“Credit” is the third-person singular conjugation of the present tense of the Latin verb credere, “to believe.”. It’s the perceived value of a completely intangible asset, the perception of the probability of someone or something meeting some future obligation. It is usually measured by forecasts based entirely on previous behaviour. That is, credit is nothing more than the blunt assumption that you will behave as you always have. One thing is sure, this assumption is often wrong, and therefore credit is often underpriced. 

A common misconception that I often hear is that companies think that they have “protected” their IP by getting a granted patent.

Not so, they only get to protect their IP when they enforce their patents in a court, and win said court case.

It’s expensive and time consuming business all around.

I would note that they are much better off in thinking about protecting their company’s revenues and profits, rather than their IP.

Once it is thought of in this way, it is often realised that investing all those patent and court costs into new products or services is be a better investment with a higher likelihood of success.

Short of a better plan, a few people I know have lately entered into the business of valuing intangible assets.

I have attempted on more than one occasion to explain to them that this is a silly idea, to no avail.

They tell me that options in the stock market, aka derivatives, are commonly valued, so why not other business-related options?

The conditions that apply for listed stocks are:

1. There is a liquid market for the stock, i.e. usually they can be sold at a price
2. There is loads of stock buying and selling data to model

For business options related to intangible assets I would note that there is:

1. Often there is no liquid market, and often an asset can’t be sold at any price
2. Often there is no readily available data of previous transactions to compare an imagined transaction to

Under these conditions no amount of clever mathematics will make up for the absence of a working model for the future, based entirely on past experiences.

So why do people persist in trying to value what are effectively businesses options for the future?

My guess is that because these options cost money to create, business types often feel pressure to justify that investment in terms of a forecast return on investment.

In my view , the investment into intangible assets, where identified as such, should be via an insurance model so that the investment can be justified in terms of reduced insurance premiums to the business.

This would turn the problem over the actuaries. And let’s see if those buggers can come up with say a model for the value of IP to an individual company. They will struggle of course – and the truth will be out.

In closing, I note that it is very easy, after all, to value a lottery ticket. It is worth far less than the price to any individual punter. The actuaries would figure this out and then not offer reduced premiums based on the investment into intangible assets.

I blame our schools – far too many people leave school and uni and go into business with no gut understanding of statistics. There be the root cause evil.

It didn’t sound like a good idea, when I heard it. When one hears a simple concept designed to appeal to bogans you know it’s going to be a total fuck up in reality.

Yeah but nature will let the bugs eat all the agar agar in the Petri dish, and it will let the humans pollute the planet so it has to start all over again. The penalty? 2 billion years or so. Go back to the start and do not collect $200.

So nature isn’t that smart. But then maybe our ability to connect over indulging with an inability to semi replicate is nature’s way of solving it’s problem with us, and also with the bugs in Petri dishes in general.

Maybe we are closed loop after all.

 

Nature saw us coming.

To account for the issues related to our open loop programming, where there is no apparent feedback loop linking over indulging and not being able to semi-replicate, nature gave us sex drive differentials, where men will fuck anything not tied down, and most things that are. And women are picky. This differential overcomes the lack of a feedback loop in our brains, when you think about it.

Nature itself is closed loop, even if we aren’t.

They say humans are intelligent.

Why then are we capable of eating and drinking to the extent that our chances of semi-replicating are close to zero?

An inexplicable plague of painted kid’s bikes chained to telegraph poles. Maybe I should steal one just in case they become the next great bit of Street art.

The value of random rewards…

“Nothing can compare
To when you roll the dice and swear that your love’s for me”

Occasionally I get to read the AFR. Today I get the feeling that we are just about to go over the economic cliff again. There’s enough hints of despair and insanity in there.

Possibly it would be good to plot the market indices versus some parsed linguistics on the contents of the AFR, capturing the prevailing mood of the business types.

There’s even an article about an Australian listed startup that’s about to (sic) make Facebook and Google redundant, and it hasn’t even got its app out yet. A great calibration point for the madness buried in this tabloid piece of shit.