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Stock Investing Know-How

Investing in Gray Matter: Evaluating a Firm's Human Assets

When an oil pipeline company suffers a spill, it shows up in the next financial report. But when a high-tech firm has its top product development team stolen by a competitor, you may never know, unless you work to find out. The real assets in today's growth companies are human ones.

"My assets walk out the door every night," says one high-tech CEO. "We have to be a good place to work so they'll come back the next morning."

Investing in Information Age companies calls for a new kind of due diligence from investors. You want to be confident that the companies you invest in have the best people and are taking every step possible to keep them.

Unfortunately, the balance sheets and quarterly reports we use today were developed to describe companies that consider "capital" limited to cash and capital equipment.

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The Dividend Puzzle: The Relationship Between Payout Rates and Growth

In one of the most surprising research developments over the last four decades, Robert Arnott and Clifford Asness published an article in the January/February 2003 issue of the Financial Analysts Journal entitled "Surprise! Higher Dividends = Higher Earnings Growth."

The article carries more than normal credibility in that Mr. Arnott is a prior editor of the prestigious journal, and Mr. Asness is on the editorial board.

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