If you want to choose a statistic that shows how much business has changed over the past half century, I would choose this one: intangibles 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 quotes a version of this data in his essay for our New Quarterly Investing Guide, noting that among S&P 500 companies, intangibles have fallen from 17% of total assets in 1975 to 90% last year. . Stunning.
Carlson uses the data to explain the madness of the stock market. It is much more difficult to value a business based on intangible assets than a business with durable assets. But the implications go much further. Consider:
—Businesses can scale much faster when they are not dependent on physical assets. Think 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 businesses need less investment than ever before – which is why Apple sits on nearly $ 200 billion in cash for which it has not found a use. . . and why the economy as a whole is teeming with unused savings.
—Pricing is more difficult, as the cost at the margin is often close to zero.
“Disruption is easier, because it only takes imagination to improve someone else’s intellectual property.
“Talent rules, because intangibles are only good for people who constantly update them.
I could go on. The point is, we tend to be guided by ideas and theories designed to explain an economy that no longer exists. Most of what I learned in my graduate school regarding pricing, profit, antitrust policy, tax policy, and more, no longer holds. And the definitive handbook for the new economy – along with the definitive guide for government and business leaders operating in that economy – has yet to be written. We need a new Samuelson.
Other stories in our quarterly investing guide include Anne Sraders’ pick of eight tech stocks to buy this year, Jen Wieczner’s take on big tech stocks that get overlooked, Bernhard Warner’s article on reasons why tech trading has yet to surpass, data from Lance Lambert – ranking the top 10 new tech meccas in the US, Robert Hackett’s take on why you should add Bitcoin to your portfolio and Jeff Roberts’ skeptical story about the PSPC craze. You can access the whole package here . . . if you are a Fortune subscriber. If not, now is a good time to register!
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