Bifurcated analysis for new versus old economy
The guest argued that traditional fundamental analysis fails for high-intangible 'new economy' stocks, requiring a shift to sentiment-heavy analysis for those sectors.
The argument
Traditional accounting metrics like book value and earnings are distorted by R&D expensing in high-intangible industries such as pharma, software, and semiconductors. Consequently, the guest's firm uses up to 70% sentiment analysis for new economy stocks, while relying on fundamental analysis for old economy stocks.
The thesis, stress-tested
✓ What validates it
- ✓Academic and empirical replication confirming the breakdown of the price-to-book and return-on-equity relationship in high-intangible sectors
▸ Risks discussed
- ▸Sentiment indicators can be highly volatile and difficult to model accurately
- ▸Adjusting for intangible assets on the margin does not fully restore the predictive power of traditional metrics
Hear it yourself
"So, what, we've noticed is, number of years ago, especially after the GFC, we had, issues, and a lot of investors had issues investing based on discounted cash flow methods, based on fundamental analysis, because the the metrics that we all were accustomed to using became flawed in the way that they were measured because of the level of intangible assets in the companies that we are investing in. There's a lot of books written on this point by Demyx. One is, end of accounting. What he finds and what we confirm and extend to"
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