Mark Twain once said, ‘Put all your eggs in one basket, and watch that basket!’
Good survival advice.
But when it comes to securing our wealth – not literal eggs – everybody knows better.
The risks of putting all our eggs into one basket are too great. Hence, the widespread investment practice of diversifying into a group of baskets, or asset classes.
Of course, like good little lemmings, we’ve followed Wall Street’s advice and diversified into the exact same set of ‘baskets.’
The problem with that is there’s one basket – let’s call it Asset ‘X’ – that should have been added to the standard list ages ago. And here are the numbers to prove it…
Asset ‘X’ Trumped Even Precious Metals in 2010
As you can see from the chart, Asset ‘X’ was the top performing asset class last year, topping even the impressive performance of precious metals.
I’m willing to bet you owned every other asset class on the list except Asset ‘X’ last year.
I’m also willing to acknowledge that it would be easy to dismiss the outperformance as an anomaly and move on. After all, no asset class ever tops the charts for long, so it’s not that big of a deal if you don’t own it.
But please don’t make that mistake. Because the long-term performance of Asset ‘X’ is equally impressive.
Consider: In the seven years leading up to the 2008 financial collapse, Asset ‘X’ increased in value by 156%. That compares to a 20% rise for the Dow, a 9% rise for the S&P 500 and only a 4% uptick for the Nasdaq.
In other words, Asset ‘X’ is a perennial top performer. It’s one you should absolutely own if you’re truly interested in the benefits of diversification. Namely, maximizing your returns while minimizing your risk.
So what the heck is this mystery asset class?
The ‘Intangible Assets’ Worth $3.5 Trillion
Asset ‘X’ is simply intellectual property (IP). More specifically, patents.
You might not think that patents qualify as an investable asset class. After all, patents are hard to value, as evidenced by the fact that standard accounting principles lump patents into the ‘intangible assets’ category.
But just because something is hard to value doesn’t mean it’s not valuable.
Case in point: More than half of the market capitalization of the Wilshire 5000 Index is based upon intangible assets, totaling about $7 trillion in market value, according to MDB Capital. Even if patents only account for half of that value, we’re talking about a $3.5 trillion opportunity.
And the truth is, we can invest in patents. All we need is a system to screen and rank companies based on the strength of their patent portfolios.
That’s exactly where MDB Capital’s PatentVest database comes in…
Patent Your Way to Profits
Each year, MDB ranks companies based upon the strength and quality of their patents. It starts with a universe of more than four million patents and about 4,000 companies, just to come up with a final list of 150 companies.
The 150 companies selected last year delivered the impressive gains listed in the table above. And years of conducting the same research has led MDB Capital to conclude ‘leading IP correlates with improved business performance metrics and market price performance.’
That’s exactly why I’m headed to New York City next week to attend the company’s Bright Lights Conference.
In two days, I’ll get to hear from close to 50 companies with the most promising and potentially profitable patent portfolios.
No doubt, I’ll share some of my findings here. But if you can’t wait that long to start investing in the best performing asset class of 2010, no worries. You can check out MDB’s list of companies that rank in the 90th percentile of IP leadership here.
Or start looking for small and micro-cap companies with growing patent portfolios. Although the large cap space is full of recognizable names with valuable patent portfolios – like Apple (Nasdaq: AAPL), Microsoft (Nasdaq: MSFT) and Google (Nasdaq: GOOG) – the small and micro cap space is more target rich.
Close to 50% of the 3,932 public companies that have patents are small and/or microcaps. Since analysts pay less attention to these stocks, we can exploit information inefficiencies for outsized profits if we just take the time to do some good old fashioned due diligence. And given the average gain of 49.6% last year, the rewards are worth the effort.
Ahead of the tape,