Whilst driving home yesterday I had the misfortune of hearing an ambulance chaser on the radio touting for AMP shareholders to be involved in a class action over the destruction of shareholder wealth caused by the revelations in at the current Royal Commission and this prompted me to think what shareholder wealth and what destruction. The chart below shows that AMP is well off its 2007 high but still well off its 2009 low, in fact the stock has been locked in a broad channel for some nine years.
Whilst the revelations being made about the conduct of financial institutions at the Royal Commission are extraordinarily disturbing AMP’s real problem is that the market thought it was an ordinary business run by what turns out to be appalling people – the market is a remarkable surveillance device. The poor performance of AMP is highlighted by comparing it to the performance of the S&P/ASX 200 over the same period.
The index has been a very poor performer since the GFC but it managed to trounce the performance of AMP. The situation is worse when you compare it other large listed insurers.
Once again simply looking at the data provides a much clearer picture than trying to assemble a story. The basic premise of our ambulance chaser is that the Royal Commission has destroyed masses of shareholder value. This is largely hyperbole and is easily dismissed, what has destroyed shareholder value is shareholders themselves simply clinging to a stock that has gone nowhere since 2007. Whilst it might sound good to blame some collective invisible hand for individual incompetence it still comes down to the individual making a decision – in this case the wrong one.