Managers are frustrated. While many are intent on creating long-run value for investors, the recent performance of equity markets makes them question how the fundamentals of their business are reflected in the stock price.

Basic finance theory tells us that a company's value reflects long-run cash flows discounted to the present at the rate of return that investors expect (”cost of capital”). Cash flows are a function of revenues, costs and investments – and the life of a manager revolves round getting the most out of these. But cost of capital is primarily determined by the stock market.

As a result, individual stock prices are inescapably tied to movements of the market. If the market swoons, the chances are high that an individual stock will plunge too. As we have seen recently, this can happen irrespective of what managers do to influence future cash flow prospects.