TY - JOUR T1 - The World Has Changed: <em>Investing in the New Economy</em> JF - The Journal of Wealth Management SP - 87 LP - 98 DO - 10.3905/jwm.2019.1.076 VL - 22 IS - 2 AU - Jeffrey B. Madden Y1 - 2019/07/31 UR - https://pm-research.com/content/22/2/87.abstract N2 - Today’s higher proportion of investments in intangible assets versus tangible assets is emblematic of a structural change in value creation. Investors have experienced that the digital network effects and other changes of the “New Economy” provide a different path for big winners, unlike that of the “Old Economy.” Moreover, the deterioration in the usefulness of generally accepted accounting principles (GAAP) accounting in general, and price/earnings ratio (P/E) in particular, pose a significant problem for investors. However, there is a sizable opportunity to be found by focusing on what has not changed. That is, the long-term life-cycle performance of firms is driven by the interplay of managerial skill (especially for nurturing a firm’s knowledge-building proficiency) and competition. This life-cycle framework is a uniquely useful guide for investors to navigate the New Economy. A key ingredient is a firm’s economic returns adjusted for GAAP deficiencies, for example, capitalization of research &amp; development expenditures. This article provides an example of how life-cycle thinking leads to practical investment insights along with a case study of IDEXX Laboratories. This example represents the type of analysis needed to generate alpha via a portfolio of firms with skills attuned to the New Economy.TOPICS: Security analysis and valuation, portfolio construction, performance measurement ER -