This chart shows the performance of three groups of firms.
GAAP losers – firms where expenses exceed sales, but once an intangible investment adjustment is made they turn profitable. In other words they are investing.
Real losers – these are firms that even after the adjustment is made are still loss making.
Profitable firms – at the outset these firms are profitable i.e. sales exceed all expenses.
From 1980 – 2017, GAAP losers substantially outperformed
NB the outperformance vs. profitable firms really shows up post 1996. “The message is that the market ultimately recognizes and pays for intangible investments that create value, even if they create losses in the short term.“
This chart comes via Investment Talk, a brilliant curation of all manner of investment resources.
