$KO $AXP $NKE $AAPL $AMZN $ELF $EL $T $PEP $GOOG $NFLX $SPOT $SBUX $JPM Bill Nygren on The Value of Intangible Assets “The important change that the value investing community has been slow to adapt to is how important intangible assets have become and the fact that the accounting world doesn't really do a good job of reflecting those values. Early on in my career - I think it was in the mid to late 80’s - Warren Buffett, who I think most all of us would say is the best of the long-term value investors… shocked the value investing world when he bought Coca-Cola $KO. Everybody wondered - ‘how in the world can you call Coca-Cola a value investment?’ At the time, it was trading at a large premium to its book value. Warren's answer was - ‘the most valuable asset at Coca-Cola isn't even on the balance sheet… it's the brand name.’ All of the advertising they did to increase the value of that Coca-Cola brand… went straight through the income statement. Warren was teaching us that you needed to make adjustments for intangible assets. The way we think about value investing at Harris Oakmark today reflects that a lot of the most important investments companies are making are being expensed straight through the income statement even though they have long-term value. The conservatism in the accounting world is that if you can't touch or feel an asset, it's not worth anything. That means - customer acquisition costs, advertising, R&D, global IT infrastructure - many of the investments that have become so valuable today need to be taken out of the income statement and treated the same as buying a new plant would have been for a steel company 40 years ago A lot of the work we do at Harris Oakmark is coming up with our own accounting statements. We readjust the income statement. We take those long-term investments. We put them on the balance sheet. We depreciate them. In our view then… some of the companies that don't look cheap today… …When you adjust for those investments… …They actually meet the terms that we would have historically said would have made something a value investment. It just takes a bit of explaining to do.” -Bill Nygren Oakmark Select Fund