In the meantime, here are a few thoughts of my own. When it comes to defining growth, it is a very broad church. We could be talking about investing in very early-stage – or blue-sky – companies that have the potential to grow exponentially, but which currently don’t have much to show in the way of profits or even sales. Or we could mean buying more established and profitable companies that instead of returning cash to shareholders through dividends plough most of it back into expanding the business. The two are very different, and it is bad experiences with the former that have often overshadowed what a reliable strategy the latter has been.
We could in fact be talking about simply growing your own pot of retirement cash, in which case all distinctions between growth and income can be thrown out of the window, because reinvested dividends from a solid income stock can do just as good – or better – a job over time than many so-called growth shares. In fact, companies with the ability to pay decent dividends may also exhibit many of the characteristics that allow them to also invest in growth, in which case you often get the capital increases too.
In a low rate world demand for income shares of any hue has pushed their prices higher – just as it has bonds, which can hardly be described as growth investments. Even if such assets can create portfolio growth we should not mistake this for genuine, long-term growth, just as we should not mistake the upswing in a business cycle for sustainable value creation. Both will come to an end at some point, even if – as Jonas Crosland points out on page 32 is the case with the housebuilders at present – monetary distortion makes it hard to predict when this will occur.
What won’t come to an end – and all of our speakers were unanimous in this belief – is that creatively-destructive entrepreneurial companies will continue to create growth opportunities, even if wider economic growth stagnates further, as those taking a tactical view of markets – discussed by James Norrington on page 38 – expect. And in such an environment stock-picking skills will prevail, through a finely-tuned understanding of thematic business shifts and fundamental analysis of the companies looking to exploit them. We may be in an age of aggregate flat returns, but we do not have to accept them.
