Joe Gill: Investors seek out high-quality companies in times of huge market stress

For readers who recall the markets after 9/11 in 2001, October 1987, and the Lehman crash in 2008, there’s a sense of deja vu in what happened to stock markets in recent days.

Investing and financing are overseen by companies and managers who work on the assumption of orderly pricing mechanisms. Instead, they faced violent price moves which contributed to a sense of panic. When markets were on the up money poured into assets and on the way down, valuations have slid to historically low levels.

The long term investor who doesn’t rely on debt leverage will relish these conditions when babies and bathwaters are being thrown out. Companies that were at the top of many “must-have” investor lists four weeks ago are selling at prices between 20% to 40% lower. Average investing is a concept that readers of this column will be familiar with: It works by consistently investing in high-quality companies.

There are across the world high-quality companies which either hold low levels of debt or have cash and boast strong market shares. Many of these companies will survive the virus crisis and stomach-churning oil markets and will go on to gain market share.

Many of these companies also pay out dividends that are well covered by profits which will contract for a time during the virus fallout.

Companies and funds that are not leveraged may produce lower returns in boom times but show their worth during times of stress and can ride out the storm.

There is no guarantee that the Covid-19 crisis will subside anytime soon. But it is almost certain that an effective treatment will be discovered -- and that will be the key for markets to stabilise and for normal conditions to return. -

Joe Gill is director of corporate broking at Goodbody.