Investors should be wary of investing in great companies whose share price reflects too rosy a view of prospects.


Investors should be wary of investing in great companies whose share price reflects too rosy a view of prospects. 

A high quality portfolio can often result in a pedestrian investment return, in the short term at least. So, we should not be chasing property companies and housebuilders after their recent strong performance. Growth at a reasonable price feels a safer strategy, with ITV, Prudential, and food services company Compass still meriting their place in portfolios.

Equally, we need to keep an open mind about unloved companies, as there will be times when a share price falls too far and represents an opportunity. Recovery investing requires strong nerves, but the likes of Royal Dutch Shell and Rio Tinto are now looking very over-sold, and will propel the FTSE higher when they return to favour. Closer to home, FirstGroup looks to be picking up after its well-publicised difficulties. It still feels too early for the food retailers and the banks though.

Beyond the financial truisms, an overlooked strand of corporate analysis is the assessment of company culture. Business schools teach economics, marketing, and finance in great detail, and they also explore how companies obtain competitive advantage, articulate their objectives, and implement their strategic plans. Of equal importance though is what they teach you about staff motivation, and about how businesses can encourage their employees to understand and advocate the vision and objectives of the company.

Having a strong culture does not mean that there has to be a 1984-style "groupthink". Rather, it helps ensure that staff and management share common goals, work well together, can make the case for change, and are committed to delivering value for the customer. Combine that with a great product or service and you have a business which may be worth investing in. You will also have a business which fits the mood of the times, given the greater scrutiny on corporate governance and corporate social responsibility.

Companies achieve their objectives through the efforts of their staff. If people are motivated to perform, and if they can see the results of their efforts being reflected in high levels of customer satisfaction, then they will feel empowered In turn, that will feed through in to strong levels of staff engagement. As long as demand for the company's products remains robust, whether through barriers to entry or the strength of the proposition, then the business will have a long term future.

Many years ago, in a long-gone previous role, I began to have doubts about the nature of the culture there when I attended a training course for senior managers. One of the assessors asked why I was offering other people a glass of water at dinner before pouring my own. You should look after yourself, he told me firmly, and at meal times, you should dive in and grab what you could. It all felt a bit 'Wall Street'.

It is relatively easy to cast around and identify companies where there appears to be a good culture. Such companies have a knack of delivering great service, with the staff visibly enjoying their work. Currently, Marks & Spencer looks to have more of a spring in its step, while the Next success story continues to stare us in the face, as it has done for over 20 years. This company has provided extraordinary returns to its shareholders since the 1990s, whether through dividends or capital distributions.

Others which catch my eye include Easyjet, Whitbread, Schroders, Royal Mail, and Hargreaves Lansdown. A feature in each case is their strong service ethic. They all have strong brand identities and dominant market shares, which makes them difficult for competitors to attack. Perhaps these firms might provide us with that essential yet elusive combination of long term growth, a sensible share price, and an admirable company culture.

Harry Morgan is Chief Investment Officer at Anderson Strathern Asset Management