Long-Term Investment Strategies Amid Market Volatility

Impact of Market Volatility on Long-Term Investments

Market volatility impacts long-term investments by increasing Value at Risk (VaR) and affecting fixed income and commodities (JPM). Unpredictable long-term contracts can drive quarterly volatility in tech sector bookings (MSFT). Economic conditions and market volatility can raise borrowing costs, influencing long-term strategies (AMZN).

"Year over year results Average total VaR increased by $1 million for the three months ended March 31, 2024, compared with the same period in the prior year driven by credit protection purchased against certain retained loans and lending-related commitments within Credit Portfolio VaR and Corporate and other LOB VaR, predominantly offset by market volatility rolling out of the one-year historical look-back period which had impacted fixed income and commodities." --- (JPM, sec filing, 2024/Q1)

"As a reminder, larger long-term Azure contracts, which are more unpredictable in their timing, can drive increased quarterly volatility in our bookings growth rate. Microsoft Cloud gross margin percentage should be roughly 70%, down year-over-year driven by the impact of scaling our AI infrastructure." --- (MSFT, earning call, 2024/Q4)

"In addition, economic conditions and actions by policymaking bodies are contributing to changing interest rates and significant capital market volatility, which, along with any increases in our borrowing levels, could increase our future borrowing costs." --- (AMZN, sec filing, 2024/Q1)

"MARKET RISK MANAGEMENT Market risk is the risk associated with the effect of changes in market factors such as interest and foreign exchange rates, equity and commodity prices, credit spreads or implied volatilities, on the value of assets and liabilities held for both the short and long term." --- (JPM, sec filing, 2024/Q1)

"As a reminder, larger, long-term Azure contracts, which are more unpredictable in their timing, can drive increased quarterly volatility in our bookings growth rate." --- (MSFT, earning call, 2024/Q3)

Role of Asset Allocation in Long-Term Strategies

Asset allocation plays a crucial role in long-term investment strategies by encouraging persistent investment in alternatives (GS), focusing on retirement-related assets (BLK), and reducing at-risk assets through well-distributed strategies (TROW). However, it does not guarantee profits or protect against losses in declining markets (MS, SCHW).

"And we've done, I think, a very good job over the years from an asset allocation standpoint of encouraging them to be persistently invested in alternatives." --- (GS, conference, 2024/05/30)

"More than half the assets we manage are related to retirement. Our growth investments to enhance our capabilities and strategies like active target date and infrastructure underpin our commitment to improving retirement outcomes. BlackRock continues to create more access and connections between long-term investors and capital markets, both in the United States and throughout the world." --- (BLK, earning call, 2024/Q2)

"Diversification and asset allocation do not guarantee a profit or protect against loss in a declining financial market." --- (Morgan Stanley, press release, 2024/07/17)

"One element of that, though, is not just new business opportunity, I'd say it's a sharp decrease in at-risk assets corresponding largely to stronger investment performance in a lot of our well-distributed strategies." --- (TROW, earning call, 2024/Q2)

"Diversification and asset allocation strategies do not ensure a profit and do not protect against losses in declining markets." --- (SCHW, press release, 2024/07/30)

Sector-Specific Opportunities During Market Volatility

Automotive, energy, healthcare, and technology sectors each present unique opportunities and risks during market volatility. Tesla faces cyclical sales challenges, ExxonMobil contends with commodity price swings, Johnson & Johnson and UnitedHealth Group focus on growth and value-based care amid inflation, while Nvidia navigates demand uncertainties in new applications.

"Further, sales of vehicles in the automotive industry also tend to be cyclical in many markets, which may expose us to increased volatility as we expand and adjust our operations." --- (TSLA, sec filing, 2024/Q1)

"In setting them, we remain acutely aware of the price volatility that comes with our capital intensive commodity markets." --- (XOM, event transcript, 2024/05/29)

"And we've seen that, but we expect that to normalize in the back half. We remain consistent in our belief in the 5% to 7% growth for our end markets and that we will perform well within that. As it relates to pricing, inflation has not been a friend to our industry, and we have put a lot of effort into really ensuring that we can secure preferential pricing across the world." --- (JNJ, earning call, 2024/Q2)

"Our demand estimates for new use cases, applications, and services can be incorrect and create volatility in our revenue or supply levels, and we may not be able to generate significant revenue from these use cases, applications, and services." --- (NVDA, sec filing, 2025/Q1)

"Our differentiated long term strategy is built around 2 core complementary ambitions: helping accelerate the U. S. Health system's transition to value based care by aligning incentives across care providers, health plans and consumers to deliver the highest quality outcomes at the lowest cost, while at the same time bringing to bear the full resources of our enterprise capabilities, our technology, data and clinical expertise to fundamentally empower and transform the way American consumers engage with their health care.These twin ambitions are underpinned by 5 strategic growth priorities." --- (UNH, event transcript, 2024/06/03)

Risk Management Techniques for Volatile Markets

JPMorgan Chase and Goldman Sachs emphasize daily risk measurement and independent calculations of various risk metrics, including Value-at-Risk and Earnings-at-Risk. Morgan Stanley offers services to manage rate and foreign exchange risks in M&A activities, while BlackRock highlights the importance of managing concentration risk.

"For risk management purposes, the Firm believes this methodology provides a daily measure of risk that is closely aligned to risk management decisions made by the LOBs and Corporate and, along with other market risk measures, provides the appropriate information needed to respond to risk events." --- (JPM, sec filing, 2024/Q2)

"Our market risk management systems enable us to perform an independent calculation of Value-at-Risk (VaR), Earnings-at-Risk (EaR) and other stress measures, capture risk measures at individual position levels, attribute risk measures to individual risk factors of each position, report many different views of the risk measures (e.g., by desk, business, product type or entity) and produce ad hoc analyses in a timely manner. Risk Measures" --- (GS, sec filing, 2024/Q1)

"That of course, offers all kinds of opportunities for the rates business. And connected to corporate catalyst activity, where, on an M&A acquisition, the acquirer may wish to inoculate themselves from rate or foreign exchange risk, and that's the service that we offer. Again, I like the idea of growing durably inside the integrated investment bank." --- (MS, earning call, 2024/Q2)

"Concentration Risk: The Funds may participate in a limited number of investments and so the return of the Funds may be materially and adversely affected by any unfavourable performance of even a single investment." --- (BLK, press release, 2024/04/25)

"And then Greg Gunzelmann, who's Head of our Risk Area, does independent risk away from the portfolio managers on everything from risk concentrations to bar to liquidity and very importantly from outliers on investment performance." --- (JPM, event transcript, 2024/05/20)

Role of Dividends in Long-Term Investment

Dividends play a crucial role in long-term investment strategies by providing consistent returns to shareholders. Companies like Verizon, Coca-Cola, and PepsiCo emphasize dividend payments as a key component of their financial strategies, ensuring shareholder value and supporting long-term growth.

"During the six months ended June 30, 2024, our net cash used in financing activities was primarily driven by repayments and repurchases of long-term borrowings and finance lease obligations of $5.7 billion, cash dividends paid of $5.6 billion, and repayments of asset-backed long-term borrowings of $4.0 billion." --- (VZ, sec filing, 2024/Q2)

"So we will continue to prioritize investing in the business to drive long term growth as well as supporting dividend growth for our share owners." --- (KO, event transcript, 2024/05/01)

"Financing Activities During the 24 weeks ended June 15, 2024, net cash used for financing activities was $2.9 billion, primarily reflecting the return of operating cash flow to our shareholders through dividend payments and share repurchases of $4.0 billion, as well as payments of long-term debt of $2.9 billion, partially offset by net proceeds of short-term borrowings of $2.2 billion and proceeds from the issuances of long-term debt of $1.8 billion." --- (PEP, sec filing, 2024/Q2)

"We believe this strategy is right for the long-term health of the Company and our objective of delivering total shareholder return in the top one-third of our peer group." --- (PG, sec filing, 2024/Q4)

"Our approach to capital allocation remains deliberate. We're successfully balancing long-term network investment to fuel sustainable subscriber and service revenue growth, paying down debt and returning value to shareholders." --- (T, earning call, 2024/Q1)

Impact of Macroeconomic Factors on Investment

Macroeconomic factors, including unemployment rates, GDP levels, and geopolitical dynamics, significantly influence long-term investment strategies. Companies like Amazon, JPMorgan Chase, Microsoft, and Apple highlight the complexity and uncertainty these factors introduce, affecting forward-looking statements, aggregate demand, and overall business outlooks.

"Due to the interdependencies and correlation of these macroeconomic factors, the impact of any one assumption on a forward-looking statement cannot be determined with certainty." --- (AMZN, press release, 2024/05/22)

"The adverse scenarios incorporate more punitive macroeconomic factors than the central case assumptions provided in the table below, resulting in a weighted average U.S. unemployment rate peaking at 5.3% in the second quarter of 2025, and a weighted average U.S. real GDP level that is 2.1% lower than the central case at the end of the fourth quarter of 2025." --- (JPM, sec filing, 2024/Q2)

"Aggregate demand for our software, services, and devices is also correlated to global macroeconomic and geopolitical factors, which remain dynamic." --- (MSFT, sec filing, 2024/Q4)

"After that, we'll open the call to questions from analysts. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including, without limitation, those regarding revenue, gross margin, operating expenses, other income and expense, taxes, capital allocation, and future business outlook including the potential impact of macroeconomic conditions on the company's business and results of operations." --- (AAPL, earning call, 2024/Q3)

"While contending with these macroeconomic challenges, small business owners remain optimistic, with 93% feeling hopeful about the state of the economy." --- (AMZN, press release, 2024/05/01)

Importance of Staying the Course

Staying the course in long-term investment strategies is crucial, as highlighted by executives from Berkshire Hathaway, Johnson & Johnson, Microsoft, and Google. They emphasize maintaining stability, avoiding overextension, confidently investing in future growth, and staying mission-focused during dynamic times to ensure long-term success.

"They need to go up a lot, and we keep increasing prices and hope we stay above the ahead of the curve." --- (BRK.B, AGM, 2024/05/04)

"That's a very important factor. If you stretch too far, that can be challenging." --- (JNJ, conference, 2024/05/15)

"It's important because we've been the leader for this decade of the cloud transition, and it's important for us to confidently invest to do that in the second wave, building on our success in the first." --- (MSFT, earning call, 2024/Q3)

"As a company, it's so important that we stay focused on that mission during a dynamic time like this. I recently sent an email to the company reemphasizing the importance of being mission first." --- (GOOG, event transcript, 2024/06/07)

"And then of course, and then we'll obviously have our continue to always put excess cash in the safest investment there is in U. S. Treasuries knowing we want to maintain that fortress of a balance sheet for two reasons." --- (BRK.B, AGM, 2024/05/04)