Stay Focused on the Long Term
When stocks suffer a significant decline in near-term earnings or cash flows, not unlike the current period, investors may instinctively worry about whether they should sell. However, cash flow modeling demonstrates why you may want to hold on to a quality portfolio for the long term.​
Short-Term Changes May Have Small Impact on Long-Term Value​​​​​​

  • The chart above demonstrates that a hypothetical investment whose earnings or cash flows decline 40% in the first year may not see a large reduction in value over a long-term time horizon.

  • This scenario could potentially play out this year, as earnings in 1H20 are under significant stress for many companies. In our view, this data shows that focusing on high-quality companies—ones that we believe have durable business models that produce stable long-term cash flows in the long run and have strong management teams, competitive advantages and innovative products—may overcome short-term earnings or cash flow stress.

  • While a significant decline in aggregate earnings can be scary and potentially move stock prices violently, we believe that a portfolio of strong companies may retain its value over time as the market recognizes the stability of companies’ cash flows in the long term.​

The views expressed are the views of Fred Alger Management, LLC as of May 2020. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by Fred Alger Management, LLC. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.

This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund shares.

Risk Disclosure: Investing in the stock market involves certain risks, and may not be suitable for all investors. Growth stocks tend to be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments.​

Fred Alger & Company, LLC 360 Park Avenue South, New York, NY 10010 / 800.305.8547 (Retail) / 212.806.8869 (Institutional) ​