible asset adjustments redefine value investing
The guest argued that traditional value investing metrics must be evolved to account for the rise of intangible assets like intellectual property, brand equity, human capital, and network effects.
The argument
The guest asserted that GAAP accounting penalizes intangible-intensive companies by expensing R&D and marketing rather than capitalizing them. By systematically capitalizing these expenditures and using unstructured data (e.g., patents, LinkedIn bios, and trademarks), investors can identify companies with undervalued moats whose trailing earnings do not yet reflect their long-term cash-flow potential.
The thesis, stress-tested
✓ What validates it
- ✓J-curve inflection where capitalized R&D begins filtering into EPS growth over a multi-year horizon
- ✓Persistent outperformance of intangible-heavy value portfolios relative to traditional price-to-book portfolios
▸ Risks discussed
- ▸Intangible investments lead to profits with a long lag and can initially decrease EPS
- ▸High stock-based compensation can neutralize the value of top-tier human capital
- ▸Network effects and tech advantages may already be fully priced into mega-cap stocks
Hear it yourself
"on a quant hedge fund, with another GMO partner and then started Sparkline in 2018. And kind of the idea here is to continue to evolve, the idea of value investing, but to take into account, the changes to the economy that have, happened over the past century or so, namely the rise of intangible assets, things like intellectual property, brand equity, and human capital that, at least based on the"
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