Today the Cornell Capital Group is introducing a new index, the CCG Unprofitable Index. But before we get there a little history. A decade or so ago many corporate CEO's along with Nobel Prize winners Richard Thaler and Daniel Kahneman were wringing their hands about what they called market myopia. What this meant was that investors were too focused on the next quarter's earnings they couldn't see the long term and the executives and the Nobel Prize winners were concerned that companies couldn't pursue long term goals in the context of this investor myopia.
Well that's all so yesterday. In recent years the market has been rewarding companies that have long term dreams and plans even if they don't make they don't make a penny and have never made a penny, if they can convince the market that they are the future the market has been rewarding them.
To see how strong this effect might be the Cornell Capital Group developed its new unprofitable index and director of research Andrew Cornell use the following criterion to select the companies. First, they've never had or basically never had a profitable quarter as measured by generally accepted accounting principles of net income. Second, they aren't tiny little companies. They have to have a market capitalization of at least $10 billion and many of them have a market capitalization over 25 billion and one of them in fact has a market capitalization greater than 100 billion. So these are all very substantial companies at least as measured by value and they're also very widely followed and actively traded.
What we'd like to do is see how these unprofitable companies ,that have not made a penny, have done relative to the market index such as the S&P 500. You can see that the S&P has done well. It's up from January first of 2020. It has risen 31% through June 24th. That’s a healthy return. I'd be very happy with that but the unprofitable companies have risen a remarkable 288%.
Our index reveals to us that the market is no longer myopic, it is hyperoptic (that's the term for far sightedness). The market is rewarding companies with big dreams much more than companies with current earnings.
Now there's one fly in the ointment. Howard Marks the founder of Oak Tree and a well known investor who became a billionaire through his investment insight has noted that the sentiment for believing in the future tends to run hot and cold. Right now it's running very hot. Companies that are future focused have been dramatically increasing whereas those that have current earnings are rising at a much more pedestrian rate. But things can change and if that sentiment changes and if people become fearful and want to see current earnings who knows what could happen to the unprofitable index.
At the Cornell Capital Group we recommend you follow our unprofitable index. It is like a Canary in a coal mine it. It may tell you how sentiment is moving and recently it's been moving straight up.