“Take all the physical assets owned by all the companies in the S&P 500, all the cars and office buildings and factories and merchandise, then sell them all at cost in one giant sale, and they would generate a net sum that doesn’t even come out to 20% of the index’s $28 trillion value,” said Epic S&P 500 Rally Is Powered by Assets You Can’t See or Touch, an article in Bloomberg published on October 21, 2020, - a day when intangible assets made up more than 84% of the S&P value.
“The rise of intangibles helps explain why many American workers have recently had it so rough, with wages stagnating and benefits disappearing,” adds the article. And, given our increasingly digital post-pandemic new normal, we can expect the share of intangibles to go higher, “a source of deep concern for those who worry about things like employment and inequality.”
Intangible assets are easier to define as the opposite of tangible assets. Tangible assets are generally physical in nature, including vehicles, land, plants, equipment, and furniture, but they also include financial assets like stocks, bonds, account receivables, and cash which have a concrete contractual value. On the other hand, intangible assets are neither physical nor have a concretely specified financial value. Intangibles include patents, copyrights, trademarks, goodwill, brand value, human capital, R&D, software, and data. Despite having no physical existence, intangibles have a monetary value since they represent potential revenue, but that value must be established based on accounting principles. And, unlike tangible assets, intangibles are difficult to value and insure.
According to a 2019 research report by the Ponemon Institute, the value of intangible assets has truly exploded over the past several decades, right along with our increasingly digital economy. In 1975, the overall value of the S&P 500 was $715 billion, of which 17% was intangible. In 1985, out of a total value of $1.5 trillion, 32%, or around one third was intangible. By 1995, the percentages had switched, with intangibles now being 68% of $4.6 trillion. Intangible values continued to climb to 80% out of $11.6 trillion in 2005; and to 84% of $25 trillion in 2018.