I do not propose to dwell on the social, economic or market implications of the spread of the Covid-19 virus. It is unprecedented and while we can make projections based on the data available, we cannot yet know how deep it will be or how long it will last. 
Fortunately, as long-term investors in what, in our view, are high-quality companies, we are not required to time markets. At times like these we take stock and consider how economic changes might impact our companies. The companies our funds are invested in generate healthy cash flows, have strong balance sheets, and characteristics that make them resilient in tough economic times.
It is not often that investors have an opportunity to buy such high-quality companies at valuations that appear to discount near certainty of a collapse in profits. That is now the case for many of our companies. Such opportunities present themselves at times when certainty about the future becomes unanchored. Fed chair Jerome Powell has said, “We don’t know, the experts don’t know. It’s unknowable.” With hindsight, the greatest returns to equity investors have been made when investing against the grain, at times of greatest uncertainty, when others are fearful.
Often it is the “insiders” that are most willing to invest when others are panicking. I am referring to company founders and directors. They have no greater insight into the likely duration of this downturn than you or I. They do however often possess the twin luxuries of experience and an investment horizon extending beyond the next few quarters. That gives them an advantage over those who choose to be more short-sighted. After all, equity ownership entitles the bearer to a share of future profits in perpetuity. For growth companies, the vast majority of the value is therefore associated with profits in decades to come. Only a small portion of the value corresponds to the next few years, let alone the next few quarters. It is interesting then, that in the past few days we have seen a substantial increase in share purchases by directors of UK and continental European companies.
In light of the immediate shock to both supply and demand sides of the economy, it is inevitable that certain companies will enter bankruptcy. These are likely to be companies with too much debt, which we shun. Governments are already preparing measures to limit the extent of this, but it is a natural part of the economic cycle. Those stronger companies with lower financial leverage will survive, and stand to benefit in the medium term, as they gain market share in the process.
Many are asking themselves the question today: what might anchor equity valuations, in the face of the current health, consumer and financial crisis? There are several possibilities. Successful containment, an effective vaccine, society learning to live with the virus, government backstops and corporate take-overs, are all potential candidates. What is more difficult to discern is the timing of these. If we have learned anything from stock market moves in recent years, it is that responses to shifting expectations are likely to be rapid.
Success in investing comes by looking for opportunities where others are fearful. This does not require us “timing the bottom of the market”. It requires perspective, discipline and conviction. These are tools we endeavour to employ.
Benji Dawes is co-fund manager of the Premier UK Growth and Premier Ethical funds. The views expressed above are his own and should not be taken as investment advice.