Bull Market Exposes Old-School Accounting Rules Penalizing R&D

The higher stocks go, the louder the forecasts for their demise. Prices are hopelessly stretched, warn the naysayers -- the gains aren’t justified by earnings.

But to a growing number of investors, the problem isn’t bloated valuations. It’s that longstanding accounting standards misclassify billions of dollars of cash-cow assets as if they’re drags on businesses.

Consider a company like Johnson & Johnson, whose value has swollen by almost $140 billion since March 2020 thanks in part to the success of its coronavirus vaccine. While investors have enthusiastically rewarded J&J’s formidable profit machine, bookkeeping rules perversely turn the engine of ...