We recently visited Professor Baruch Lev in his office at NYU Stern School of Business to discuss his new book, The End of Accounting. Our long-time readers will be familiar with Lev’s work, which forms the basis for our Knowledge Leaders investment strategy. In his decades-long study of financial records, Lev first discovered a link between a firm’s knowledge capital and its subsequent stock performance, ultimately identifying a market inefficiency that leads highly innovative companies to deliver excess returns. We have named this market anomaly the Knowledge Effect.
In the interview below, Lev calls himself a contrarian. He explains why many analysts and managers reject his recommendations, preferring not to reveal any more corporate information than necessary. He describes how this behavior misleads investors, and offers ideas how investors can overcome it. Our investment process that begins by capitalizing intangibles – in which we recalculate a company’s financial footprint to incorporate its valuable knowledge stores – is based on this academic foundation. We hope you find Professor Lev’s perspective compelling. We do.
Baruch Lev is the author of The End Of Accounting and the Path Forward for Investors and Managers. He is the Philip Bardes Professor of Accounting and Finance at NYU’s Stern School of Business. Follow his Lev End of Accounting Blog, an ongoing discussion on the book and related issues.
Read Gavekal Capital’s white paper on the academic foundations of our investment process, which includes a study of Dr. Lev’s findings here: The Knowledge Effect –Excess Returns of Highly Innovative Companies.
Photo credit, Professor Baruch Lev: Alberto Cristofari/A3/contrasto/Redux