Debt Ceiling

What to do

Don't do anything.  Many of you have probably seen your portfolio values drop drastically over the last month and are wondering whether or not you should make changes.  Many investors are putting their money in cash or shifting their assets into more stable market sectors.  While this strategy of moving your money into less volatile places may make you sleep better at night, it is not the best way to manage your portfolio.  Of course the advice above only applies to long term investors who do not need their money anytime soon.  If you are a short term investor trying to make a quick buck, you've probably learned that investing in stocks is like swimming in the middle of the ocean, you're helpless to the forces of the market.

Is the United States going to collapse on August 2nd?

No.  Although CNN, CNBC, and Fox News make it seem like August 2nd is Judgement Day, its not.  Sure, the market might drop a little bit, but in the long run the United States is going to be fine.  A more important point is to not think with such a macro lens and to think with more of a micro lens.  I commonly see people pull their money out of the markets if poor housing data or job data is released, but does this even make sense?  You have to ask yourself how all the economic data actually tangibly affects the individual stocks in your portfolio.  For example, if the United States doesn't get the debt ceiling raised by August 2nd, how much is that really going to affect the amount of coffee Green Mountain Coffee Roasters sells over the next 5-10 years?  How much is it going to affect how many surgical machines are purchased from MAKO Surgical?  Not very much at all.

Investor Psychology

When the news stations are claiming that the world is going to end and your portfolio value is dropping, your natural inclination is to act; well, your natural inclination is wrong.  This is the very reason why the average investor has an average annual return of less than 2% compared to the S&P 500's 10%.  Don't sell if you're in it for the long run.  Believe in the stocks in your portfolio.  

More Stock Picks

I believe that the recent market downturn has created some pretty attractive investment opportunities.  Stay tuned as a couple stock picks will be coming soon.