​Investors Pay Attention

Oct 31, 2017

A few years ago, we wrote a note in which we pointed out that data of all kinds are a source of value that is under-appreciated and under-analyzed by many investors. We wrote:

“Some physicists are grappling with the idea that the universe is not composed just of matter and energy, but also of information. Economists, financial analysts, and investors are dealing with a similar problem… Facebook (FB) may have the largest and most valuable trove of individual consumers’ data ever compiled. The problem is that there is no accepted method to calculate the value of those data -- valuation, in this sense, hasn’t caught up with the digital age… [and] with no consistent means to assess the value of a company’s key assets, market analysts will produce widely varying estimates of what a company is worth.

“These data troves may lie where you don’t expect them... Generally accepted accounting practices (GAAP) mean that data can’t be counted as an asset -- and furthermore, that resources spent accumulating and analyzing data can’t be accounted for as investment expenditures, but must be treated as costs… Investors should be aware that valuable data may be missing from companies’ balance sheets -- so that for some companies, a balance sheet analysis that fails to take those data into account may be misleading… A careful investor could be presented with a way to take advantage of the market’s undervaluation of a company holding valuable data.”

One of the sectors of the economy where businesses may have the potential to harness neglected data to create more value is manufacturing.

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