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6 Things To Do While The World Ends

Rather than panic, follow these tips to pass the time wisely while Congress gets its act together and approves a buyout package.

By Fred W. Frailey, Editor, Kiplinger's Personal Finance

September 29, 2008

While Nancy Pelosi is blaming our financial meltdown on Republicans, and Republicans are getting even by voting down the $700-billion stabilization plan -- and while panicked investors react to the congressional backstabbing by sending the Dow Jones industrial average down a frightening 778 points -- I get an e-mail from my friend Clayton.

Clayton is about to retire. He lives in a small city in the South and figures he could live comfortably the rest of his life on his savings, which are mostly in the stock market. Now Clayton is beside himself that his savings are being set afire by the dithering politicians.

He asks me what to do -- sell everything is his preferred course of action. The way stocks of good companies were being thrown out the window on September 29, a lot of people felt the same way. Maybe you are one of those who also think the world is ending.

I agree -- it's hell to sit still while the world ends. So I am going to suggest six things you can do, right now. Sensible things. Constructive things. You'll stay busy and time will pass faster. By the time you've finished these six tasks, I predict, Ms. Pelosi and the House Republicans will have resolved to behave better and passed the legislation.

When the Senate does the same and this buyout plan is signed into law, we'll all feel much better. It may even solve a problem or two. So here's what to do.

First, do anything, but do not look at your investment-account balances. What you see would just upset you. Take a long walk instead. The thing is, now is not the time to lose your cool completely and sell assets that you thought were good investments a week ago. They undoubtedly still are good investments.

Second, if you ignore my first suggestion and look at your account balances anyway, you may discover that you are not fully invested. Maybe there's some cash in your accounts. Cash gives you several options. One of them is to make a lot of money in a really safe investment, like a money-market fund.

When the Reserve Fund, the nation's first money fund, "broke the buck" two weeks ago and repriced its shares at 97 cents instead of the usual $1, institutional investors in particular began a run on money funds. To stop mass redemptions, the government took the unusual step of offering temporary insurance for assets in money-market funds, including tax-free MMFs. (Fund companies have the option of buying this insurance, which only applies to assets in MMFs as of September 19, 2008.) As I write this, Alpine Municipal Money Market Fund (symbol AMUXX) is showing a seven-day annualized yield of 6.51%. For someone in the 35% federal tax bracket, that's the same as a 10% taxable yield. Ladies and gentlemen, I've never seen low-hanging fruit of this sort. Alpine says it is considering buying insurance on this fund.

Third, maybe you looked at those account balances and are outraged -- yes, made madder than hell at the disrespect other investors are showing the great companies whose stocks you own. That's exactly how I felt. The first thing I did on September 29 was sell a stock that had barely budged that day but that I had no great feeling for anymore, to raise more cash. Then I used some of that cash to double up on two stocks -- one a bank, the other an energy provider -- that had been beaten to a pulp. But I held some cash in reserve, because there's always tomorrow.

Fourth, maybe you looked at those account balances and found cash on hand, but you don't like the idea of 10% money-market returns or doubling up on stocks you already own. Maybe you're one of those people who smell an opportunity to own new positions in really good stocks at bargain prices. If so, you don't need to read the rest of this commentary because you don't really believe the world is ending, do you?

I note that Microsoft (MSFT) lost almost 9% of its market value on September 29, closing at $25.01. In other words, you are being offered this stock at a 9% discount to its already discounted price. This is a company that accumulates tens of billions of dollars a year in cash, which it throws back at shareholders in the form of higher dividends and larger stock buybacks. What's not to like about that?

International Business Machines (IBM) saw its price decline $5 a share, to $114.46. That's less than 15 times its earnings the past 12 months. The mighty Burlington Northern Santa Fe (BNI) took a 7% hit, to $91.04 (disclosure: I own shares of this railway). Great companies are on sale! Perhaps you should be a buyer.

Fifth, get a haircut or a manicure. By the time you get there, get it done and get back, you'll have killed at least an hour. You'll look better. You'll feel better. All the more time for Ms. Pelosi and the House Republicans to reconsider their actions.

Look, it burns me up, too, that we taxpayers are risking $700 billion to undo the poor judgments of the mortgage lenders and investment bankers whose excessive greed got us into this fix. But we've got to get the rotten fruit out of our financial orchard or we'll be in an even worse fix tomorrow and the day after and the day after.

Which leads to my sixth suggestion: Think nice thoughts. Think of trout jumping in a stream. Think of the last really great meal you've eaten. Think of the thousands (more likely, tens of thousands) of investment bankers and mortgage brokers who are out of work today, and of how our country is so much safer as a result. Do anything, but don't sell your investments today, at the bottom, in a snit or a panic. My friend Clayton is holding steady. He e-mailed me just now to say he's staying the course.

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