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Visualizing History

Percentage of U.S. public company market capitalization in Intangible-Heavy vs. Tangible-Heavy industries

(Source: Kai Wu)

Happy Sunday, everyone! Also… happy World Cup day to all who celebrate! Although, the World Cup only truly begins at 8AM tomorrow when England take on Iran (“it’s coming home… it’s coming…”)

I’m excited to share the fascinating conversation I had on Thursday with the honorable Michael Mauboussin and Kai Wu. Our discussion focused on intangible assets, and how they are influencing modern markets. While the topic may seem wonky, it is one that impacts all investors and touches interesting areas like Value’s underperformance, miscalculating ROIC, and much more.

I should also mention that earlier in the week, Michael sent Kai and I PDF link for “The Investment Value of Goodwill”, published in 1938. Later in the week, Michael made an exciting discovery at Columbia University’s library:


Now, enjoy my conversation with Michael and Kai, as well as these linked articles on the history of intangible assets!

The Dark Matter of Finance: How Intangible Assets Influence Modern Markets


Not long ago, the global economy was powered by tangible assets. Companies like Exxon, General Motors and AT&T were the largest US stocks by market capitalization. Today our information economy is increasingly driven by intangible assets like brand equity, intellectual property, customer loyalty and more.

Sparkline Capital’s Kai Wu calls intangible assets the “dark matter of finance” because they are extremely difficult to measure and “comprise a significant portion of [total] financial matter and are essential for explaining the modern economy.”

Intangible assets may have previously been an obscure footnote in corporate balance sheets, they now influence markets in key areas like valuation, corporate earnings and the value versus growth paradigm. Listen to this conversation with Michael Mauboussin, Head of Consilient Research at Counterpoint Global, part of Morgan Stanley Investment Management and Kai Wu, and Kai Wu, CIO of Sparkline Capital, to learn how intangible assets are affecting almost every aspect of modern markets.


Intangible Assets and Stock Prices in the Pre-SEC Era


“In this paper we investigate the relation between intangible assets and stock prices under a reporting regime which permits considerable flexibility for managers to capitalize such assets.’ Our primary sample consists of 146 industrial corporations traded on the New York Stock Exchange (NYSE) which reported material amounts of intangible assets on their 1927 balance sheets. At that time, managers could capitalize a broad range of intangibles and determine subsequent amortization and revaluation policies.”

Visualizing History:


The Definition of Goodwill – A Chronological Overview


“The purpose of this paper is to offer a full perspective on the evolution in time of goodwill definitions. This paper is part of the research conducted in the doctoral dissertation and we consider it is very important to have a full understanding of the concept studied in order to develop on this subject. We use a chronological analysis and review definitions from the late 1800s until today. The definitions are given by prominent scholars of the time, published in highly ranked journals and books or offered by international accounting boards. We approach the definition from an accounting and a legal perspective. Our findings are that, in time, the definitions offered either improve on an old definition or are completely original. Some elements used to describe goodwill remain the same throughout the whole period we studied. The conclusion of our study is that this type of in time analysis is beneficial to the researcher in the way that it offers a complete picture of the concept and its history.”

Missed last week’s article? Catch up here!