MISSION INTANGIBLE

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MISSION:INTANGIBLE, the blog of the Intangible Asset Finance Society, offers critical comments on intangible asset, corporate reputation, and finance; supplemented by quantitative reputation metrics. Intangible assets include business processes, patents, trademarks; reputations for ethics and integrity; quality, safety, sustainability, security, and resilience; and comprise 70% of the average company's value. MISSION:INTANGIBLE is a registered trademark of the Intangible Asset Finance Society.

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Giving Intangibles a Backbone

C. HUYGENS - Wednesday, July 31, 2013
Just last week, Huygens happily shared news that management accountants were taking interest in reputation, a highly ethereal and ephemeral asset if there ever was one. Not that what was just shared is true -- reputation leaves a material mark on profit and loss statements which is why its management is so important, and so difficult.

Also, last Friday, the Society hosted its monthly Mission Intangible Monthly Briefing where the issues of giving substance to intangible assets was again hotly debated. Now Society friend Ken Jarboe, CEO of Athena Alliance, shares that intangibles are becoming less intangible as a result of new accounting rules.

The big news...is the treatment of spending on two intangibles: R&D and "creative works" -- which will be treated as an investment rather than an immediate expense ... This means that for purposes of calculating the size of the economy, this spending will be depreciated over a number of years just like spending on plant and equipment.


Intangibles looking more like plant and equipment? Really? Read More.

RepuStars 2013 July 27

C. HUYGENS - Saturday, July 27, 2013

Weekly Reputation Index Metrics


At the close of trading July 26, 2013, REPUVART and REPUVAR stood at 3334.37 and 2820.62 respectively. Over the past four weeks, the former has changed by 6.37%, while the latter has changed by 6.35%. The benchmark S&P500 Composite Index stood at 1421.41 (31 Dec 2001=1000) and has changed over the past four weeks by 5.31%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 29.13% and 26.61% respectively; the S&P500 Composite Index has changed by 22.06%. Over the trailing 36 months, the REPUVART and REPUVAR have changed by 72.22% and 64.35% respectively; the S&P 500 Composite Index has changed by 51.88%.

Other interval changes in the magnitude of the indices are shown below.

Analysis

It’s been a week of mixed economic messages. The Financial Times quotes Philippe Gudin at Barclays saying, “Amid growing signs that the Chinese economy is slowing more than most market participants had initially anticipated – and as growth and trade in emerging market countries seems to be weakening somewhat – our scenario of a rebound in activity in both the US and Europe is gaining traction, whereas Japan is still leading the race.” The S&P500 reacted to the good news with choppy volatility, which at the end of the week, signified nothing.

RepuSPX, a portfolio that seeks algorithmically to find the best reputation-linked opportunities among the S&P500 constituent members, still found value. It is ahead of the market index for the calendar year with a spread of 15.94% for returns this week year to date of 31.76%. Its trailing twelve-month return of 54.84% is beating the market by a spread of 30.45%. (Note Errata comment regarding prior errors in calculating the RepuSPX 12-month returns.)

Meanwhile, RepuStars decreased its spread loss for the year to date. The greatest gains in the portfolio for the year are being reported by GameStop Corp (GME), which holds on to first place with returns of 84.68%, Wellpoint Inc (WLP) which holds onto second place with returns of 43.01%, and Bed Bath & Beyond returns to third place with year to date returns of 32.34%. These are three of the 19 firms identified by the RepuStars Variety algorithm at the start of the year as value opportunities.

As for those whose reputational value has not panned out so far, scandal-plagued VeriFone Systems Inc. (PAY) is down 1% at -42.17%, Royal Gold Inc. (RGLD) is up significantly at -36.62%, and Fusion I-O is up 1% at -33.03%.

Side Note: A description of the portfolio constituents and historical returns data from December 31, 2001 can be obtained on request from Technology Option Capital, its manager. Click Here.

Background

The RepuStars® Variety Corporate Reputation Index calculated by S&P/Dow Jones Indexes is the first-ever composite equity index based on a quantitative value strategy informed by the Steel City Re Reputational Value Metrics. The metrics comprise non-financial indicators of reputational value (RVM) and ranking (CRR). The RepuStars Variety Index has two versions: a total returns index and a price index, whose ticker symbols are, respectively, REPUVART and REPUVAR.  Click here for real time quotes.

The RepuStars Variety Corporate Reputation Index tracks up to 57 company stocks that appear to be underpriced relative to  Steel City Re’s proprietary Reputational Value Metrics™, which track 7400 companies weekly. The principles behind measuring reputational value are described in the book, Reputation, Stock Price, and You: Why the market rewards some companies and punishes others (2012, Apress).

The RepuStars indices are reconstituted annually in the first week of January and posted by S&P/Dow Jones Indexes in the third week. The Indices were last reconstituted 20 Jan 2012.

Reputation, Risk and Finance

Reputation management through superior control of a company's intangible assets may be one of the best paths to value creation today. If it is not on your agenda, perhaps it should be. Here are several things you can do right now to start creating value for your organization:

1. Become better informed. Participate in our regular Mission Intangible Monthly Briefings held on the second Friday of every month, read the book, Reputation, Stock Price and You: Why the market rewards some companies and punishes others (2012)  or its predecessor, Mission: Intangible. Managing risk and reputation to create enterprise value (2010), available at the IAFS Store, specialty finance sector retailers, or other leading online book retailers
2. Become a member of the Intangible Asset Finance Society and engage.
3. Join our community on Linked-In and stay in the information flow.

Notices

Standard & Poor’s and S&P are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”), a subsidiary of The McGraw-Hill Companies, Inc. Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). “RepuStars” and “Steel City Re” are registered trademarks of C. Huygens & Co. LLC. The method underpinning the RepuStars Variety indexes is subject to a pending patent assigned to C. Huygens & Co. LLC. S&P Dow Jones Indices LLC, Dow Jones, S&P and their respective affiliates (“S&P Dow Jones Indices”) makes no representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and S&P Dow Jones Indices shall have no liability for any errors, omissions, or interruptions of any index or the data included therein. Past performance of an index is not an indication of future results. All information provided by S&P Dow Jones Indices is general in nature and not tailored to the needs of any person, entity or group of persons. S&P Dow Jones Indices receives compensation in connection with licensing its indices to third parties. It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments offered by third parties that are based on that index. S&P Dow Jones Indices does not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that seeks to provide an investment return based on the performance of any Index. Investment products based on the RepuStars Variety Corporate Reputation Indexes are not sponsored, endorsed, sold or promoted by Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC, or their respective affiliates and none of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC and their respective affiliates make any representation regarding the advisability of investing in such products. Inclusion of a company in any of the indexes in this piece does not in any way reflect an opinion of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC or any of their respective affiliates on the investment merits of such company. None of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC or any of their respective affiliates is providing investment advice in connection with these indexes.

Procter & Gamble: Everyone but the investors

C. HUYGENS - Friday, July 26, 2013
Several weeks ago, Huygens smugly reported that the expectations of Procter & Gamble's equity investors were ahead of the expectations of the other stakeholders, and that a price drop was inevitable. Things are never that simple. Since then, the S&P500 rose, and like a rising tide, raised all ships, including Procter & Gamble. However, the company's equity performance relative to its peers sank.

On the other hand, and more surprisingly, the expectations of other stakeholders is now much higher. As shown in the CRR meaasure, an indicator of reputational premium value, is now at the 93rd percentile up from the 86th percentile; and the current RVM volatility measure, an indicator of consensus trend, is lower from the 75th to the 33rd percentile.

Everyone agrees. It's a great company with a great reputation, and it's stock is not expected to outperform anyone in the near future. In this setting, as documented in Reputation, Stock Price, and You: Why the market rewards some companies and punishes others, a small positive surprise can create significant sustained economic value.



RepuStars Variety Passes 3000 Milestone

C. HUYGENS - Thursday, July 25, 2013
RepuStars Variety Corporate Reputation Index, the first-ever composite equity index linked to reputation, closed today at a new record high value of 3010.03. This represents a cumulative growth of 201% since its inception 31 December 2001. The Index, which is calculated by S&P/Dow Jones Indices and distributed under the ticker symbol REPUVAR, tracks up to 57 company stocks that appear to be underpriced relative to their Steel City Re reputation value metrics. The index first crossed the 2500 milestone Feb 29, 2012. Read More.

Reputation Risk: Seeking the 92% solution

C. HUYGENS - Thursday, July 25, 2013
Cognoscenti are wagering that the great wave of demand for reputation risk solutions can not be far off. The leading indicators are all there. Most evident is the inflationary spiral of the size of the alleged community of interest.

In 2009, less than 10 percent of the constituent members of the S&P500 disclosed reputation risk. That was then. In 2013, about 66 percent are disclosing the risk in section 1A of their 10Ks; 73 percent of corporate directors indicate reputation is their #1 concern, and just in, ACE, the insurer, reports that 92 percent of companies believe that reputational risk is the most challenging category of risk to manage.

Also, from the report:

  • 77 percent of companies find it difficult to quantify the financial impact of reputational risk on their business, making it harder to measure than traditional, more tangible risks.
  • 68 percent of companies believe information and advice about how to manage reputational risk is hard to find, compounding the sense of uncertainty and confusion about how best to manage it.
  • 66 percent of companies feel inadequately covered for reputational risk from an insurance perspective.
  • 56 percent of companies say social media has greatly exacerbated the potential for reputational risk to affect their business.
Such demand can not exist for long without supply flooding the market. Moreover, it is clear that any viable solution will require objective measures of financial impact not unlike what Huygens shares on this blog, quantitative reputation risk controls, reputation risk transfer and an intellectually robust framework for managing the myriad issues.

Equities: Not so tiny bubbles

C. HUYGENS - Wednesday, July 24, 2013
Equity asset price is driven by expectations. Equity appreciation, like that of any other asset, means investors are willing to pay more now for a share in the expectation that someone will be willing to pay even more in the future. The explanation as to why investors would formulate such an expectation, or why a future investor would behave as expected, is fuzzy, given that indicators of the expectations of other stakeholders -- Steel City Re's reputational metrics -- are more reserved.

For now, with respect to equity stakeholders, they do and they are. Specifically, equity investors are readily buying equities from prior equity investors, in large volumes, wholesale. The Financial Times reported last week that "…$19.7bn was invested in global equity funds…while $700m was pulled from bond funds…The $17.5bn flowing into US equity funds was the most since June 2008. Around $6.5bn of this went into State Street Global Advisors’ popular “Spider” ETF, which tracks the S&P 500 index."

Huygens has been reporting this year that a beneficiary of this pooled preferential purchase of the S&P500 has been the RepuSPX pocket index. RepuSPX, a portfolio that seeks algorithmically to find the best reputation-linked opportunities among the S&P500 constituent members on the basis of their Steel City Re reputation metrics, general outperforms the S&P500. As of last Thursday, RepuSPX was up for the calendar year by 29.77% beating the S&P500 returns by a spread of 14.01%. Its trailing twelve-month return of 51.66% was beating the market by 28.74%.

Still, it is a bubble.

CEO: In the cross hairs

C. HUYGENS - Tuesday, July 23, 2013
According to the cruel calculus of war, a wounded enemy combatant is much more valuable than one who is dead. The wounded consume more enemy resources.

How else to explain SEC's strategy of winging Steven Cohen, founder of the $15bn hedge fund SAC Capital rather than taking him out of action? The SEC claims Cohen was negligent by ignoring red flags of illegal trading and failing to “take reasonable steps to investigate and prevent such violations”. In an administrative action filed last Friday, the Financial Times reports, the SEC alleged that Cohen "failed reasonably to supervise” two portfolio managers who engaged in insider trading that generated profits and avoided losses of more than $275m in total for the hedge fund.

Is that the best SEC can do? Cohen is a bad manager who failed to recognize red flags? Apparently, it is sufficiently cathartic. Senior heads, if not actually roll, will at least list.

Davia Temin, a reputation management consultant and crisis management expert, explains, "People have so much pent up anger, I believe, coming from the high expectations of life that were then dashed, from 2008 onwards, that they lash out more quickly, and more completely than ever before. And thru social media they can do so. But there are still currents and eddies of popular opinion...and if they catch one, they can do a lot of damage."

How angry are they, Davia? "I started to experiment in my Forbes.com column with what catches on. Many thought pieces get about 300 views...while my "angry pieces" that rail against some injustice, can get almost 90,000! Anger is contagious!"

Beware CEOs and Board Members. Yes, they're gunning for you. And if they get you, it won't be through a single rifle shot. It will be slow, and it will hurt. As the Economist notes this week, the "... SEC has vowed to take more cases to their conclusion, be it a determination of guilt or innocence. As a result, even if the outcome of the case against Mr Cohen is by no means obvious, it is a good bet that his legal entanglements will not end soon."

Financial Institutions: Expecting rapacious behavior

C. HUYGENS - Monday, July 22, 2013
"It’s far too easy to decry what the financial firms do wrong," writes Mission Intangible Monthly Briefing moderator and Forbes columnist Jonathan Salem Baskin. "After all, they’re rapacious and unrepentant capitalists who seem too willing to follow the cruel logic of their mathematical equations despite the feelings of their critics."

If you agree, and if the above description comes as no surprise, then banks are meeting your expectations. You're not alone, explains, Baskin, and that's why they're making money hand over fist. Read more in Forbes.

Baskin will be moderating the Mission Intangible Monthly Briefing this coming Friday, 26 July, where he will take a sweeping view of the many intangible assets underpinning reputation.

Joining in the conversation will be Dale Furtwengler, a consultant's consultant specializing in bringing clarity to the value in intangible asset management; and Mary Adams, author, consultant, and Smarter Companies thought leader, and formerly a member of the Society's Reputation Leadership Council.

Three is no cost to register and listen to the broadcast. Register here.

Welcome Management Accountants

C. HUYGENS - Sunday, July 21, 2013
"These days," write the authors, "bad news spreads faster than ever. Management accountants can help companies prepare to inoculate their hard-earned reputations against damage on social media and repair the harm when it occurs. Here is the expert's prescription."

Come again? "Did you say management accountants?" One can almost hear the other executives chuckling around the water cooler -- or virtual analog, such as Facebook. "Accountants managing reputation is an oxymoron."

The smart money is on the accountants. As described on page 12 of the summer 2013 issue of Certified Global Management Accounting (CGMA) magazine, reputation risk is a core financial issue impacting every line of the P&L statement. "A good reputation can increase margins and reduce borrowing costs, inventory lead time, head-hunting costs, internal litigation costs, regulatory fines and supplier costs." Done properly, managing reputation risk presents a significant opportunity for the company, its directors and officers.

CFOs and their management accounting teams see the writing on the wall. It is alphanumeric.

The Society operates under a big tent, and we are delighted to welcome management accountants to the fold. In their honor, the Mission Intangible Monthly Briefing this coming Friday, 26 July, will take a sweeping view of the many intangible assets underpinning reputation.

Joining in the conversation will be Dale Furtwengler, a consultant's consultant specializing in bringing clarity to the value in intangible asset management; and Mary Adams, author, consultant, and Smarter Companies thought leader, and formerly a member of the Society's Reputation Leadership Council. Jonathan Salem Baskin, author of Tell the Truth, moderates.

Three is no cost to register and listen to the broadcast. Register here.

RepuStars 2013 July 20

C. HUYGENS - Saturday, July 20, 2013

Weekly Reputation Index Metrics


At the close of trading July 19, 2013, REPUVART and REPUVAR stood at 3334.37 and 2820.62 respectively. Over the past four weeks, the former has changed by 6.63%, while the latter has changed by 6.52%. The benchmark S&P500 Composite Index stood at 1421.41 (31 Dec 2001=1000) and has changed over the past four weeks by 6.26%.

Over the trailing twelve months, REPUVART and REPUVAR have, respectively, changed by 27.71% and 25.22% respectively; the S&P500 Composite Index has changed by 24.18%. Over the trailing 36 months, the REPUVART and REPUVAR have changed by 77.71% and 69.59% respectively; the S&P 500 Composite Index has changed by 56.17%.

Other interval changes in the magnitude of the indices are shown below.

Analysis

Good news. Jack Lew, US Secretary of the Treasury, in a George W. Bush-like moment, reported that mission of restoring the US economy has been accomplished. Now, it’s Europe’s turn. The S&P500 reacted to the good news the way its been reacting to bad news. It rose.

RepuSPX, a portfolio that seeks algorithmically to find the best reputation-linked opportunities among the S&P500 constituent members, continues to benefit from this effect. It is ahead of the market index for the calendar year by 14.01% this week at 29.77%. Its trailing twelve-month return of 51.66% is beating the market by 28.74%. (Note Errata 17 July regarding prior errors in calculating the RepuSPX 12-month returns.)

Meanwhile, RepuStars decreased its spread loss for the year to date. The greatest gains in the portfolio for the year are being reported by GameStop Corp (GME), which holds on to first place with returns of 74.24%, Wellpoint Inc (WLP) which holds onto second place with returns of 46.4%, and Bed Bath & Beyond returns to third place with year to date returns of 33.88%. These are three of the 19 firms identified by the RepuStars Variety algorithm at the start of the year as value opportunities.

As for those whose reputational value has not panned out so far, Royal Gold Inc. (RGLD) is up further at -42.40%, scandal-plagued VeriFone Systems Inc. (PAY) is up at -41.19%, and Fusion I-O is more or less stable at -34.25%.

Side Note: A description of the portfolio constituents and historical returns data from December 31, 2001 can be obtained on request from Technology Option Capital, its manager. Click Here.

Background

The RepuStars® Variety Corporate Reputation Index calculated by S&P/Dow Jones Indexes is the first-ever composite equity index based on a quantitative value strategy informed by the Steel City Re Reputational Value Metrics. The metrics comprise non-financial indicators of reputational value (RVM) and ranking (CRR). The RepuStars Variety Index has two versions: a total returns index and a price index, whose ticker symbols are, respectively, REPUVART and REPUVAR.  Click here for real time quotes.

The RepuStars Variety Corporate Reputation Index tracks up to 57 company stocks that appear to be underpriced relative to  Steel City Re’s proprietary Reputational Value Metrics™, which track 7400 companies weekly. The principles behind measuring reputational value are described in the book, Reputation, Stock Price, and You: Why the market rewards some companies and punishes others (2012, Apress).

The RepuStars indices are reconstituted annually in the first week of January and posted by S&P/Dow Jones Indexes in the third week. The Indices were last reconstituted 20 Jan 2012.

Reputation, Risk and Finance

Reputation management through superior control of a company's intangible assets may be one of the best paths to value creation today. If it is not on your agenda, perhaps it should be. Here are several things you can do right now to start creating value for your organization:

1. Become better informed. Participate in our regular Mission Intangible Monthly Briefings held on the second Friday of every month, read the book, Reputation, Stock Price and You: Why the market rewards some companies and punishes others (2012)  or its predecessor, Mission: Intangible. Managing risk and reputation to create enterprise value (2010), available at the IAFS Store, specialty finance sector retailers, or other leading online book retailers
2. Become a member of the Intangible Asset Finance Society and engage.
3. Join our community on Linked-In and stay in the information flow.

Notices

Standard & Poor’s and S&P are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”), a subsidiary of The McGraw-Hill Companies, Inc. Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). “RepuStars” and “Steel City Re” are registered trademarks of C. Huygens & Co. LLC. The method underpinning the RepuStars Variety indexes is subject to a pending patent assigned to C. Huygens & Co. LLC. S&P Dow Jones Indices LLC, Dow Jones, S&P and their respective affiliates (“S&P Dow Jones Indices”) makes no representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and S&P Dow Jones Indices shall have no liability for any errors, omissions, or interruptions of any index or the data included therein. Past performance of an index is not an indication of future results. All information provided by S&P Dow Jones Indices is general in nature and not tailored to the needs of any person, entity or group of persons. S&P Dow Jones Indices receives compensation in connection with licensing its indices to third parties. It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments offered by third parties that are based on that index. S&P Dow Jones Indices does not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that seeks to provide an investment return based on the performance of any Index. Investment products based on the RepuStars Variety Corporate Reputation Indexes are not sponsored, endorsed, sold or promoted by Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC, or their respective affiliates and none of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC and their respective affiliates make any representation regarding the advisability of investing in such products. Inclusion of a company in any of the indexes in this piece does not in any way reflect an opinion of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC or any of their respective affiliates on the investment merits of such company. None of Technology Option Capital, LLC, C. Huygens & Co, LLC, Steel City Re, LLC or any of their respective affiliates is providing investment advice in connection with these indexes.

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