Assignment #12: Intangible Assets in the S&P 500

In this post, I will be discussing an article that touches on one of Efrat’s points regarding intangible assets in the S&P 500.  Below is the link to the article that I will be touching on.

http://www.equities.com/editors-desk/investing-strategies/alternative-investments/finding-the-84-of-stock-market-value-that-most-investors-ignore

 As Efrat showed in her presentation, as well as the chart I’ve included below, the amount of intangible assets in the US market has dramatically increased over time.

From 1975 til the present day, intangible assets have increase from 17% to 84%.  That’s almost a 500% increase over a 40 year period.  In this context, I use the term “intangible assets” as a way to describe things that will bring a future economic value that do not exist in physical space.  A perfect example to this is the value of intellectual property, such as copyrights and patents.  However, this article touches on different aspects than intellectual property, but that of human capital.

Milton Friedman, one of the most renowned economists in history, claimed that “total wealth includes all sources of ‘income’. One such source is the productive capacity of human beings.”  Instead of focusing on the actual values of patents themselves, I want to focus on the aspect of human capital.  Patents don’t just become filed and granted out of thin air, it takes brilliant minds to think of and develop some of the ideas that eventually become patented.  Aside from the large costs of R&D, the compensation paid to personnel such as developers, lawyers, etc. far exceed the tangible costs of developing a product. 

The article goes further in depth on human capital but I prefer to end my discussion where I have.  The rise of the value intangible assets in the market shows the level of innovation we are arising to.  With more and more innovators and developers attempting to patent their ideas, I would not be surprised to see the 84% rise even further over the next few years.  What do you think?

Thanks!