The Secrets of Investors Who Keep Their Cool in Chaos

Call them the cooler heads. They intend to prevail.

Amid the screaming headlines and hysterical television coverage of the stock market over the last few days, we found investors who ignored the chaos. From Virginia to Iowa, Indiana to California, these investors -- who range from their 20s to their late 50s -- didn't panic and sell. In fact, while others were losing their heads Friday and Monday, some of them were picking up bargains. What's the key to their cool?

A Longer-Term View

It starts with experience. Chris Goeb, 51, a food service executive in Iowa, has been investing for 30 years. His first hard lesson came during the market crash of Oct. 19, 1987, when the Standard & Poor's 500 lost 20% of its value in a single day. "I was so stupid," he recalls. "I panicked and, after the market dropped, I moved everything into cash. It was less than $10,000, but I learned my lesson and now I never flinch at these things anymore."

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For Houston banker David Kerr, 57, it was the dot-com meltdown. "One of the counselors at the bank I was working for at the time put me into a high-tech mutual fund," he says. "When that thing crashed, I lost 80%. It wasn't much money, so it didn't hurt too bad. But I learned be careful of the herd." Kerr also ignores the news coverage: "Listening to the chatter is the wrong thing to do. It can take you off your focus."

Even Andrew Jandt, 28, took advantage of vicarious experience during a more recent meltdown. "In 2008, most of the older people I worked with had all seen the market crash in the past, and they didn't seem to worry about it, unless they were close to retirement," says Jandt, who works in the aerospace industry in southern California."I stayed in the market in 2008 and made personal sacrifices to up my contributions."

Jandt moved into a small apartment a block away from his office so he could walk to work, and talked his employer into letting him park his car -- which he's had since college -- in the company garage for free. He and his girlfriend have been cooking more often to save up cash to invest. "I'm not trying to beat the mega computers and financial engineers -- that can break you," he says. "Like Warren Buffett, I try to buy at the right price at the right time." He put several buy orders in on Monday.

Maintaining a Strategy

For other investors, calm is a consistent part of their long-term strategy. "I look to stay fully invested -- I did through the last crisis and intend to do that this time," says Gregory Pemberton, 58, a partner in an Indiana law firm. "The only move I made was at the suggestion of my broker late last week; we took some profits on three or four individual holdings we've had for a while."

Some of those stocks hit 52-week highs over the summer, and his broker suggested he pocket the gains before the shares slid further, he says. "I'm a good conservative Midwesterner, and for the most part, we just spend a lot less than we make," says Pemberton, whose latest read is "Warren Buffett Invests Like a Girl: And Why You Should Too."

Several investors bought stocks Monday, including a man we'll call Gary Lewis, a 50-year-old Midwest communications executive who asked us not to use his real name. "Every time I see panic I get excited, because that means there are opportunities out there," he says. "I'm not looking for fast money, but to grow rich slowly. I can take risks because I have another 15 or 20 years before I need the money."

Lewis maintains a list of his favorite domestic stocks that offer dividends of 4% or more, and makes sure he's ready to buy when they hit his target price. Monday, he picked up some names in the energy sector. "I never thought I could get them at my price point, but I did," he says.

A 32-year-old investor, who works in regulatory reporting in a San Francisco bank and who asked not to be named, says she maintains her cool by keeping a steady eye on her long-term goals. Her goals include buying a single-family home and creating a college fund for 2-year-old daughter. "It hurts to see my personal investment portfolio go red in just two weeks, but you have to realize we have made money in the past and will continue to," says the investor, who we'll call Sarah Lane.

She put herself through college, graduating with student loans and credit-card debt, and paid those off in five years. Then she began saving. Over the last five years, she has lived off the same paycheck, earmarking raises for her retirement fund. After the 2008 decline, Lane says she began maxing out her 401(k) contributions. "Every time everyone panics, I think of Warren Buffet's famous line: 'Be fearful when others are greedy, and [be] greedy when others are fearful,'" she says. "The last thing you want to do is sell in a panic."

Wall Street Skepticism

Goeb, who invests in stocks and mutual funds through his 401(k)plan, also views the latest downturn as a buying opportunity, adding that he would jump in if the market continued to fall this week. But he says he's become "jaded" about Wall Street, citing the rise of high-frequency trading and speculative hedge funds.

"Traders and speculators are manipulating the market," he says. "I'm in the food industry, so we look at commodities, and there's no basis of reality in supply and demand."

John Reinan, a 53-year-old Minnesota marketing executive, agrees. "I feel like the stock market now is something that operates to benefit the relative handful of hugely wealthy investors and hedge funds, and the average investor gets screwed over and over," he says.

Reinan and his spouse contribute 10% of their salaries to a target-date fund through their 401(k) plans and invest in a 529 college savings plan for their 11-year-old daughter. He has a portfolio in the mid-six figures, but with declines in 2002 and 2008, it hasn't made much progress over the last decade. He intends to stay the course, but wants to see changes that reduce speculation.

"I feel like Washington needs to rein in Wall Street like it did in the 1930s, and they don't have the guts to do it," he says. "I think a lot of activity is not about investing to build anything. It's become a game, and you need to remove some of the incentives for Wall Street to be a financial casino." Reinan favors a tax on high-speed trades, for example.

Anger at Washington

Investors were universally unhappy with the partisanship in Washington, calling the debt-ceiling law a tepid response to the nation's fiscal crisis.

"It's just really disappointing," says Kerr, who has one son in the workforce and twin sons who are scheduled to graduate from Texas A&M University this week. One of the twins is joining the Navy, and Kerr worries that the other one will face a difficult job market. "It seems like everybody is talking and blaming the other side and nothing gets done," she says. "There is a little fear that the government doesn't have the wherewithal to do much, should we get into another recession."

Watching the market collapse, Edward Lee, a 43-year-old executive recruiter in Arlington, Va., says, "I just cringe." Lee is married with two children, who are 11 and 7 years old. "Like most people, our focus is college and then retirement," he says. "We've been very frugal. We pay our bills on time and pay off our credit cards and save the extra. We're not selling anything but not [buying] either. Our concern is twofold: It's the personal, but the implications for the country are also in the back of our minds."

Lee paid his own way through law school and then joined the Marine Corps as a judge advocate after graduating in 1995. He says he used to be a more active investor, but sold his portfolio at the top in the early 2000s to finance a home purchase – "pure dumb luck" he calls it -- and now invests mainly in mutual funds.

"I think this is scarier that what happened in 2008," Lee says. "I'm apolitical: I thought Reagan was a good president, I thought Clinton was a good president. But I think we are handing off a sad country to our kids.I still have faith in the country, but I don't have faith in the political process. ... [Policymakers] need to cut out the childish stuff and focus on running the country like a good company."