Good morning.
If you want to pick one statistic that indicates how much business has changed in the last half century, I’d choose this one: intangible assets as a percentage of total assets. It shows the rise of things like patents, software, data, brand, and the decline of hard assets like land, buildings, equipment, inventory. Ben Carlson cites a version of that data in his essay for our new Quarterly Investment Guide, noting that among S&P 500 companies, intangible assets have gone from 17% of total assets in 1975 to 90% last year. Stunning.
Carlson uses the data to explain craziness in the stock market. It’s a lot harder to value a company based on intangibles than one with hard assets. But the implications go much further. Consider:
—Companies can scale much faster when they aren’t dependent on hard assets. Think of how much easier it is for Facebook to add 100 million new users than for Exxon to find a million new barrels of oil.
—Successful companies have less need for investment dollars than they used to—which explains why Apple is sitting on nearly $200 billion in cash that it hasn’t found a use for . . . and why the economy at large is awash in unused savings.
—Pricing is harder, because the cost at the margin is often close to zero.
—Disruption is easier—because it only takes imagination to improve on someone else’s intellectual property.
—Talent rules, because intangibles are only as good as the people who constantly refresh them.
I could go on. The point is that we tend to be guided by ideas and theories devised to explain an economy that no longer exists. Most of what I was taught in graduate school regarding pricing, profits, antitrust policy, fiscal policy, and so much more, no longer holds. And the definitive textbook for the new economy—as well as the definitive guidebook for government and business leaders operating in that economy—has yet to be written. We need a new Samuelson.
Other stories in our Quarterly Investment Guide include Anne Sraders’ pick of eight tech stocks to buy this year, Jen Wieczner’s look at great tech stocks that get overlooked, Bernhard Warner’s piece on why the tech trade hasn’t topped out yet, Lance Lambert’s data-driven ranking of the top 10 new tech meccas in the U.S., Robert Hackett’s take on why you should add Bitcoin to your portfolio, and Jeff Roberts’ skeptical story on the SPAC craze. You can access the entire package here . . . if you are a Fortune subscriber. If you aren’t, now’s a good time to sign up!
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Alan Murray
@alansmurray
[email protected]
