What Now?

Stock markets throughout the world were rocked on Monday, reacting to the downgrade of sovereign debt of the U.S. by Standard and Poors. A step back for a broader perspective seems in order.

First, the downgrade of our debt is a reflection of the disturbing fiscal trends in the U.S. and is not an economic event per se. Second, this is not September 2008. With all our faults, the financial system is stronger now . Third, remember that the U.S. equity market is up almost 70% from the March 2009 low.

We like things to make sense-to square- with our version of reality. Sometimes they don't. No one knows what will happen today or next week. If we are investing for purposes years into the future then we should act accordingly. We are far more concerned with long term financial planning outcomes than short term investment returns.

Markets do what they do...they fluctuate. Sometimes they overshoot but in the end they are driven by the profits and prospects of the underlying companies. The grand majority of firms have beaten their profit estimates recently despite the tepid economic environment. These factors will have far more to do with stock returns next year and the year after that than our present turmoil.

Remain focused on your longer term objectives and less on the minute to minute gyrations of the markets or the political pundits. Thinking that you can get out of the market and then back in at the "right time" is the amplification of our media drenched mindset. Trying to to this is a fools game. Remember, you haven't "lost" anything until and unless you actually sell. If you have been in since the March 09 bottom you have profited nicely. There will be more ahead.