The Establishment -vs- The Intangible S&P 500

Our superintern Krista found this chart and link while I was away in London for the past two days:


It shows how the majority of assets for companies in the S&P 500 Index are no longer hard assets such as equipment, inventories and land, but intangible assets such as goodwill and brand recognition: S&P 500 and Intangible Assets

I agree with the author that this dynamic is yet to be fully understood by the political establishment or Wall Street. A rational counterargument might be that this simply means that the current valuations of these companies with such high levels of intangible assets are ridiculous and can not hold. The problem with this argument however, is that these companies continue to make money, and the fundamental underpinning of security valuation is future earnings. The nature of business is changing, and fortune will favour those that accept and identify opportunities caused by this transition.

Its also why we have Krista working on constructing non typical valuation parameters for our “Millennials” portfolio, but more on that later…