There will come a point where these things, and the importance they hold, will come back into focus. If we are to be brutally honest, this task has seemed like swimming against the tide for some time anyway – share prices have tended to rise regardless of the quality or visibility behind them, on the basis that monetary policy, and the consequential collapse of bond yields and interest rates, has left investors very little alternative but to chase equities higher. As Phil Oakley wrote last week, this has meant that it has largely been an ever-upward re-rating of shares, rather than genuine growth, that has driven them upwards. Add in a tidal wave of share buybacks, particularly in the US, and the indiscriminate buying resulting from the surge into index trackers, and it is fairly apparent that the more discerning – and sensibly frugal – investor will have been scratching their heads for some time. Growth, or something masquerading as it, at any price has replaced growth at a reasonable price.
If one good thing is to come of the Covid-19 crisis it is that investors once again begin to scrutinise their purchases a lot more closely before ploughing hard-earned cash into the markets – even if the headlong rush back into the market in the face of unprecedented economic uncertainty suggests they are not doing so yet. I have made little secret of my view that markets have long been misbehaving, and I make no apologies to those who instead would like to see investment journalists simply cheerlead share prices higher. We should only ever be interested in answering the question of what they are really worth, dispassionately, in pursuit of growing wealth, slowly.
Not only should we be interested in what underpins the valuation of the shares we buy, but what makes the companies behind them tick, not least how they behave. Before the crisis the only talk in town was ESG. We should hope it is not another casualty of Covid-19 because, as we explore in this week’s cover feature, its principles could be key to rebuilding wealth in the years to come. Even before Covid-19, it was clear that, alongside sustainability, many aspects of business and investment needed a reset – from broken audits, to excessive executive remuneration, often tied to reckless financial management encouraged by a boom in cheap debt. If the Covid-19 cloud has a silver lining it is that it has highlighted many of these weaknesses, and now offers the opportunity to accelerate much-needed reforms. A high price has been paid for the opportunity to ‘build back better’– we should not squander it.