%0 Journal Article %A Sanne de Boer %T Intangible Ironies: Investor Mispricing of Company Assets On and Off its Balance Sheet %D 2021 %R 10.3905/joi.2021.1.204 %J The Journal of Investing %P joi.2021.1.204 %X We examine how investors worldwide evaluate the mix of company assets both on and off its balance sheet. On aggregate, they appear to correctly value tangible assets but misprice intangible assets, with the possible exception of emerging market stocks. Investments in stakeholder capital—such as innovation, brand, and employees—often go unrecognized both on the balance sheet and by investors, despite their increased economic importance. In contrast, the premium paid for past acquisitions that is included on financial statements as goodwill generally fails to deliver on expectations, being written down too slowly by management and shareholders alike. These results are not explained by exposure to known systemic risk premia, limits to arbitrage, or data mining. Corroborating a recent surge of articles on this topic, we find that adjusting valuation metrics for the actual benefit of such intangibles improves performance in global equity markets. More impactfully, investors can diversify value exposure by targeting companies with latent such growth assets.Key Findings▪ Historically, investors appear to have correctly valued tangible assets but mispriced intangible assets in developed global equity markets, overvaluing those recognized on the balance sheet, such as goodwill, but undervaluing the unreported “stakeholder capital” created from past spending on R&D, employees, and advertising.▪ Adjusting valuation metrics to properly reflect the economic benefit of such intangible assets would consistently have improved their performance during our analysis period (1995–2020), even in emerging markets where the evidence for mispricing of companies’ assets mix was not statistically significant.▪ Investors may also diversify value exposure by targeting companies with latent such growth assets, which outperformed even during the recent “quant winter” when most equity factor strategies and particularly value investing fared poorly. %U https://joi.pm-research.com/content/iijinvest/early/2021/10/06/joi.2021.1.204.full.pdf