Short-termism contributed to GFC
While many corporate executives believe that investment analysts value people and culture, what they really value is cost management and efficiency, according to new research released by AMP Capital Investors.
AMP Capital Investors' latest Corporate Governance Report warned, however, that an overemphasis on short-term factors in preference to longer-term qualitative risk issues contributed to the asset price bubble that preceded the global financial crisis.
AMP Capital Investors' senior portfolio manager of sustainable funds, Michael Murray, said the research had identified an overreliance on intangible aspects of valuation, particularly things that could be comfortably measured and communicated by the analyst community, such as announced costs and efficiencies.
“Investors can avoid traps associated with an overemphasis on short-term company factors by considering intangible and qualitative issues such as corporate governance [and] environmental and social responsibility,” he said.
Murray said understanding intangible issues and how these impact asset valuations requires a longer-term perspective than is generally adopted by market participants.
He said overemphasis on short-term performance was likely to remain a challenge for fundamental investors, but by conducting long-term risk analysis, investors could have avoided companies that were the “flavour of the month” during the asset price bubble by focusing on significant issues around governance and transparency.
AUTHOR
Mike Taylor
Recommended for you
ASIC has cancelled a Sydney AFSL for failing to pay a $64,000 AFCA determination related to inappropriate advice, which then had to be paid by the CSLR.
A former Brisbane financial adviser has been charged with 26 counts of dishonest conduct regarding a failure to disclose he would receive substantial commission payments for investments.
Inefficient data processes and systems mean advisers are spending over half of their time on product implementation and administration at the expense of clients, according to research.
With the regulator announcing its enforcement focus for 2025 last week, law firm Hall & Wilcox examines the areas which have dropped down the list in priority for the regulator.
