In March 2022, in a bid to show investors how to spot companies focused on the highest-return (though hardest-to-measure) assets, we launched our Intangible Edge screens.
The stockpicking method is based on the work of a research team at the University of Rotterdam, who in 2021 devised a clever proxy for finding companies with higher rates of intangible asset creation. Handily, when backdated, the formula both smashed the US market and acted as a more consistent predictor of stock price performance than other classic factors such as size, value or profitability.
Our timing was inauspicious. After an 18-month bonanza in which investors went all-in on the intangibles economy, the mood music in early 2022 was suddenly discordant. Even before Russia’s invasion of Ukraine reminded the world that tangible assets (and brute force) hadn’t gone away, equity investors were entering risk-off mode. With inflation and interest rates spiking, the already-thin justification for paying 50 times forward earnings suddenly evaporated.
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