The Rise of the Intangible Asset Class

Intangible? What good is anything if you can’t hold it, or feel it? If it is not real, why bother? Consider for a moment the aspect of human love, it cannot be held or touched, but rather felt. An emotional response that more often than not overrides the logical response. An intangible emotional asset that humanity has held on to since time immemorial. Love, an intangible, invisible emotional asset we all carry has a measurable impact that causes us all to do a physical action (good or bad), which we otherwise would have never considered with our logical brain. The point being that the intangible asset of our lives, is the true determinant and precursory factor/indicator that creates material outcomes (tangible assets).

So let’s keep that frame of reference in mind for the intangible asset being the true leader on the road to material outcomes or evolutionary prosperity of human society. Now a recent turn of global events from the onset of the COVID-19 pandemic has caused an oversupply in the economics of oil pricing. Especially the futures market. Simply said, people are willing to pay someone to take a commodity of their hands because the original owner has too much and nowhere to store it. This caused the spot price of WTI (West Texas Intermediate) Crude to fall below $0.00 USD a barrel for the first time in history on April 20th, 2020.

The economics of our nation’s (United States) industry and other nations rely heavily on the status quo flow of petrodollars in and out of national balance sheets to keep the economies afloat. This reliance created an unnecessary risk to tie a national economy like the United States to a syndicate controlled tangible/material asset that has now proven to be a lagging indicator for economic health as its fate is rightfully determined by the health of a human being within that nation state. Because of certain financial technologies, the propagation of risk is exacerbated with derivatives that sit on top of this manipulated oil market by a small few. This means that the losses are magnified due to uncalculated market risk of human interaction on this tangible asset.

What is mesmerizing is the fact that oil has been refined by the Chinese since 512 A.D. as an early lubricant for the Northern Wei Dynasty. Deductive reasoning would then state affirm that with the onset of time, technological advance, and increase in supply that the production of oil as a lubricant or refined for petroleum ethanols would cost near zero in today’s markets with our advanced technologies. Yet, the opposite occurs where technology, time, and supply increase, but historically price has not accurately reflected technological innovation or evolution on such a predominant asset that is so closely tied economically to a nation states balance sheet. Therefore it seems that the material price and market for oil is heavily manipulated, concurrently a petrodollar nation state is economically manipulated, and for the first time in history the price of oil is accurately reflecting evolutionary advancement of human beings in our infinite engineering genius. Safe to say now, that oil is a false leader in terms of economic indicators. This now lays the foundation that will lead us into the rise of the intangible asset class and why we should stop relying on material assets in an industrial revolution capacity.

Data. Computer driven, computer created, all prevalent, and increasingly more sophisticated every day. Data is an incredible asset that only recently began its rise in the early days of big data silos and the benefit of this informational/intangible asset was strictly in the hands of the few. Much to the chagrin of the people who created it, data was treated and manipulated a lot like oil. Not every person has a refining and storage operation on their property so democratization of such an asset is economically unfeasible. The economics at that time for data in its infancy did not have the groundwork for a stable democratized asset with a risk pool shared by all individuals globally. Sounds pretty nice. As the early 2010’s passed the technology around data and its storage have taken leaps and bounds.

The first factor to consider is the growth curve alone in the amount of data being created. With worldwide connected devices such as smartphones and other proximity driven IoT (internet of things) that demand a user action, have attributed to the massive success and exponential growth of data as a market for decision makers, advertisers, defense, etc. This growth in smartphone adoption, smart sensors, connected devices and freely available wifi has forced technological change in the market to meet the demands and supply of the people creating swaths of this intangible asset. From an economic standpoint, if a market becomes over-supplied with an asset, the price should naturally fall due to a lack of scarcity of such an asset. Yet, data takes on special attributes that break the common economic conceptions and allows it to define a new category of its own as an intangible asset class. This class carries traits like infinite growth/supply curves, infinite depth for how rich the data or data set may be that increases its analytical quality.

No longer do the volumes of the assets play the prime determinant of its price, but rather the quality is the key determinant that is supported by linear and non-linear inputs defining the market value of such an asset. Therefore the economics of the intangible asset class (Data) grows with supply as long as the quality grows with it. The internet infrastructure is so well developed now that data centers across the globe can manage massive amounts of data processing with near-zero downtime. This means the supply pipe is always on and can never be shut off, but I suppose there could be a coronal mass ejection from the sun but that’s highly unlikely. To take things a step further in the technological democratization of such an asset are the advances in data compression algorithms that decrease the volume of storage required to store data sets. This is beneficial materially because the processing nodes/servers that house the data become more efficient and the energetic tax on storage and processing decrease dramatically. Simply said, storage is increasing while the requirement on what needs to be stored is decreasing. To really put the cherry on top to make sure that asset risk mitigated to maximum in this intangible asset class, humans have engineered decentralized storage systems, supported by a global network, hot/warm/and cold storage, and finally auto-backup algorithms that make sure that every last grain of sand is accounted for.

The second factor in our ever expanding list are the social implications of this asset class. Only recently after scandals like Experian and Facebook/Cambridge Analytica have individuals sought sovereignty over this asset that they are in some way shape or form laboring to create. A deep social initiative has made it to the doors of lawmakers and paved the way for true ownership and control over this new asset class. A democratization that gives the power back to the people to control their digital property, and if the opportunity arises, exchange it for some store of value. Our Experian and Facebook catalysts brought the onslaught of legal change to these big data silos and have given the keys of control back to the true owners. Solidified social change can be found in regulations like GDPR, CCPA, and HIPAA. Yet another major factor that leads to the decreased probability of manipulation of such an asset.

What good is it if we become experts at creating all of this information and storing it? It needs to be analyzed to derive answers that lead us to decisions for better outcomes for humanity. This is where the intangible asset gets really juicy! Many technological innovators have spent innumerable hours coding algorithms of psychoanalytical models that map the same behavioral processes as the human mind so that behavior can be better predicted. Now with an endless supply of ever increasing quality of inputs, these deep learning algorithms can better feed the synthetic neuroreceptors of the machine learning models. That means as we create, store, and analyze more data, the better the outcomes for decisions will be for our future. Thus the rise of behavioral analytics and flexible non-linear models that better describe the human experience and how we operate. So, as the speed of analysis increases we no longer need to hold decision making reliance on predictive analytics, but rather on second to second analysis that can lead our human decisions on a more amicable global path.

With the model in place for asset utilization of the intangible data, it can be poured into the corporate engine like a barrel of West Texas Intermediate, and utilized for its true nature. Decision and Resource Planning. The bane of corporate existence is what to spend, and where and when to spend it. Now corporate entities or anyone for that matter have the ability to purchase data directly from the creators or the source. With daily increases in depth and quality of data, this means that price paid to economic payback ratio to a purchaser of this intangible asset only becomes more favorable in their position as time moves forward, and for the people creating and selling the data, they reap the economic benefit of being paid and also allowing the resource controllers (large entities) to better make decisions that have more dramatic global impacts. A win-win. Strange asset indeed, data is.

The benefits are quite obvious for the supplier of data, but what is the total picture of the risk in owning this new digital intangible asset class of data? Let’s take a dive into our third major factor accruing to the rise of zeros and ones everywhere.

It may very well be seen that data quality has a direct correlation decision risk. Rather, if you ask a poet how to wire the electrical in your house, you are bound to make a costly or even deadly mistake. Even more so, if you take only a first level pass on information without really digging in critically, you could find yourself between a rock and a hard place. Therefore it would behoove the asset owner to consider purchasing data on the qualification of three primary characteristics. One being what is the depth and or quality of the data being sought, and two is the population which it is being sought from sufficiently large enough to encompass the entire gaussian statistical bell curve. This will suffice for the statistician with the PhD in the room. The third and final characteristic of consideration is the dependency and quality of the retrieval method from which the data asset came. Meaning was it an honest, vetted source that compiled and released the data asset without coercion or inherent survey bias. If all of these aspects are taken into account, then the risk in owning such an asset can perpetually decrease with time.

The beauty of this asset is that it is a reflective mirror of the human psyche, and also a more superior indicator for all aspects of human society, economics included because all movement/momentum is determined by action or non-action (if you really want to philosophically consider) by the human being. Data, this intangible asset is a more refined barometer of the pressures in our decision making and an excellent bellwether indicator of ‘things to come’ for society. Intangible assets like data have the technical capacity and design to inherit quantitative and qualitative traits. They have the technical capacity to be refined, molded, and understood in a capacity that lives in more dimensions then just the two dimensional industrial world we have been sleepwalking in. This leads to the most obvious question then, why have we not chosen to readily adopt the most obvious choice of asset in terms of its value, flexibility, economic impacts, and risk profile?

The best adopters of the obvious benefits of data has been professional sports. I myself have no interest in these social spheres, but the brilliance in realizing the obvious brings me great hope to our future because stories like Moneyball and consistently winning teams like the New England Patriots have adopted the statistical data models that render the most effective real time decisions that lead to wins. These wins are currently limited to the sports arena, but if the obvious is noticed, then the great gains made in professional sports can have greater humanitarian impacts outside of competition alone. Thus the rise of the intangible asset class. Thus the rise of data. I hope that we no longer put our faith in the few and lock our economic futures to archaic resources and models, but back in ourselves and the hands of the many working together for a better tomorrow with our data.